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When Worlds Collide

The dynamics of beauty marketing areundergoing a seismic change, as a worldwide shift in demographic forces topples the traditional balance of power.

Global beauty has entered a decade of profound change.

A worldwide shift in demographic forces has turned the age-old notion of marketing to the affl uent middle on its head. The once homogeneous world of big-time beauty marketing is being pulled apart not only by a painful contrast between the recession-plagued countries of the West and those in the vibrant East, but also by the widening gap between graying Baby Boomer markets on one hand and the youth-fueled ascendant societies on the other. The old are getting older and the young are getting younger, a dynamic that will reshape the world of beauty as early as 2020.

“We are in for some major shifts that are going to happen in the beauty business in the next 10 years,” says William Lauder, chairman of the Estée Lauder Cos. Some changes are just happening now and others are accelerating, he notes, pinpointing two factors—“the ascendancy of Asia and the aging of the population in the West.” As a result, Lauder has detected “an increasing shift away from fragrance and a move into skin care” when he looks at the global picture. “We’ve seen consistent declines in the fragrance business in North America and Europe in the last 10 years,” Lauder says, noting there has been a corresponding rise in the skin care business, “especially in the European pharmacy business.” He adds that Europe is still heavily into fragrance, but there are signs that skin care is ascending. Likewise, North America remains the second- largest beauty market, but China is the fastest growing.

Asked how the concentration of business may shift—given the current growth patterns—Lauder replies that ultimately, “Total Asia could be equal in size to the Western Hemisphere.”

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That would shatter the long-standing hegemony of Western Europe and North America.

“In 100 years, L’Oréal has grown to number one, with growth mainly driven by countries with limited populations,” said Jean-Paul Agon, chief executive officer of L’Oréal, during a financial analyst meeting at the company’s headquarters in Clichy, a Paris suburb. “The big switch is that you’ve got hugely populated countries like China, India and Brazil that are going to have access to these products. So the change is that we’re going to have a much larger consumer pool. We’re not going to double our sales. But this is a major change, and it’s a change in focus, as well.”

Equally as important as the geographic forces that are reshaping the business are the demographic forces. The driving agents of change have been widely trumpeted as 78 million American Baby Boomers, or 13 percent of the U.S. population, who start turning 65 this year. Meanwhile, Western Europe is showing even more strains of age, considering that the birth rate in the European Union was almost two times lower than in the U.S., as of 2006. In the four years previous to that date, the number of people over the age of 65 grew 8.9 percent while the number of people 14 and younger shrank by 4.4 percent in the EU’s 26 countries, not counting the U.K., according to Eurostat. The situation is more dire in Japan, the most gray-headed country. One report predicted that by the year 2030, 31.8 percent of the country’s population will be composed of people 65 and older, while only 9.7 percent will be 14 and younger.

A mirror image of this portrait of gray is provided by most of the BRIC countries, or Brazil, Russia, India and China, and the even more youthful up-andcomers of the N11, or Next Eleven, group. China, the largest, with an estimated population of 1.33 billion, boasts more young people (19.8 percent of the total) than old (8.1 percent). In India, the split is 30.5 percent versus 5.2 percent; in Brazil, 26.7 percent versus 6.4 percent. Only Russia is showing its age, with the two demographic groups similar in size and a median age of 38.5 years, nearly two years older than the U.S.

With the exception of South Korea, 10 of the N11 countries—Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam—all have median ages below 30, according to the C.I.A.’s The World Factbook. “Globally, the world population is getting older,” says Karen Grant, vice president and global industry analyst of The NPD Group. “By 2020, slightly less than half the world population is projected to be under the age of 30. At the same time, over 400 million people will be added to the ranks of those 60 and older. Those two dynamics will affect all regions.”

Another key dynamic is the increasing urbanization of the world. “The population shift from rural to urban is a huge increase,” says Gina Drosos, group president, global female beauty, of P&G Beauty & Grooming. “A 25 percent increase in urban living is predicted by 2020 versus where we are today. Over the last five years, six of the 10 biggest cities have added six million people each. Those cities are in South Asia and Africa—not the U.S. or Western Europe.”

The implications of all this are immense. Vasso Petrou, P&G Beauty & Grooming trends director, estimates the size of the global personal care market at $350 billion in retail sales. “In the next decade, that could easily double,” she says.

