By and and  on April 18, 2008

BOLOGNA, Italy — European beauty manufacturers are reeling from the worsening euro-dollar exchange rate imbalance, which is squeezing exports.

The severity of the problem was underscored here last week during the Cosmoprof trade fair, when it was revealed that Italian beauty exports stalled to a meager increase of only 1 percent in 2007.

“We estimated last June exports would rise 5 percent in 2007, but in the last three months of the year, we had a dramatic decline,” said Fabio Franchina, president of hair care brand Framesi and Unipro, the Italian association of cosmetics companies. “Most of the exporters are facing a major problem with the dollar situation.”

The stifling strength of the euro against the dollar was at the heart of other vexing concerns at the fair, which was held from April 10 to 14. The issue is not impacting just sales to the American market, it’s also affecting currencies that are related to the dollar in South America, the Middle East and the Far East. That issue is compounded by the fact that the Italian industry lacks heft, considering that 85 percent of companies are classified by Unipro as small or medium-size concerns. Franchina noted the dollar and euro were at parity in January 2003, but that the euro has now soared to a value of $1.59, as of Thursday afternoon.

“The dollar is killing us,” said Eric Henry, chief operating officer of Beauté Prestige International, the French subsidiary of Tokyo-based Shiseido. He noted that the problem not only affects the U.S., but in other markets in Asia, Latin America and the Middle East, whose economies are linked to the dollar.

Henry emphasized that European producers are running out of elasticity in terms of raising prices in the U.S. to offset the exchange in balance. “If we go above the limit, we lose volume,” he said, referring to his prices compared with American manufacturers. “But we have to protect margin.”

Franchina at Unipro sees the industry as having to choose between two possible courses of action: Either elevate their marketing under a “Made in Italy” banner to create a more sophisticated and competitive positioning for products, just as local producers did in the fashion, auto and design industries, or challenge the major players like L’Oréal head-on.Franchina’s preference was obvious.

“If we can be a leader in a [higher] niche, we can survive,” he said, adding that to fight “on a larger level” is a nonstarter. The task is daunting, given that the size of the entire Italian beauty industry stood at 8.26 billion euros, or $11.3 billion, for 2007, a fraction of L’Oréal’s turnover alone of 17.06 billion euros, or $23.38 billion.

Earlier during a presentation, Franchina outlined the Italian beauty industry’s retail performance in the domestic market for 2007, which chalked up sales of 5.96 billion euros, or $8.16 billion, an increase of 2.3 percent year-over-year. The channels that moved ahead were pharmacies, with 8.5 percent growth; perfumeries, up 3.3 percent; beauty salons, up 2.1 percent, and hairdressers, with a 1 percent increase. On the other hand, direct sales dropped 2.1 percent.

The weakness of the Italian economy and the dollar, while not necessarily connected, were two topics on the minds of most manufacturers.

“The dollar at this level is very worrying,” said Giovanni Sgariboldi, president of Euroitalia, one of the country’s beauty manufacturing heavyweights, adding that 75 percent of his business is export. “It’s becoming a risk for profits.”

Mario Usellini, vice president and chief executive officer of fashion and fragrance house Luciano Soprani, concurred. “We’re having a lot of problems with the euro and dollar,” he said. “Our prices have risen by 40 percent. We continue to work, but we’re losing money in different countries.”

Agreed Steven Schapera, ceo and managing director of Australian makeup artist brand Becca, who was at the fair scouting for packaging for a lipstick launch slated for September, “It’s not a good incentive to drive a lot of business in the U.S.”

To continue reading this article...

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus