Recession watch: beauty and cosmetics

22 June 2009

LONDON/WASHINGTON: Beauty and cosmetics brands could face particularly strong challenges in the downturn as consumers cut back their spending levels, but opportunities for expansion appear to remain in fast-growing markets in Asia Pacific and Latin America.

In the first quarter of this year, Procter & Gamble reported that revenues through its beauty division fell by 9%, to $4.3bn (€3.1bn; £2.6bn), with volume shipments declining by 5%.

Among the main contributors to this trend were "market softness" in "prestige fragrances", and slowing sales in Central and Eastern Europe, the Middle East and Africa.

Retail hair care was off by "low single digits", compounded by a "high single-digit" decline in skin care revenues, and a "double-digit" slide in professional hair care.

Grooming net sales also tumbled by 16%, to $1.7bn, including a 4% reduction in organic revenues, as Gillette and Braun both suffered slowdowns, and category earnings fell 24%, to $306m.

In response, P&G has acquired The Art of Shaving, a high-end retail chain, and Zirh, a "super-premium" male grooming brand, as part of its "strategy to build the world's premier male grooming company."

Beiersdorf said sales of its beauty brand Nivea were "on a par" with the first quarter of 2008 in the opening three months of this year, but warned its luxury brand La Prairie was "especially affected" by the downturn.

Consumer sales in North America decreased by 13.3% when adjusted for currency fluctuations, with Western Europe suffering a contraction of 8%, and Eastern Europe a marginal decrease of 0.8%.

Latin America, by contrast, was up 8.6%, with the Nordic and Baltic states similarly seeing an upturn of 7.9%, and Africa and Australasia by 5.5%.

More specifically, revenues in China rose 12.2%, led by the introduction of SLEK, a new shampoo brand, in the country, and notable improvements in purchase levels of Nivea Visage and Nivea for Men.

Estée Lauder, the French cosmetics and beauty giant, saw its global revenues fall by 9.8% in Q1 on a reported basis, and by 2.2% in local currency terms.

This included shrinkages of 8.7% in the Americas and 16.8% in EMEA, figures that were only partly offset by a 3.8% upswing in Asia Pacific.

China, Hong Kong, South Korea and Australia all saw "strong double-digit growth", compared with a "mid-single decline" in Japan, the company's biggest regional market.

Overall, Estée Lauder argued the "high degree of global economic uncertainty has had a negative effect on consumer confidence, demand and spending", which will "continue to negatively affect the company's results for the remainder of fiscal 2009."

L'Oréal, by contrast, saw its total sales grow by 0.3% in the first quarter of 2009, to €4.37bn, boosted in particular by the purchase of YSL Beauté, as like-for-like sales fell by 4.3%.

The company's consumer products division saw organic sales increase by 1%, to €2.19bn, but its professional products revenue fell 5.3%, to €601m.

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Data sourced from company reports; additional content by WARC staff