The demographic dynamic is also a magnet for a wide array of speculation from not only industry executives, but trend forecasters, futurists and academic experts in universities, as well. The aging phenomenon is a rich vein to be mined, just as the explosion of the youth cultures and the rapidly forming middle class in the emerging markets are creating new worlds of opportunity.

A number of experts singled out men’s grooming as ripe for the picking. “The underlying theme is that the men’s market is growing at a faster rate than the women’s,” says Chris Sanderson, strategy and insight director at The Future Laboratory in London.

Grant calls men’s toiletries “the largest underdeveloped opportunity in the market,” and Petrou of P&G agrees.

“We think it’s going to explode in the years to come,” she says. “The men’s grooming market is where women’s was 20 years ago.”

There’s a medical reason for the trend. Men are living longer because they’ve been giving up smoking, eating right and exercising more—hence less cardiovascular disease. “With an increased number of men, it becomes more of a market,” says Laurie Jacobs, M.D., vice chairman of the department of medicine at the Albert Einstein College of Medicine & Montefi ore Medical Center.

Beyond men, the aging process creates myriad opportunities for beauty marketers, says Jacobs, who is also director of the Resnick Gerontology Center. There are two main groups within the gray-headed set, she explains—the “old olds of those age 80 and older, which is the faster-growing group because people are now living longer, and the 65- to 80-year-olds, which will soon be populated by Baby Boomers.”

Jacobs points out the Boomers came of age during the counterculture era and many of them were lukewarm about wearing makeup. The older folks, however, are products of the Depression and World War II, and grew up appreciating beauty products. “Those over 80 are more socialized about wearing makeup,” she says, “than people my age.”

However, even the Boomers are being drawn to skin care products with the onset of wrinkles and skin spots caused by decades of UV damage and cigarette smoking. Jacobs also predicts that the graying Woodstock generation will exert an oversize influence on attitudes about old age. “As they age, they will change how we view aging,” she says. The sight of gray hair will be acceptable and ideas about beauty held by men and women will begin to blur.

“People care about how they look at every age,” says Jacobs, quoting United Nations statistics on how the aged population will grow. In 1950, only 8 percent of the world’s population was 60 and older. By 2050, it will be 21 percent. In the U.S., only one in eight Americans was age 65 and older in 2000. By 2030, it is expected to be one in five. During the 20th century, the population of people under 65 tripled, while those ages 65 and older increased by a factor of 11.

But not everyone expects a pop in business. Carrie Mellage, director of consumer products at Kline & Co., says the Boomers have been pushing antiaging treatment sales as well as hair coloring for the last decade, but their spending may have peaked as they are approaching retirement. “They aren’t spending the way they were,” she says.

Petrou foresees the growing interest in skin care blossoming into more profound advances that fuse two mega categories—beauty and health—both bodily and psychologically. The rising tide of wellness will resonate in community movements and organizations, particularly in Japan, Korea and China, with their tradition of herbal medicines, and India, with its ayurvedic remedies. “Asia is going to be a hothouse of creativity and influence for the rest of the world,” says Petrou.

Envisioning studies of how the body performs down to the biochemical level, Petrou asks: “How can we optimize the body’s own rhythms to achieve a beauty benefit?”

Citing advances made in the last five years with skin care creams geared to work on an individual’s DNA, she predicts the day when a person can have their own genome system mapped for an affordable price of $100 or $200. That would allow consumers to buy creams suited to their own DNA.

Lionel de Benetti, the head of research and development at Groupe Clarins, agrees. His dream is to invent a skin care product that’s “intelligent enough to recognize what is needed for all types of skin. At each age,” he says, “the skin needs something different in terms of active ingredients.”

Sanderson at the Future Laboratory says the skin care train began picking up speed about five years ago when the major manufacturers began marketing highly accessibly priced treatment products that contained active ingredients. He predicts that this will continue to blossom into a host of treatments—cosmeceuticals, nutraceuticals and injectibles—that go beyond the topical cream. “We’re going to see a benefit and a boom,” he says. “Not anymore just an external application.”

Sanderson says he wouldn’t be surprised if a major player such as Procter & Gamble decided to drive into the gap in the skin care market between its own mass-priced Olay and the tony brands like La Prairie. “We feel the growth [will come] in the middle. I’m sure we’ll see a major global player develop it in the next 10 years,” he says.

