EXPORTS UP, BARRIERS DOWN FOR U.S. FIRMS
Byline: JIM OSTROFF
WASHINGTON — With the Cold War’s end and the demise of Marxism, a tidal wave of economic growth has swept across much of the world, making cosmetics manufacturers among its first beneficiaries.
From Malaysia to Thailand, Poland to Argentina, the emergence of market economies and middle-class consumers enamored with American culture has triggered an unprecedented demand for U.S.-made cosmetics.
Consider the numbers. Where exports of American makeup, toiletries, fragrances, hair care and manicure products totaled $1.6 billion in 1992 on a Customs basis, $1.9 billion in 1993 and $2.2 billion the next year, these overseas sales likely will be $2.55 billion in 1995, when all data are in.
Yet, a few years hence these export numbers may seem like Seventies-era sales, given changes in foreign consumers’ lifestyles and buying power — all of which are poised to set off an export boom.
The fundamentals for this sea change are now taking shape and coalescing quickly, said Louis Santucci, the Cosmetics, Toiletry and Fragrance’s Association’s international vice president. Not only are most of the world’s developing nations jettisoning controlled economies for market-based ones, but “they now are making a commitment to international trade; realizing that foreign products and companies coming into their markets is a very good thing for their economies and consumers,” Santucci said.
Equally important, he noted that the advent of the World Trade Organization last January  has reduced import tariff barriers and many nations “are moving away from restrictive regulatory regimes, making it easier to sell cosmetics there.”
“The other key factor is that many foreign consumers now have more disposable income, they are traveling, seeing products on TV and even on the Internet — and they want to buy these cosmetics,” Santucci said.
This buying spree is not just on any cosmetics, but those identified with American culture. “These consumers are not only buying American cosmetics, but buying into what they perceive as an American lifestyle,” said consultant Allan Mottus.
“Particularly in the Pacific Rim nations,” added David Brenner, Amway’s senior vice president for marketing development, “this buying trend has come at the expense of European-made cosmetics. It’s a lifestyle thing.”
Again, the numbers tell the story, or at least part of it. In 1993, consumers in Pacific Rim nations bought about 27 percent of the $60 billion worth of cosmetics products sold worldwide. Just two years later these consumers accounted for 29 percent of a $67 billion world market, with analysts saying the market share should grow to 33-to-35 percent by 2000. Meanwhile, U.S. cosmetics firms’ share of the Pacific Rim markets grew from about 30 percent in 1993 to 33 percent last year — a trend that is expected to accelerate.
American manufacturers selling into these markets can hardly contain their glee at such developments.
“There’s been explosive growth in sales in Pacific Rim nations,” Brenner said. Amway Japan Ltd. reported the retail value of personal care products sold during its fiscal 1995 soared 21 percent to $530 million, while Amway Asia Pacific Ltd. reported these same product sales rose 9 percent to $197 million.
Landerco Inc.’s chairman and chief executive officer, Norman Auslander, said his firm’s sales of skin care and toiletries in Asian nations have jumped 40 and 50 percent since 1991, while sales of skin care products “in Eastern and Central Europe are growing by leaps and bounds every year.”
To understand this growth and the fundamentals for future expansion, industry executives maintain it’s vital to key in on cultural factors, as well as rising incomes and changed economies.
“In the Asian markets, not only do consumers look to American products, but there are lifestyle influences that affect the type of cosmetics they buy,” said Chris Condon, manager of Amway’s Artistry line.
“These consumers are focused on preventative care in all aspects of their lifestyle,” she said. “Rather than picking up on European influences, which stress corrective measures for skin care, Asian consumers are more concerned with keeping their skin attractive now, rather than trying to correct problems that already exist, or may do so later.”
Door-to-door pioneer Avon, meanwhile, has built sales of its skin care line in Asia and elsewhere by tailoring the claims and attributes of its alpha-hydroxy product to specific markets. “For example, in the Far East, our representatives emphasize that it is a skin clarifying [product], it whitens the skin,” said Lynn Emmolo, Avon’s vice president for marketing, cosmetics, toiletries and fragrances. But in Latin America, its reps stress “the anti-aging factor, which is very important in this market,” Emmolo said.
Within Central and Eastern Europe, Landerco’s Auslander reports “there’s a big emphasis on skin care products, but in this case, it’s more for warding off the effects of constant cold weather on the skin.” Consumers in these countries also are on a buying binge for “any kind of oral care product, while deodorant sales, by contrast, have not taken off,” he said.
