The latest figures show signs of a certain downturn of beauty markets. For instance, recent results published by LVMH show that the group’s organic revenue only grew by 6% on this period; half its performance of the first and second quarter (12% respectively).
Regarding the USA, latest data available from the NPD Group, a global market research company, show that the market remains sluggish. For the first half of 2008, all market segments are downward-oriented, with the exception of skincare products. However, the declines are not as strong as they were in the first quarter of the year. As far as Europe is concerned, Italian and French markets progress slowly. But NPD says that the increase of sales in value, particularly in France, hides a drastic decrease of sales in volume, with the exception of make-up.
According to the NPD Group, again, the Chinese market, on the contrary, is still progressing strongly, with a double-digit growth (from 28% to 32%) of all market segments over the first half year.
But, is there any link with the financial crisis? Or are they only, the continuation of previous trends, specific to cosmetics markets?
According to Reinold Geiger, L’Occitane’s CEO, “the financial crisis is not going to improve the situation, but it is important to note that the level of consumption has been low in Europe since several months, France included. The United Kingdom started experimenting the slowdown during the last month. Regarding the USA, we perceived the first signs of strong decrease two or three weeks ago. On the contrary, certain Asian countries are not impacted.”
“Nevertheless, we still forecast a double-digit growth of L’Occitane’s turnover in 2009,” Geiger insists. “Not at the level we were used to, but a double-digit growth anyway”. Subsequently, L’Occitane carries on its heavy investments, and Reinold Geiger confirms the opening of a hundred additional outlets next year.”
“Concerning the impact the crisis may have on the various beauty markets, Reinold Geiger explains, I tend to think the impact will be stronger on the very high-end than on the mass. Women will tend to skip the EUR 300 cream and to choose a cheaper one.”
“The most difficult issue for producers will be to find money in order to finance investments,” he concludes.
Back to basics?
According to Dario Ferrari, Intercos’ CEO, “the crisis started a long time ago. Just look at the results of our customers, as they were published during the latest weeks. As far as the financial crisis is concerned, it has not hit the real business so far. Christmas period will be the big test.”
“At the same time, he explains, we are not excessively pessimistic. Our budget for 2009, which is the mirror of our discussions with our customers, will be a growing budget. Of course, that does not prevent us from anticipating other possibilities… in particular regarding our organization”.
“In my opinion, the ‘class mass’ segment will be harshly impacted. Pure ‘mass’, and private labels, as well as prestige brands should resist,” he concludes.
“As far as Alkos’ activities are concerned, I want to remain optimistic,” explains Gérard Perevelli, President of the French group. “So far we have a healthy order backlog… even better than it was last year. Therefore, we hardly feel the crisis phenomenon.”
“It clearly appears, nevertheless, that what I name ‘superfluous cosmetics’ will be harshly impacted over the next months. It will be difficult time for those who launched products that are ‘non essential’ to women. I have in mind some marketing excesses in the perfumery or skincare segments that we have seen during the last years. Women will increasingly cut back on useless expenses. On the contrary, classical all-pencil make-up, our own segment, should resist well,” Perevelli forecasts.
Cautious packaging suppliers
According to Christophe Baudry, Director Consumer Packaging Western Europe for cardboard maker M-real, “knowing what will happen in the coming months for the packaging business is as looking into the crystal ball”.
“The corrugated cardboard segment is much more sensitive to the general economy and experts’ forecasts are much more pessimistic for this product than for flat cardboard where, so far, our manufacturing lines are fully booked and we have not received any order cancellation or decrease,” Baudry explains.
“It is true, he adds, that we are positively impacted by the announcement of the closure of Stora Enso’s manufacturing unit in Baienfurt, Germany, which had a production capacity of 225,000 tons of cardboard. When they have stopped producing, M-real will be Europe’s unrivalled leading flat cardboard producer, with regard to our market shares.Eventually, M-real has sold its Graphics division to South African group Sappi.”
“Why playing with one’s fears?”, Rudof Wurm, Heinz Glas, confirms. “Our order backlog is healthy and nothing let think that a dramatic slowdown may happen in the coming week. Of course, nobody can ever tell what will happen with the overall economic background. But, so far, orders and quotation requests are as numerous as they used to be.”
“It’s true that European glassmakers have experienced production shortages until the end of 2007 and that order delays were really long. We made important investments in order to increase our manufacturing capacity, in order to create an over-capacity and increase our flexibility fo 2008 et the coming years,” Rudolf Wurm concludes.
Stop playing with one’s fears
“It is not the end of the World and we must stop playing with one’s fears, but we cannot avoid the coming crisis,” Gérald Martines, RPC Beauté, underlines on a different mood. “It will be difficult times in the USA. And that’s exactly what has been happening for a few weeks. Concerning the European market, let’s wait and see… but the most pessimistic ones bet on a strong downturn during the first semester of 2009. Of course, it’s a difficult situation. Credit costs have tripled within a few months while our business clearly needs money, raw material and transport prices have never been so high. In a context where credit is expensive and rare, business plans must be flawless to have a chance to pass.”
To be continued…