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BEAUTY CARE
INDUSTRY
Jason M. Gere, Analyst (212) 557-1227
Adam Krop, Associate Analyst (212) 557-2507
Initiating Coverage of
The Beauty Care Industry
Beauty Care represents the fastest growing
segment within the household & personal
products industry.
Despite increased competition, we believe at
least mid-single-digit sales growth should
continue over the next five years, owing to
further geographic expansion, strong
innovation and growth in alternative channels.
Initiating coverage of two pure play beauty care
companies with Avon Products (AVP, rated
Buy/Aggressive) and Estee Lauder (EL, rated
Hold/Conservative).
Beauty Industry Overview
Beauty Care Represents The Fastest Growing Segment
Within The Household and Personal Products Industry.
With approximately $125 billion in 2005 retail sales across
the hair care, skin care, make up and fragrance categories,
global Beauty Care is one of the largest and faster growing
segments within the personal care, household product
and cosmetics industry today. See Figure 1 for Beauty
Care category sizes. Sales are generated somewhat
evenly between the “Prestige” (department store, specialty
retailing) and Food, Drug and Mass “FDM” (supermarkets,
pharmacies, mass retail) channels, but are still more heavily
concentrated toward developed markets such as Western
Europe, U.S. and Japan, even though sales growth is faster in
underpenetrated and fragmented developing and emerging
markets such as Brazil, China, Mexico and Russia.
According to Datamonitor, beauty care sales grew in the
low- to mid-single (+4%) digit range from 2002-2005, driven
by low-single-digit growth in developed markets but faster
high-single-digit growth in the developing and emerging
markets. Growth in the highly populated and competitive
developed markets has been driven by strong value-added
innovation (anti-aging for skin care) and supported by
increased levels of marketing spending. On the other hand,
the very fragmented developing and emerging markets are
ripe for growth, owing to stronger economies and per capita
consumption and a new founded demand for beauty
products. Taking advantage of this, larger multinational
consumer products companies (such as L’Oreal, Procter &
Gamble, Avon Products and Estee Lauder) have been
aggressive with geographic expansion in recent years.
Within the four main product categories that comprise the
Beauty Care industry, Hair Care, with $35 billion in 2005
sales and predominantly sold in food, drug and mass
outlets, is the largest (28% of industry sales) and has been
growing 3%-4% since 2002. While over 40% of sales are
earned in the European region, stronger growth has been
coming from the Americas region (Latin American driven).
Procter & Gamble is the global hair care market leader, with
twice the share of Unilever and L’Oreal, according to
Datamonitor. Skin Care, with approximately $31 billion in
2005 industry sales, has been growing over 4% over the
same period behind strong innovation (differentiated
products) and strong customer brand awareness. Sales are
also predominantly European weighted (with slightly better
growth than Americas and Asia Pacific) but are split rather
evenly between Prestige and FDM channels worldwide,
with direct selling adding some. Fragrance also generated
approximately $31 billion in 2005 annual sales, mainly in
prestige channels but has experienced the lowest sales
growth of the four categories, due in part to a lack of brand
loyalty/fragmentation versus other beauty care categories.
Category sales are overweighted toward the softer growing
European and Americas markets, where Coty is
the market leader, but better growth has been generated
out of Asia Pacific in recent years. With $28 billion in
estimated sales, Make-Up is the smallest of the four Beauty
Care categories but growing the fastest at 5% per annum,
driven by sophisticated customer awareness and value
added service at counters. Sales are more Prestige
channel weighted than FDM but Direct Selling accounts for
a meaningful portion of category sales. L’Oreal is the
market leader, with more than twice the share of PG and
Revlon. See Figures 2 and 3 for category growth rates and
distribution channels.
While Datamonitor 2006 sales are not yet available, by our
calculation, major beauty care players delivered stronger
mid- to high-single-digit sales growth last year, which came
across both FDM and some Prestige channels (Louis
Vuitton’s Specialty retail division which includes Sephora
and DFS grew high single digits in 2006 after strong low
double digit trends in 2005). Believing solid innovation
and geographic expansion remain in play, we are
comfortable that Beauty Care industry sales should
continue to grow at least mid-single digits over the
next few years (ahead of nearly all Household Products
Companies [HPC] categories). In this Beauty Care
primer, we will analyze trends across Beauty Care
categories, markets and channels, which gives us comfort
in our mid-single digit outlook. See Figure 4 for calendar
2006 sales growth.
目录
2 Beauty Industry Overview
4 Growth Drivers
6 Distribution Channels
6 Beauty Care Category Analysis
11 Beauty Care Geographic Analysis
34 Avon Products
36 Attractive Features
39 Risks
40 Valuation
80 Estee Lauder
81 Attractive Features
83 Risks
85 Valuation
34 Avon Products: Rated Buy/Aggressive
80 Estee Lauder: Rated Hold/Conservative
All prices are as of 6/1/07 unless otherwise
noted.
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