Avon, too, has been making inroads into Eastern Europe, building on its franchise of more than 40 years in Western Europe. But in these nations with highly developed retail store structures, it takes a different tack, Emmolo said, noting Avon reps work to “develop an understanding among consumers that we have great products at an affordable price” that undercuts those in retail outlets.
Halfway around the world, industry executives note that Central and South American consumers now are especially wont to purchase shaded, powdered cosmetics due to their proclivities to make their skin look better, rather than just warding off wrinkles.
Yet, the marketing of cosmetics in developing Asian, European and Latin American markets often must be done differently than in highly industrialized ones, said consultant Mottus. “Most times, in developing nations the store structure is weak. There may not be department or specialty stores to speak of, and the culture for such shopping hasn’t yet developed,” he said. “That is why when these markets are opened, it generally is by people selling cosmetics door-to-door, which is why it’s the Avons and Amways that go there first.”
Added Amway’s Brenner: “Consumers, particularly in Asian markets, expect to receive a great deal more information about cosmetics than in a department store, and they like personal service, which is one reason why [Amway has had success] in providing these products directly to consumers.”
Avon, which sent reps door-to-door overseas beginning in 1954, has built business in the most remote areas on earth based on its original direct sales approach. “There is one person who’s known as the Amazon Lady,” a company spokeswoman said. “With no retail infrastructure and no roads, this rep gets to customers by boat day after day.”
Cosmetics giant Revlon doesn’t rely on door-to-door, or boat-to-shore, reps to bolster its sales. Instead, it has developed yet another strategy aimed at garnering a larger share of cosmetics sales in both developed and newly emerging markets. It’s termed “self-select,” and, as explained by George Fellows, Revlon’s president and chief operating officer, “it permits people in every market to buy products more efficiently, which means at lower costs,” by merchandising via mass markets.
But coupled with this, Fellows said, is an effort “to make products more consumer friendly, by allowing them not only to test products, but learn more about them based on information in the package and as part of the entire merchandising vehicle.”
This strategy is keyed into another trend that is sweeping the world: a revolution in retail formats. Even in highly developed European nations, Fellows said, hypermarkets and mass market retailers are springing up to compete both with established department and mom-and-pop stores. Similar changes are occurring in Asia and Latin America — or at least in major cities where consumer buying power is highest. Revlon has tried a variation on this strategy in India, where small-size retail stores still sell the lion’s share of consumer goods. Partnering last year with Modi Mundipharma, an Indian firm, Revlon aims to “tailor the distribution structure to get around problems; that is, to get distribution in a large number of smaller outlets in metropolitan areas throughout India,” Fellows said.
Whatever the strategies of U.S. firms, statistics chart the explosive cosmetics export growth, particularly in developing countries, whether they are served by personal sales representatives or store personnel. Among Far Eastern nations, imports of various U.S.-made skin care products have produced double-digit percentage increases in recent years.
Commerce Department data, based on manufacturers’ prices, showed Taiwan’s imports of skin care products jumped from $28.8 million in 1993 to almost $46.6 million in 1994, the last full year for which data is available. In Thailand, these sales rose from $3.9 million to $6.3 million, and in Hong Kong, from $1.7 million to almost $2.4 million, during the same two-year span.
And in Korea, import data shows something big is happening. Its imports of American skin care products inched up from $9.4 million to $9.9 million between 1993 and 1994. But in the first three quarters of 1995, these imports shot up to $16.9 million.
Meanwhile, China’s imports of these U.S. cosmetics soared from $1.5 million in 1993 to $2.7 million the next year. In Vietnam, these imports, which did not exist in 1993, totaled $41,000 in 1994, and during the first three quarters of 1995 jumped to $128,000.
Within Latin American nations, imports of U.S. skin care products climbed from $713,000 in 1993 to $1.3 million the next year. The same doubling of sales occurred in Ecuador, from $727,000 in 1993 to about $1.6 million in 1994. Elsewhere, these sales jumped in Uruguay, from $2 million to $7.3 million between 1993 and 1994; from $4.2 million to $7 million in Argentina and from $2.9 million to $4.1 million in Chile during the same period.
Brazil has seen a marked upswing in U.S. skin care imports. From $10.5 million imported in 1993, these declined to $9.1 million the next year. But for the first three quarters of 1995, imports climbed to $13.6 million.
