Citing recent trading figures from leading global personal care producers, Fitch - an international credit rating agency headquartered in New York and London - notes that consumers’ shopping habits are moving away from premium brands to more affordable mass market products.
Lack of differentiation
“Although cyclicality is an obvious reason for the decline in demand for luxury products, as consumers trade down for a short time period before trading up again when economic conditions improve, there are also arguments for a structural shift in consumer behaviour. This is because mass market products are increasingly being perceived as offering similar benefits to luxury care products at much lower price points,” claim the authors of the report.
According to Fitch, this lack of differentiation reflects in cosmetics companies’ results and in their organic sales growth in the first half of 2009. While professional hair-care products and other luxury care products were in decline, mass-market cosmetic products showed relative dynamic growth in contrast, the agency notes.
Poor results of luxury divisions impact cosmetics giants
Fitch claims that for the six months to June 2009, L’Oréal, Beiersdorf, Estee Lauder, Shiseido and P&G’s results were affected by sales decline for their prestige beauty and personal care divisions.
In contrast, companies such as Henkel, Unilever and Avon, would benefit from their focus on affordable mass-market products and strong presence in emerging markets and recorded good organic growth in the first half of 2009.
Threats from surgical procedures
Fitch also identifies threats of substitution to high-end anti-aging products in the form of pharmaceutical-based injection fillers and potentially broader use of cosmetic laser applications. Statistics from The American Society of Plastic Surgeons showed that the number of individuals having minimally-invasive cosmetic procedures increased 5% in 2008 to reach 10.4 million in the US, with the popularity of these procedures growing in Europe as well.
Capitalising on this trend, Galderma - a joint venture between L’Oreal and Nestle - has developed a rival product to Botox, Azzalure, which received approvals from health regulators in several European countries this year.
Growth to come from emerging markets
Overall, Fitch expects growth in the global personal care sector to slow in 2009, reflecting weakened demand in developed countries, particularly as consumers may remain value and price aware. “Emerging markets represent continuing growth opportunities for traditional personal care products (about 40% of the global cosmetics market in 2008) and are expected to grow over the long-term, driven by an increase in middle-class consumer purchasing power,” Fitch claims.
