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Abstract
Humans for time immemorial have used cosmetics, an industry dominated by a few major players. The study reviews main characteristics
of this industry and also the key players in the world marketplace. Comparative financial and SWOT analyses provide an enhanced
understanding of the industry. In addition to technology and innovations, current conditions and trends in the cosmetic industry are explored.
The study also analyzes in depth the impacts of globalization on this industry.
q 2004 Elsevier Ltd. All rights reserved.
Keywords: Cosmetic industry; Toiletry industry; Cosmetic industry analysis; SWOT analysis; Cosmeceuticals; Globalization
1. Introduction
Why study Perfume, Cosmetic and Toiletry industry?
The answer is straightforward (Perfumes, Cosmetics,
and Other Toilet Preparations, 2003). It is a significantly
vital industry not necessarily in terms of its contribution to
global GDP but by its striking influence on the colorful
social lives of humans globally. The use of cosmetics,
fragrances, and personal care products can be traced back to
ancient times as early as Egyptian, Greek, and Roman eras.
Here are some examples from history. Neanderthal man
painted his face with reds, browns, and yellows derived
from clay, mud, and arsenic. Bones were used to curl hair.
Makeup, tattoos, and adornments conveyed necessary social
information. Galen, an ancient Greek physician, invented
cold cream. The Romans used oil-based perfumes on their
bodies, in their baths and fountains, and applied them to
their weapons. Crusaders of the 13th century brought
fragrances back to Europe from the Far East. The perfumes
developed during the 16th century were powders or
gelatinous pastes. Natural perfumes were made from a
variety of ingredients containing aroma.
It will be of interest and value to get familiar with
the characteristics and background of this industry.
* Tel.: C1-651-962-4350; fax: C1-651-962-4710.
E-mail address: skumar@stthomas.edu.
0166-4972/$ - see front matter q 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.technovation.2004.07.003
2. Industry background
When people mention about the cosmetic industry, it
mostly refers to only color cosmetic or makeup segment,
which values just slightly over 18% of the whole market of
the personal care industry (Toiletries and Cosmetics:
Industry Snapshot, 2003). The structure of this industry,
in terms of product classification and using global market
size for various product families in 2001, is illustrated in
Fig. 1.
In 2001, Cosmetics (Makeup) products constituted
roughly 18% of total global market for Cosmetics,
Toiletry, and Fragrance. Table 1 reports Global Cosmetics
(Makeup) Sales trends (including compound annual growth
rates (CAGR)) during the period 19972001 in the major
regions.
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Fig. 1. Classification of industry products and global market size (total and by products) in 2001 (Source: Datamonitor (Lepir, 2003)).
3. Industry leaders
Despite the economic slowdown in the US, the largest
geographic consumer of color cosmetics, most top global
cosmetics makers are seeing positive growth. They are
embarking on a common strategy of select product
launches, core brand re-marketing, and expansion in Asia,
South America, Latin America and Eastern Europe to
sustain and increase growth.
Coming off a record-setting 2000 in both sales and profit,
LOreal SA remains the global leader in cosmetics with a
16.8% market share and 2000 gross sales of roughly $4
billion, according to Euromonitor International, a global
market research firm with offices in Chicago, London and
Singapore. Estee Lauder Company (10.9%), Procter &
Gamble Company (9.3%), Revlon Inc. (7.1%), and Avon
Products Inc. (4.7%) round out the top five. Shiseido
Company Limited (4.2%), Coty Inc. (3.3%), Kanebo
Limited (2.1%), Kose Company Limited (2%) and Chanel
S.A. (1.7%) round out the top 10. Together these producers
account for 62.1%, or $15.15 billion, of the total $24.4
billion global cosmetics market.
The balance of the top 20 global cosmetics companies
LVMH, The Body Shop PLC, Mary Kay Inc., Kao Corp.,
Yves Rocher SA, Pola Cosmetics Inc., Beiersdorf AG,
Oriflame International SA, Alticor Inc., and the Boots
Company PLCaccount for a roughly combined 11% of
market share, according to Euromonitor International.
Overall, the top 20 cosmetics producers accounted
for roughly 73% of the global marketplace. Fig. 2 illustrates the market share of various cosmetic companies.