The story is nearly the same in many of the old Soviet Bloc nations. Imports of U.S. skin care products into Hungary soared from $609,000 in 1993 to $1.2 million in 1994, and in Estonia, these imports jumped from a measly $69,000 in 1993 to $3.3 million the next year. Similarly, Poland’s imports of these cosmetics soared from $87,000 in 1993 to $1 million the next year, while U.S. skin care product imports into the Ukraine jumped from $411,000 in 1993 to $2.8 million in 1994.
Similar import gains were seen in other cosmetics lines. However, analysts caution that these statistics are only a barometer of the success of U.S. cosmetics firms’ overseas sales, since many American firms now manufacture products abroad to serve local, or regional markets. These sales are not captured by U.S. export data, indicating that in some markets, American firms are selling much more cosmetics abroad than indicated here.
Nonetheless, these data do demonstrate two trends of such magnitude as to turn the heads of any U.S. cosmetics company executive. Exports of American-brand makeup and skin care products to China are making a great leap forward. From just $980,000 worth of sales in 1992, these grew to $1.5 million the next year and to $2.9 million in 1994. Export sales of these cosmetics to China could top $4 million in 1995, when all data is in, based on partial-year sales.
Amway, which began operations in China just last April, believes this market is poised to grow exponentially, leading Brenner to predict that “within 10 years, it is possible that China could rival Japan” as one of the world’s leading markets for U.S. cosmetics.
This may take some doing, though, as Japan is experiencing its own boom in consumption of U.S. cosmetics — particularly skin care and makeup lines.
Consider the export trade stats. Sales went from $31.6 million in 1992 to $54.2 million the next year and $78.1 million in 1994. The CTFA’s Santucci believes much higher sales yet are in the offing due to several basic changes occurring in that market.
“Market forces there are changing rapidly, as the government is trying to address consumers’ demand for more easily available products,” he said. In part, this means the Japanese government is relaxing tortuous regulations that for decades made it difficult for foreign cosmetics firms to introduce new products.
Yet, for all of the hoopla over booming Far Eastern markets, the fact remains that U.S. cosmetics firms sell about one-third of their export products to Canada and Mexico — about $692 million of $2.3 billion in 1994.
Free trade agreements and the proximity of these nations largely explains this trend. Canada alone accounts for about one out of every $4 of these exports.
Mexico, though, is the key to any analysis of trade trends in this hemisphere. After its imports of U.S. cosmetics soared more than 81 percent between 1992 and 1994 to $187.4 million, they went south last year as Mexico plunged into an economic crisis.
Data for the first three quarters of 1995 indicates sales of U.S. cosmetics there plunged by one-third to one-half. For some U.S. companies, sales went into free fall.
“What happened in Mexico is called a dull thud,” Auslander said. “Our business there has nosedived. It’s off by 75 percent from what it had been before the peso devaluation.”
By contrast, Auslander noted his firm’s business throughout the rest of Latin America remains strong, which he attributed to these nations’ economic growth and the fact their economies are no longer tied so closely to Mexico’s.
Despite Mexico’s doldrums, U.S. cosmetics firms should not sour on that market, counseled Emalee G. Murphy, a Washington attorney specializing in cosmetics trade with Bryan Cave, a St. Louis-based law firm. “If I had to bet over the long term, I believe Mexico would be a bigger market for U.S. goods than Canada because it has a huge, young population, which tends to buy more cosmetics” than other age groups, Murphy said.
In addition, she noted that Commerce’s export data — which her firm collated and made available to WWD — does not reflect cosmetics sales in Mexico by U.S. firms based there. While there is no data that indicates the volume of such sales, she said many of the largest American cosmetics houses now manufacture in Mexico.
Murphy also stressed that several South American nations are growing rapidly as importers of U.S. cosmetics — especially Brazil. For example, during the first three quarters of 1995, U.S. exports of toiletries there totaled $9.8 million, up 148 percent from the same period in 1994.
Exports of U.S. hair care products to Brazil during the first three quarters of 1995 were $7.7 million, climbing 67.4 percent over comparable, year-earlier levels. Similarly, its imports of U.S. makeup and skin care products soared almost 157 percent to $13.6 million over the same span.
But such gains may be ephemeral due to other recent trade developments. Brazil, Argentina, Uruguay and Paraguay have formed a free trade alliance known as Mercosur, and it is now turning its trade focus on Europe.
“In the past, U.S. cosmetics companies with fairly sophisticated products and marketing could count on being dominant in South America, but that certainly is changing,” Murphy said.”With the [European Union] on the horizon, U.S. companies could get stiff competition there from Europe, and the potential for this market could remain nothing more than that.”