Union Jack and European Union flags in London

How Brexit, or the U.K.’s impending divorce from the European Union, will impact the beauty industry remains to be seen. But already, in the run-up to the March 29, 2019, departure date, a marked slowdown in consumption of fragrance and cosmetics was noted within the country in the second quarter, and executives are grappling with what the upshot of different possible scenarios might be.

Jean-Paul Agon, chairman and chief executive officer of L’Oréal, the world’s largest beauty company, addressed the weakening during a call with financial analysts in late July. He described the phenomenon as an issue of the market, which he called “less buoyant than it was one year ago.”

“One technical reason is that one year ago, the level of the pound was so low that many tourists were coming to London and [other] places to buy products — the global shopper —and it was not the case this year,” he said. “So the luxury market has been really down.

“But there is also a consumer sentiment in the U.K., probably linked to this Brexit story, that is not anymore what it used to be,” continued Agon. “So the market is not in great shape in the U.K., and … I am not really confident that it will improve pretty soon.”

You May Also Like

In contrast, Britain’s economy overall sped up in the second quarter. Gross domestic product grew 0.4 percent in the three months ended June, versus 0.2 percent in the first quarter of 2018, the Office for National Statistics said.

The EU is the U.K.’s main trading partner for cosmetics products. Last year, exports of such goods made 3.94 billion pounds, and imports generated 4.28 billion pounds, according to the uktradeinfo.com database.

“In 2017, the U.K.’s export of cosmetics products into the EU reached 65.7 percent of total U.K. cosmetic exports and U.K. imports from the EU, 66.8 percent of total U.K. cosmetic imports,” wrote the Cosmetic Toiletry and Perfumery Association (CTPA) in a recent report. It named the Irish Republic and Germany as the top export markets for the country.

In 2017, France, Germany and Poland comprised the U.K. cosmetics industry’s top import markets.

“It is also important to note that our second top import market is the U.S.A., as the U.K. is often the country of choice for U.S. companies to enter the EU market either via U.K. distributors acting as their chosen EU partners or to set up a European head office,” explained the CTPA.

It’s looking increasingly likely that there will be a “no-deal” Brexit, which means that by the departure date there are no official trade, diplomatic or immigration plans set between Britain and the European Union. Market research provider Euromonitor International gives no-deal Brexit 43 percent probability.

“The no-deal Brexit scenario poses a threat to the [beauty and personal care] industry in the U.K., which would incur marginal losses on the back of inflationary pressures resulting from rising labor costs and low consumer confidence depressing spending growth,” said Kseniia Galenytska, a senior analyst at Euromonitor International.

The company’s Industry Forecast Model estimates that in a no-deal Brexit scenario the business continuity plan, which is expected to be valued at $18.2 billion by 2022, would lose $161 million — or less than 1 percent of the forecast value sales.

“Premium beauty and personal care will lose most of all in such a case because it highly relies on per-capita income, and in case of a no-deal Brexit, economic uncertainty will incentivize consumers in the U.K. to restrict spending on unnecessary and expensive products,” continued Galenytska. “Additionally, the tourist spending on luxury products is expected to decelerate, as well, following [the] 2018 performance.”

“The success of our business in the U.K. relies on a tariff-free and barrier-free market, an efficient system with minimal delays and maximum efficiency for imports and exports for U.K./EU trade,” wrote the CTPA. “Being part of the Customs Union means goods can move freely between the U.K. and EU member states without the need for checks on origin of goods. Exports to the EU from countries outside the customs union are subject to rules of origin checks even if they have a Free Trade Agreement with the EU.”

The CTPA stressed, as well, the importance of the U.K. government and EU maintaining their long-standing regulatory alignment for the cosmetics sectors’ ongoing economic growth in both marketplaces.

load comments
blog comments powered by Disqus