Table 1
Global cosmetic sales (including compound annual growth rates) during 19972001 in the major regions
Region
North America
South America
Europe
Asia
Total
Sales ($ million)
1997
1998
1999
2000
2001
6,689.0
2,050.1
4,729.3
5,115.3
18,583.7
7,027.0
2,185.7
5,142.6
5,188.5
19,543.8
7,264.7
2,407.1
5,618.5
5,387.7
20,678.0
7,523.9
2,651.2
5,898.4
5,525.3
21,598.8
7,768.8
2,897.5
6,105.9
5,716.8
22,489.0
%CAGR
19972001
3.81
9.03
6.60
2.82
4.88
1265
1266
Table 2
Financial data comparison of five major players in cosmetic and toiletry industry
LOreal
Estee Lauder
Revlon
Avon
31-Dec
30-Jun
30-Jun
31-Dec
31-Dec
Fiscal year
1999
2000
2001
2000
2001
2002
2000
2001
2002
1999
2000
2001
1999
2000
2001
11,469
1,350
883
883
11,720
1,425
951
951
12,318
1,458
1,102
1,102
4,440
516
314
291
4,668
496
305
282
4,744
341
192
169
39,951
5,954
3,542
3,408
39,244
4,736
2,922
2,786
40,238
6,678
4,352
4,241
1,710
(212)
(371)
(371)
1,448
16
(130)
(130)
1,322
16
(154)
(154)
5,328
549
302
5,715
789
478
5,995
794
430
700
712
884
443
305
518
4,675
5,804
7,742
(82)
(84)
(87)
449
324
755
1.31
1.31
676.0
676.0
1.41
1.41
676.0
676.0
1.63
1.63
676.0
676.0
1.22
1.20
237.7
242.5
1.18
1.16
238.4
242.2
0.71
0.70
238.2
241.1
2.61
2.47
1,305.9
1,379.9
2.15
2.07
1,295.7
1,345.8
3.26
3.09
1,300.8
1,372.4
(7.12)
(7.12)
52.1
52.1
(2.49)
(2.49)
52.2
52.2
(2.94)
(2.94)
52.2
52.2
1.18
1.17
352.6
2.01
1.99
354.5
1.82
1.79
356.3
2,459
11,605
2,042
6,185
2,896
12,611
3,167
6,096
3,185
13,333
2,635
6,454
717
3,043
425
1,160
882
3,219
417
1,352
968
3,417
411
1,462
3,246
34,366
12,253
12,287
3,276
34,387
12,025
12,010
3,193
40,776
14,932
13,706
961
1,558
1,800
(1,015)
674
1,102
1,594
(1,107)
612
998
1,661
(1,283)
(375)
2,529
1,007
(406)
186
2,826
1,214
(216)
428
3,193
1,325
(75)
43,038
266,474
48,222
243,038
49,150
250,627
40,500
131,553
43,000
132,898
43,800
136,861
Earning data
Total revenues, $ million
Operating income, $ million
Net income, $ million
Net income to common stock,
$ million
Cash flow data
Cash flow from operating
activities, $ million
Per share data
Earnings per share: basic, $
Earnings per share: diluted, $
Shares outstanding: basic, shares
Shares outstanding: diluted, shares
Balance sheet data
Working capital, $ million
Total assets, $ million
Total debt, $ million
Stockholders equity, $ million
Per employee data
Number of employees
Revenue per employee, $
Source. Corporate annual reports (LOreal Management Report, 2003; Managements Discussion and Analysis of Financial Condition and Results of Operations, 2003; Financial Review, 2003; Annual Report
2001, 2003; Managements Discussion and Analysis, 2003).
Company
Table 3
SWOT analysis of major players and the overall cosmetic and toiletries industry
Strengths
Weaknesses
Opportunities
Threats
LOreal
(France)
Estee Lauder
(US)
Procter &
Gamble (US)
Revlon (US)
Avon (US)
Overall industry
Company
LOreal Management Report of the Board of Directors for 2001, 2003; Managements, 2003; Financial, 2003; Annual Report 2001, 2003; Managements Discussion and Analysis, 2003; Weaver, 2003;
Cosmetics and Toiletries in Europe, 2003.
