MEXICAN DOWNTURN SHIFTS FOCUS TO PACIFIC RIM, EASTERN EUROPE
Byline: JIM OSTROFF
WASHINGTON — While U.S. cosmetics companies are grappling with a reversal of fortunes in Mexico, they continue full steam ahead in many Pacific Rim and Asian nations, where consumers’ newfound love of cosmetics is growing by leaps and bounds.
According to industry experts, prestige names are becoming more and more important for many consumers in developing countries. As a result, cosmetics sales are in a period of explosive growth in many countries.
Consumers in nations such as Malaysia, Indonesia, South Korea, Taiwan and Thailand are responsible for much of this surge, sources noted, with sales gains for beauty products in these countries typically running 50 and 60 percent ahead of Japan, long the Asian leader.
U.S. cosmetics companies sales were up 17 percent in Japan in 1994 to $241 million at wholesale, according to the Cosmetic, Toiletry and Fragrance Association.
Although starting with much smaller volumes, exports to several of the other Asian nations have soared by more than 50 percent since 1990. Sales to Taiwan, for example, $27 million in 1990, hit $60 million in 1993, an increase of 122 percent. Exports to Thailand rose 134 percent from 1990, when they were $9.4 million, to 1993, when they were $22 million.
Overall, U.S. cosmetics exports rose 18 percent in 1994 over the previous year, reaching $2 billion.
In part, this growth is fueled by the fact that many governments now are treating cosmetics as other consumer products and not as they traditionally did — as drugs. The drug classification required skin care products and even shampoo to undergo years of rigorous, costly testing, according to Louis Santucci, international vice president with the CTFA.
This change has helped particularly in Japan, which this year is expected to complete an overhaul of its cosmetics approval process that will permit the use of many preservatives, greatly increasing the number of products available there.
But these changes hardly explain the surge in consumer spending on cosmetics in developing countries, Santucci maintained.
“In many of these nations and especially in the big cities of Thailand, China, Malaysia and others, people now have good disposable incomes, and they want to spend it,” he noted. “Cosmetics are relatively inexpensive. They’re fun consumer products, and consumers are getting blasted with ads for these products, seeing them in movies and on TV.”
The Lander Co., a private label manufacturer with a worldwide business, is one of several U.S. cosmetics firms to jump on this bandwagon. “We had been doing very little business in Japan, mainly because of restrictions on the use of preservatives,” said Norman Auslander, chairman and chief executive officer of the Englewood, N.J., firm.
With the new changes, Lander has set up a distributorship in Japan and “expects to do a good business there,” Auslander said.
“Japan will be the linchpin of our marketing plans for Asia and Southeast Asia,” he added. “There are vast, almost untapped markets such as China with 1.2 billion people, India with over 950 million and Pakistan with its hundreds of millions of people.”
The firm has a licensee to distribute Lander cosmetics in Indonesia, which has a population of 160 million people. In addition, it has its sights set on Thailand and Vietnam, “now that it is off the U.S.’s blacklist,” Auslander said.
China, of course, is the big potential Asian market today, and companies such as Avon have already been testing the waters, and then some. Brian Martin, vice president of corporate communications for the New York-based firm, said, “We now have about 30,000 reps in China, will be expanding into Beijing this year and expect to be profitable in 1996.”
Avon, which has a leased manufacturing facility in Guangzhou, plans to construct a company-owned one there this year, too.
Santucci added that Amway and three other unrevealed “major companies” are poised to make large investments in China to sell cosmetics, adding that Proctor & Gamble “is selling shampoo there in one-cent packages and selling millions of these.”
Hardly sitting still is Estée Lauder International. Last year, it launched Clinique in South Korea, and Jeanette Wagner, International president, said, “This will be a $1 million door for us, [while the Lauder brand] is well past $1 million in sales [in South Korea].”
She noted the Lauder brand in South Korea “is growing 50 percent-plus at retail.”
Lauder International has plans to open doors in China, Indonesia, the Philippines, Vietnam and several of the former Soviet Republics.
“Our mission is not to increase doors, but be the best doors, with the largest sales per door of any competitor,” Wagner said.
Often overlooked in the hoopla about emerging Asian and Pacific markets is another area long regarded as anathema to American cosmetics companies: Eastern Europe.
Last year, Lauder International opened a store in Budapest, Hungary, its first freestanding unit in the world, and expects it to do more than $1 million in sales this year, Wagner said. In addition to being in Poland and the Czech Republic, it also launched Estée Lauder in St. Petersburg, Russia, and sales in its GUM department store outlet in Moscow did more than $1.75 million in sales, she noted.
Avon established an operations hub in Poland two years ago, servicing its reps with cosmetics shipped from Western Europe, and saw its sales there double between 1993 and last year.
It now also has reps in Hungary and both the Czech Republic and Slovakia, and the company anticipates it will be profitable this year in these countries.
Meanwhile, the outlook for cosmetics sales the world over received a boost this year with the creation of the World Trade Organization — which includes every major nation save for China and Taiwan.
The WTO pact calls for import tariff cuts on most major consumer products, with many nations pledged to mutually cut duties to zero.
These changes are significant as they will open many markets to U.S products for the first time.
“Take the guy in India who now can sell his clothes in the U.S.,” Santucci said. “Now he has more money in his pocket, and he and his wife can buy more consumer goods. Time and time again, we’ve seen what happens after tariff reductions.
“Most recently, Austria joined the European Union on Jan. 1 and eliminated duties on ice cream and milk products,” Santucci continued. “Immediately, there was a price war in Vienna. People go out and buy what makes them feel good, and cosmetics certainly do.”
— Fairchild News Service