On a global basis, he sees growth sprouting from seeds of opportunity, rather than a glacial shift in business from one category to another. “For the first time in history, we’ll be seeing the development on a global basis of a middle class not seen before.”

Whole new businesses might sprout from very modest seeds planted in the poorest markets. As an example, Sanderson points to “the penny markets” in places such as India, where single-use sachets of personal care products sell for well under a dollar. The major players are already on the case. L’Oréal has created sachets of some of its products for emerging markets such as the Philippines, Indonesia, Thailand and Egypt. In India, for example, a 7-ml. sachet of Garnier Fructis Shampoo & Oil has a price tag of 3 rupees, or $0.06 at current exchange.

P&G is developing products to appeal to people earning $2 a day in the developing world, with a vow to reach 1 billion new consumers by 2015. L’Oréal, which also aims to acquire 1 billion new customers, has been planting new R&D and innovation centers around the world to develop products for the local population that may be universal enough to sell elsewhere.

In January, Agon was in Mumbai announcing that the company would open its first Indian R&D center within the next two years. A facility was established in China in 2005.

“We want to find local partners to take advantage of the local activity and research capability,” says Laurent Attal, who oversees L’Oréal’s R&D and innovation divisions. The objective is to be close to the local consumer, he continues, “to be driven by the consumer insights— what are the specificities and the beauty gestures.”

For instance, in India, where there is such emphasis on the beauty of the eye, kajal is the favored product. And in China, the expertise in chemistry is “vibrant.”

Marc Menesguen, chief marketing officer of L’Oréal, says the trick to marketing in a changing world is not a question of appealing to young or old audiences, but of being sensitive enough to satisfy divergent needs.

“We have developed a very big business in Asia since the Nineties by working very hard on Asian beauty rituals, particularly for skin care and foundation,” he says. “We launched very successful whitening products like Blanc Expert, or UV protection cream like UV Expert, both on Lancôme, dedicated to Asia. We also made two acquisitions with Shu Uemura and Yu Sai, to understand better the Asian needs. We learned very interesting things that helped us in our innovation marketing in the rest of the world, in terms of new textures, new fragrances and more sophisticated formulations. To stay competitive in more mature markets like Europe or North America, a beauty brand needs to stay attractive to younger targets, because younger people are the opinion leaders of today.”

For its part, P&G is opening an innovation center in Beijing, and Lauder, too, has been investing overseas. William Lauder quotes the late and legendary speaker of the U.S. House of Representatives Tip O’Neil, who famously said, “All politics are local.” Lauder’s twist: “All business is local.” The company has been investing “heavily” in R&D facilities in Asia and China for the last five to seven years, which have already produced a half-dozen Estée Lauder brand products expressly for Asia.

That level of investment in emerging markets is a must. While the silver-haired population is a gold mine in the West, in the East, the rise of the middle class, coupled with the explosion of the youth market, is the key driver.

Consumer expert Linda Scott, who is DP World chair of entrepreneurship and innovation at the University of Oxford in England, confirms that “the population growth is in the developing nations. The growth markets will be somewhere else,” rather than North America and Western Europe, she says. That implies a need for formulating cosmetics color, textures and hair products differently.

Like all young people, the youth of new markets will be going through a period of brand experimentation. Scott, who also wrote Fresh Lipstick: Redressing Fashion and Feminism, notes that brands will have to seem fresh to these markets full of young people. Moreover, products will have to be created to satisfy local taste. For instance, Scott speculates cosmetics may have to be designed for Muslim countries that conform to the halal dietary code of using no animal products, particularly important since the Muslim population is on the rise.

As another example, she cites work she’s been doing for Avon in South Africa. “It was a challenge finding color products that were suitable,” she says, adding: “There are a lot of challenges that are ethnic and religious.”

Grant at NPD views the implications of demographic change through the prism of basic human behavior. In Europe, for instance, where two-thirds of the prestige market consists of fragrance sales, the NPD analyst expects the scent business to stay strong, because the gentrifying population is old, tradition bound and set in its ways, although skin care is making gains there. Conversely, Asia and Latin America have the youngest populations. Young people, who haven’t had enough experience to form brand loyalties yet, tend to experiment more, making those markets the most volatile. The U.S. will be trickier, Grant says, because it has the dynamics of both Europe and the Latin- Asian axis.

