BEAUTY’S NEW PASSAGE:
Byline: Honor Joynson
MADRAS, India — One of the world’s biggest potential fragrance and cosmetics markets — and also one of the most treacherous — is fast becoming a much easier place for beauty companies to do business.
In the past, prevailing cultural attitudes frowned on makeup for “respectable” women, and toiletries were merchandised on variety store shelves between herbs and spices and cockroach sprays.
If that didn’t discourage a Western firm, then the 120 percent duties on imported fragrances, cosmetics and toiletries usually did.
“Cosmetics have traditionally been viewed by the government and the people as unnecessary Western products that are of no use to the common man,” said Harsh Bahadur, vice president for consumer products for the eight-unit Spencer & Co. Ltd., India’s only department store group.
Spencer’s was founded in 1865 to provide household goods and food imported from Britain to homesick colonists. Hawking these items was interpreted as favoring the rich over the poor and was seen as politically incorrect by the government, Bahadur continued.
“Therefore, there had been no help in growing this sector,” he said. However, things began to improve in 1989, when a new government took economic steps to encourage consumption.
Now there are proposals to remove some of the remaining obstacles for foreign brands. For example, the 120 percent tariffs on imports have been slashed to 100 percent, and the government is widely expected to soon propose trimming them further.
Between 30 and 50 percent, the duties would be “absorbable” and would permit Western brands to sell their products at prices in line with their positioning worldwide, said Serge Guisset, who oversees India for L’Oreal’s Parfums et Beaute International division.
Consumer attitudes are changing too. Market research studies show that women are gaining more authority over purchasing decisions, and they are also now able to peruse a prestigious women’s magazine called Femina, produced in association with foreign press groups, including Marie Claire and Options of the U.K. The new publication contains regular features on beauty-related topics.
And the country is rife with potential customers. India’s population totals 850 million, and though the average per capita income is $300 per year, government sources say that around one quarter of the people are well above that figure, with 50 percent of the population below it.
According to the Bombay-based manufacturer Lakme Limited, the total Indian market for hair care products, cosmetics and fragrances is worth an estimated $325 million (10,000 million rupees), according to Mehra.
Skin care products represent about 31 percent of that total, shampoos some 23 percent and makeup 12 percent.
While the population is changing, probably the most visible change affecting the cosmetics industry is in retail. For years, the country has been afflicted by a dearth of prestige stores. Interestingly, the two most sophisticated cosmetics stores in the country — one in New Delhi and the other in Bombay — are also the best stocked, with leading Western prestige brands.
“Everything comes straight from the gray market in the U.S., Hong Kong and Europe,” L’Oreal’s Guisset said.
Elsewhere, department stores like Spencer’s and the Mota store in Bangalore sell cosmetics and toiletries jumbled together on linear shelves, with no point-of-sale materials made available. Beauty products have also been sold in tiny grocery stores.
Now, thanks to easier requirements for obtaining a retail license, a new breed of stores is springing up.
The sophisticated, three-floor Shoppers’ Stop in Bombay, opened a year ago, is the first Indian department store to be designed along the Western model and boasts more than 6,000 square feet. In response, older stores — including Spencer’s — are renovating.
Some vendors have begun negotiating their own counters in department stores, and smaller beauty salons offering cosmetics are opening up as an alternative.
Among homegrown beauty companies, Lakme is queen. Founded in 1952, Lakme is publicly traded on the Bombay stock exchange and makes a full range of fragrances, skin care products and color cosmetics.
Its strong suit is moisturizers, where it claims to have a 65 percent share of Indian business, nail polish, with 70 percent, and lipsticks, with 80 percent, according to Ajay Mehra, marketing manager.
Lakme has also opened four beauty parlors, staffed with advisers, to help pitch the company’s makeup lines.
Anticipating the arrival of Western prestige brands, Lakme earlier this year launched Orchids, a line with more sophisticated packaging and advertising and prices four times those of its main makeup line. For example, an Orchids lipstick retails for $5.80 (Rs.180), compared with $1.35 (Rs.42) for one in the regular line.
Previously, Lakme had reserved Orchids for export to Russia, Eastern Europe and the United Arab Emirates.
The recent influx of Western consumer product giants has included Unilever, Colgate Palmolive, L’Oreal, Procter & Gamble and Beiersdorf, all of which manufacture and distribute mass market toiletries in India.
In addition, L’Oreal tested the market for two years with its imported Guy Laroche scents in a few doors, taking advantage of a loophole in the Indian legislation.
The situation, no longer in effect, allowed foreign companies shipping imported goods via India to do some assembly locally, and then sell up to 25 percent of the shipment in India without paying the usual duty.
L’Oreal ended the test last year, although some products remain in stores. Another prestige vendor, Christian Dior, has managed to take advantage of an exception to the rules and avoid the heavy duties by importing products, in limited quantities, via Nepal.
But the only sizable business for Westerners until duties are lowered is in mass market goods.
As for the fragrance business, locally produced scents have never taken off, even though India is a major supplier of raw materials for the industry and Indians like fragrances.
That’s partly because of the low quality of alcohol available in India. The 340 percent tariff on alcohol imports have long made them prohibitively expensive, but those tariffs as well are expected to fall.
In shampoos, Hindustan Lever, a Unilever joint venture, is the market leader, with a 42 percent share, according to Lakme. Colgate and Lakme each have 6 percent, and the rest of the market is splintered among other Western companies and local brands.
But Unilever worked hard for its piece of the pie, said Bahadur, who was an executive at Unilever India for 12 years before joining Spencer’s. He said that the company at first had trouble selling its shampoos because they were too expensive and Indians were not convinced they should switch from multipurpose soap.
Unilever carried out a massive market research campaign, one of the first ever in the sector in India, and changed its strategy. The company introduced smaller sizes and trial packets priced at 2 rupees and launched a TV commercial that explicitly showed how to use the products.
It seems that many Indian women, who traditionally wear their hair long and dry-cut the tips, did not realize the hair needed to be wet.
A niche market also exists for higher-priced herbal skin care lines, including those by Biotechnique and Princess Shahnaz Husain. Bahadur said they were based on a nostalgia for traditional herbal products, but he argued they would remain a small part of the market.
“Most women want something new, and Western products are what seem new,” he observed.