The Business Of Beauty

Fashion Industry Broadcast

November 2008

Words by Tatyana Leonov

 

“The average girl would rather have beauty than brains because she knows the average man can see much better than he can think.” – anonymous. 

Beauty is hard to miss. Even six-month-old infants may be able to distinguish what makes a face attractive. Beauty is something we all recognise, something we all desire, something we all try to achieve. Though we have different ideals and vary considerably in presentation, we are able to alter our physical appearance through hairstyles, choice of clothing and beauty products – trying to achieve what we perceive to be the ideal.

The global beauty business is highly complex. Dynamic and constantly changing to meet people’s demands it is a thriving, entity. What was once small-scale businesses selling products in locally has now become a globalised – a mass-produced product, a way of life.

In a broad sense, the beauty industry includes products for personal hygiene, as well as ones to improve skin and make it look attractive. It includes a wide range of goods such as cosmetics, perfumes, toiletries, natural medicines, prescription and over-the-counter medicines. In the past, the industry was divided into smaller more specific categories, such as toiletries, cosmetics and fragrances, but in recent years the beauty industry has been treated as one single entity that encompasses all these categories.

The modern beauty industry emerged in the second half of the 19th century. Globalisation, industrialisation, and changing values were catalysts for the birth of the industry as we know it. Higher incomes meant people had money to spend. Urbanisation heightened concerns about hygiene and disease, while changing diets increased health concerns, opening up doors for a plethora of products waiting to be created.

And they were. As people’s desires grew, so too did the availability and choice of products. When people wanted to have nice skin, skin products were created. When people wanted to have darker eyelashes, mascara was created and when they wanted to swim with dark eyelashes, they invented waterproof mascara. Of course consumer preference varied across global disparities. People of different ethnicities desired different things.

In the sixties, Japanese women hardly used fragrances, but were very interested in clear, healthy and white skin, so skin products with whitening agents were a great selling point. During that same time period, a quarter of the French market were using fragrances, yet their deodorant use was low, while 86 percent of American girls between the ages of 14 to 17 were using lipstick.

Market research is vital for the success of any company and can be viewed as the foundation of marketing. People have different tastes and ideas of what they want and are willing to spend varying amounts of money. Keeping abreast of the trends is a critical component of any industry. As preference patterns emerged in different countries, beauty companies were able to match wants and create products with specific targets in mind.

Variations in habit and desire, still drive the beauty market today. Products can be reformulated for people in different countries for reasons such as variance in skin tone, health, diet and climate. Though preference for particular products varies from country to country, people’s desire to look good, smell nice and have clear skin is universal.

A brands success depends on people’s desire to own and use the products, as well as how it is presented to the public. Marketing plays a vital role in the way a brand is advertised, in the way it is perceived, and in the way the public react to it. Over the last decade or so celebrities have become spokespeople for beauty products. Brands associated with celebrities, particularly hair and makeup brands are received well in Australia, and many other countries. Think Penélope Cruz and the current L’Oréal ad for the new blush minerals. Or Sarah Jessica Parker and Garnier Nutrisse. Or Drew Barrymore and Covergirl. In March of this year Australia’s own Elle Macpherson signed up to be the global brand spokesperson for the cosmetic giant Revlon. Alongside Jessica Alba and Halle Berry, she is one of the faces now associated with the brand. “Revlon is an iconic brand, bringing high quality products to women around the world,” she says of her new gig.

The public looks up to celebrities as brand ambassadors. Having someone they admire represent a brand may encourage them to purchase a particular product, or even to stick to a particular brand. “Elle’s special qualities as a businesswoman, beautiful and talented model, actress and mother represent the essence of the Revlon brand,” explains Revlon’s president David Kennedy. By using celebrities for advertising and representing a brand the beauty industry have created an ideal. This ideal woman (and now also more commonly man) has flawless skin, regardless of age or ethnicity. What makes her this way? Beauty products!

Future growth of Australian beauty products will take place in two main areas: haircare and skincare. The professional haircare segment is the biggest in Australia, accounting for 24 percent of retail sales. In the US, haircare products have the highest sale volume of all non-food items.

Globally, L’Oréal stands out as one of the leading marketers. L’Oréal started in 1907 when a young French chemist called Eugène Schueller created an innovative formula of hair dye and named it Auréole. It is now the world’s largest beauty and cosmetics company, and employs 63,000 people worldwide. Incorporated in 1962 it manufactures makeup, perfume, hair and skincare items. It markets 19 global cosmetics brands under four different product ranges ­– the Consumer products range, Professional products range, Luxury products range and the Active cosmetics segment. With reference to haircare, L’Oréal has bought Redken (1993), Matrix (2000), SoftSheen (1998), Carson (2000), and Artec (2002).

Procter & Gamble has also expanded its haircare portfolio with two relatively recent substantial moves. It bought Clairol from Bristol-Myers Squibb in 2001, and then acquired Wella in a multibillion-dollar deal that closed in 2003. This acquisition enhanced their presence in the haircare industry globally and brought Procter & Gamble back into the spotlight. In the last decade, their beauty sales, which includes brands like Pantene and Head & Shoulders, have more than doubled.

Australia’s skincare market is valued at US$342 million (2006) and is another area in which significant future growth is foreseen. The Australian climate can be harsh, and there is intense sun exposure. People are now interested in products that not only alter the skins appearance but also preserve and protect the skin. Foundations may now be SPF15, skin firmers and moisturisers may also be sunscreens. It is more common now to find products that are multi-functional.