While the U.S. overall is aging, it is also driven by dynamics similar to Latin America and Asia, with almost half the population growth coming from the foreign born (primarily from Hispanic and Asian countries), which provides an influx of younger and ethnically diverse consumers, “creating the platform for dynamic change.”

Mellage of Kline & Co. estimates the global beauty business will grow at 4 to 6 percent annually for the next 10 years. China is expected to move into second position from its present third place behind the U.S. and Japan. Meanwhile, Russia, a $13 billion market, is projected to move from eighth to fifth place, making it the top-ranked European player.

Latin America, which is the fastest-growing region globally and accounts for 12.9 percent of the global pie, is expected to grow to a 16.5 percent share within five years, then edge closer to 20 percent by 2020. North America currently represents 20.4 percent, a figure expected to shrink to 17.9 percent in five years.

Europe, counting East and West, is the largest region, with a 37.3 percent share. That is expected to be shaved to 35.8 percent in fi ve years. Fast-growing Asia, which bares the burden of a sluggish Japan, now has a 25.9 percent global share. It is expected to edge up to 26.2 percent in five years, Mellage says.

Wendy Liebmann, ceo and chief shopper of WSL Strategic Retail, questions the whole notion of rebalancing product categories around the world. To her, global companies need more flexibility. Period. “This calls into question the idea of a global beauty brand,” she says, noting that a company’s mettle will be tested in regions of different taste. “In Latin countries, there is a hugely different emphasis around beauty,” she says. “The passion is for fragrance. For Asian populations, the passion is for skin care.”

The emerging economies are not the only ones gaining clout on the world stage—so is a modern consumer, armed with the power of information and access. Forget the old vertical pecking order from class to mass. “We are now talking about a flat world,” says Liebmann.

The flexibility she describes lies in a global company’s “ability to stay in touch with local markets.” It’s no longer a question of whether consumers are rich or poor, it’s whether they can fi nd the right Web site or blog. Says Liebmann: “Consumers are smart to want to take control of information and resources and not be dominated by the companies.”

The Global Demographic Shift : 5 Key Points



The Great Divide: The old are getting older and the young are getting younger, a dynamic that will reshape the world of beauty as early as 2020.

The Rise of the East: Within 10 years, experts predict the size of the Asian beauty business will equal that of the Western Hemisphere.

Growth of the Men’s Market: Men are leading healthier—and thus longer— lives. More men means more sales.

Urban Express: The number of people living in urban versus rural environments is expected to increase 25 percent by 2020.

Think Local: R&D centers in key regions around the world are key to understanding diverse population needs and fostering innovation.

The Top 10 Global Markets for Beauty & Personal Care by Retail Sales
1. United States $58.9 billion
2. Japan $40 billion
3. Brazil 28.4 billion
4. China $20.8 billion
5. Germany $17.4 billion
6. France $16.3 billion
7. United Kingdom $15.1 billion
8. Italy $12.5 billion
9. Spain $10.7 billion
10. Russia $10.4 billion
Source: Euromonitor

The Top 10 Emerging Markets for Beauty & Personal Care by Retail Sales
1. Brazil $28.4 billion
2. China $20.8 billion
3. Russia $10.4 billion
4. Mexico $7.4 billion
5. India $6 billion
6. Venezuela $5.1 billion
7. Poland $3.6 billion
8. Thailand $3.3 billion
9. Colombia $3 billion
10 Argentina $2.9 billion
Source: Euromonito

The Median Age of the Top 10 Global Markets in Beauty
1. United States 36.8
2. Japan 44.6
3. Brazil 28.9
4. China 35.2
5. Germany 44.3
6. France 39.7
7. United Kingdom 39.8
8. Italy 43.7
9 Spain 40.1
10. Russia 38.5

The Median Age of the Top 10 Emerging Markets in Beauty
1. Brazil 28.9
2. China 35.2
3. Russia 38.5
4. Mexico 26.7
5. India 25.9
6. Venezuela 25.8
7. Poland 38.2
8. Thailand 34
9. Colombia 27.6
10. Argentina 30.3

The Median Age of the N11 Countries
1. Bangladesh 22.9
2. Egypt 24
3. Indonesia 27.9
4. Iran 26.3
5. Mexico 26.7
6. Nigeria 19.1
7. Pakistan 21.2
8. Philippines 22.7
9. South Korea 37.9
10. Turkey 28.1
11. Vietnam 27.4
Source: C.I.A