1268
1269
1270
17% of the general population, are 32% more likely than the
general population to agree with this statement.
Well Beings are the natural cosmeceutical primary target
market, although it is important to remember that other
segments of the population are also buying these products at
differing rates. Research also demonstrates that natural
cosmeceutical usage is already fairly prevalent among
natural personal care users, and the next few years will show
how quickly this area will really grow.
6.3. Anti-aging
Consumers in the baby-boom generation, eager to reduce
wrinkles and smooth out other skin defects, will help drive
up US active cosmetic ingredient demand by 7.4% per year,
to $409 million by 2006. The incorporation of active
ingredients, such as plant acids and enzymes, into toiletries
and cosmetics has become a major force behind growth in
an otherwise mature industry. The fastest-growing actives
are likely to include polyhydroxy acids, which offer the
defect-fighting benefits of alpha hydroxy acids (AHA), but
cause less risk of skin irritation. Sales of sunscreens will
also be robust, growing 8.1% per year to $62 million in
2006, and more skin care products will include sunscreens
(Six Trends Guide Suppliers to Markets Attractive
Features, 2002).
The aging baby-boomer has been a major force behind
the growth of cosmeceuticals, which promise health or
physical improvement benefits beyond the merely aesthetic
effect of masking. US and Western European sales of
cosmeceutical ingredients related specifically to anti-aging
claims total about $130 million$150 million, and they
will grow 5%10%/year through 2005 in a study published
last year by Kline & Co. (Little Falls, NJ). The study reports
about $30 million per year of the anti-aging cosmeceutical
ingredient market sales comprise enzymes, coenzymes, and
proteins. International Specialty Products last year added a
range of natural proteins intended to provide moisturization
in skin care and hair care products.
The study reports sales of proteins and enzymes generate
approximately 20% of total anti-aging sales. Another 60%
of this market comprises vitamins and antioxidants, and the
remaining 20% includes botanicals or plant extracts,
including green tea extract for its phenol content and soy
derivatives for their isoflavones.
6.4. Customized cosmetics
The cosmetics industry is also boosting sales by adding
products that cater to the needs and desires of people with
particular ethnic backgrounds, skin and hair types, and
genetic characteristics. Market research firm Euromonitor
(London) claims that ethnic cosmetics and toiletries market
is driven largely by products that whiten the skin of
Asia/Pacific consumers, or address uneven skin tone, adult
acne, and hyper-pigmentation in African-Americans.
7. Impacts of globalization
Globalization means more than just being present in
many countries, it is about communicating, harmonizing the
message given to a customer, and the end-consumer
(Cooney-Curran, 2003). One important issue relates to
understanding global requirements. For example, for a US
companys product to be accepted by Japanese consumers,
that is not necessarily only an issue for its marketing
personnel in Japan, but also for its marketing personnel in
Australia, who sell to a company that sells in Japan.
Another issue is global pricing. It often returns to the
lowest common denominator. One brings in currency
fluctuations, free trade agreements, transport regulations,
transportability, freight, shipping, etc. Being global is not
a simple step. Globalization of the marketplace and
economy has been stimulated by the technology revolution, the instantaneous information flow from Korea to the
US to the UK.
Consumer goods companies have tried to focus on global
brands with a regional twist, to ensure they meet the
demands of regional trends. Most suppliers are multinational operating in a global environment. Because of that,
the nationalism of each area in the world plays a big part in
the business; the company must have people from the
country actually operate within the country. The products a
firm offers into a particular country have to be directed
toward that marketplace by local personnel.
Product managers have to integrate with sales on the
local level first to implement strategies. This is a sensible,
manageable, and, indeed, measurable way of doing it.
The most effective way of penetrating markets outside of the
US is to tie up with local personnel and account managers,
then call on the customers jointly. If a local person calls on
customers, there is a higher comfort level than somebody
coming from the US and talking in English, even though
the customer might be very well versed in English. It is a
national issue.
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8. Conclusion
References
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Approval and Promulgation of Implementation Plan; New York State
Implementation Plan Revision, 2003. US Environmental Protection
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