Today’s society is constantly on the move and having one product that does the job of two or three is becoming an attractive option. Colour palettes for quick touch-ups are becoming common. These multi-purpose products are for use on cheeks, eyes and lips and are received well by busy working women.

Men’s skincare products are also gaining popularity. Since the birth of the ‘metrosexual’ sales have boomed worldwide. Over the last few years beauty companies have identified men as a sales growth driving opportunity, and this new and exciting sector has emerged as a multi-million dollar business. Key targets within this particular market segment includes teens (reflecting in part the fact that the population of 15 to 24 year old males will increase by over 10 percent by 2010) and the baby boomers who are now starting to drift into the seniors or over fifties category (and who will be targeted with products such as anti-ageing skincare products and hair colouring products).

In March 2004, Procter & Gamble announced an exclusive licensing agreement with OT OverTime to market a line of personal care products developed for tweenies and teenage boys, while in 2005 L’Oréal Paris introduced it’s first comprehensive men’s anti-ageing line. Appropriately named Men Expert, the line included eight different products designed to address the needs of an ageing male. L’Oréal projects that by 2025, 41.5 percent of all the people in Europe, the US and Japan will be over 50 (compared with 34 percent in 2005). Baby boomers are particularly relevant for the industry as they represent a sizeable and growing consumer market. Their increased interest in appearance and high level of disposable income means the market for anti-ageing products is expected to enjoy strong growth. 

The colour cosmetics sector is another foreseeable growth area in Australia. The colour cosmetic market is fashion focused and consumers follow the styles set by celebrities and fashion icons. These colours are seen on the catwalk and throughout modern media and supported by advertising and marketing campaigns. The market for colour cosmetics in Australia is estimated to be worth US$657 million (2007) and is expected to grow at five percent per annum. This will be influenced by a number of factors, including the average price of cosmetics increasing as peoples desire to own premium products grows, the lip-gloss and colour palette market expanding and a continuing demand for skin enhancing products. Lip-gloss accounts for 14 percent of colour cosmetic imports into Australia.

Australia’s major sources of imports are the United States (38 percent), France (19 percent), the United Kingdom (11 percent) and Germany (four percent). Even though most products in cosmetics are regulated, there are many health concerns about harmful chemicals found in certain products. Once a niche market, certified organic and natural products are becoming more mainstream. Australia has a long history of using natural and organic ingredients, and this is now becoming a global trend with countries such as the US and many European countries adopting a more organic approach. However, under new Natural Organic Standards only products that contain 70 percent organic materials may be labeled organic.

Australia is expanding it’s portfolio of brands and artists internationally. Many Australian cosmetic companies showcase their products at the annual Cosmoprof trade shows in Italy and Asia. The Australian Trade Commission recently launched the ‘Discover the Beauty of Australia’ trade initiative to introduce America to Australia’s beauty products. The goal was to generate more export sales through targeting American retailers and beauty journalists. This was done through promotion and distribution of products from the 10 companies participating in the first campaign.        

In terms of exports, Australia’s cosmetics and toiletries industry has grown significantly during the past two decades and more than 200 Australian companies already export their products. These include Jurlique, The Natural Source, The Ward Group, Cat Media, Laderma Lifeforce Pty Ltd, Becca, Bloom, Napoleon Perdis and Aesop. In 1986, exports were worth just US$23 million, compared with US$269 million in 2005-06. The cosmetics and toiletries market in Australia is valued at US$1.080 billion (2006) and is set to grow. Major export markets are New Zealand (44 percent of exports in 2005-2006), the US (11 percent), the UK (eight percent), Hong Kong (six percent) and Singapore (five percent). Beauty salons and spas are also a growing trend worldwide and Australian companies are also successfully exporting in this area. There is currently a huge pull towards the Australian beauty market. Australia as a whole is becoming an attractive choice for all kinds of products including fashion, food and wine.

The Australian beauty industry is comprised of four retail sectors: pharmacies, specialist retailers, department stores, and supermarkets. Department stores, such as Myer and David Jones are continually revamping their beauty halls. They are also forming more relationships with various brands ­– both national and international, and are always introducing new products to attract more consumers and improve the experience of shopping in outlets where concepts, such as those pioneered by Mecca Cosmetica, are on offer. In addition, the specialist market of independent perfumeries has really taken off. Another factor is that recently the steady growth of market share in supermarkets has stimulated a significant trend. More supermarkets are popping up everywhere. Also more shelf space is being made available for beauty products. The more access there is to products, the more people will buy.  

Though times are tough now with high interest rates, sparse rental availability, and rise in fuel prices, people continue to shop. Industry experts say cosmetics are ‘recession-proof.’ This effect is known as the ‘lipstick indicator’ – a term originated by Leonard Lauder, chairman of the Estée Lauder Group, after the 9/11 attacks when lipstick sales doubled. The theory is, that when times get tough people seek comfort in items that make them feel good. David Jones chief executive Mark McInnes believes the store’s cosmetics category will to grow, despite predicting a slowdown in other departments. He says cosmetics are the only category that is ‘completely downturn-proof’.

Jo-Anne Mason, director of leading beauty industry analyst BU Australasia, explains, “Despite the downturn, there is a commonly held belief that cosmetics do well in tough times, because if we can’t afford the big things then we’ll spoil ourselves with little luxuries.” Despite lower consumer spending the beauty sector is booming. At the end of the day, everybody wants to look good.