MILAN — “The real growth will come from Asia,” predicted Dario Ferrari, chairman of the industry’s dominant cosmetics supplier Intercos.
Ferrari was one panel member at Pambianco’s second Beauty Summit, hosted by the Italian fashion and beauty consulting company in partnership with Condé Nast Italia and held Thursday at the city’s Bourse.
The summit spotlighted the increasing relevance and potential of Eastern markets in providing future business opportunities for Italy’s cosmetic companies.
“In the next five to seven years we will have one billion new consumers in the area, and the firms understanding the real needs of these customers will be the only ones able to grow,” said Ferrari, who believes sales increases in Europe and the U.S. will be lower given the maturity of those markets.
“We need to understand deeply what Gen Z consumers will do. They are the ones making the real difference in Asia as the older population doesn’t buy anymore and Millennials seek safe [options] and products,” added the executive, who underscored how Asian Gen Z consumers have a higher spending capacity compared to European ones.
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Intercos put its foot in Asia 20 years ago and keeps investing in the area, especially South Korea, where a new plant was built in just six months through its joint venture with Shinsegae, called Shinsegae Intercos Korea Inc. Elsewhere in Asia, the company has four plants in China, and in February it revealed a joint original design manufacturing business venture in Japan with Sumitomo Corp.
Founded in 1972, Intercos is the leading Italian supplier counting 15 factories and 11 research centers in Europe, Asia and the United States and had sales of 671.3 million euros in 2017, when it also acquired Cosmint, the Olgiate Comasco, Italy-based manufacturer of skin, hair and body care.
Also according to a study conducted by PwC in the cosmetic and personal-care industry, China and India are registering the highest compound annual growth rates in the period from 2012 to 2021, increasing 7 percent and 10 percent, respectively.
In particular, the Chinese cosmetic market will grow to reach 65 billion euros by 2021. In 2017, sales of premium cosmetic products accounted for 4 billion euros of the total 47 billion euros in sales, which were driven by the demand of skin-care and hair-care products, representing 52 percent and 14 percent, respectively, of the overall amount.
According to the study, 80 percent of Chinese beauty consumers currently purchase at least one product online, albeit some marketplaces offering counterfeit items discourage some shoppers. In general, beauty clients seek multifunctional products and, in the last 18 months, they proved to favor local emerging brands — especially South Korean — as these better meet their demands.
Incidentally, big names of the industry are already making their M&A moves in the area. L’Oréal seized the moment and made its first purchase of a South Korean label, acquiring Stylenanda on Wednesday, while, last September, Unilever bought skin-care business Carver Korea for 2.27 billion euros from Bain Capital Private Equity and Goldman Sachs.
Regarding India, data shows the local cosmetic market will grow to 18 billion euros by 2021. In 2017, total sales of beauty goods accounted for 12 billion euros in the country, with sales of premium products totaling 500 million euros. Hair offerings and natural products drove sales, while online ones grew 30 percent compared to 2016, opening the market to omnichannel business opportunities.
According to the PwC data, overall the global cosmetic market will increase 5 percent year-over-year to 516 billion euros by 2021, compared to 412 billion euros registered last year.
Leading Italy’s top five chart of branded companies with 611 million euros in sales last year, Kiko SpA — parent company of the Kiko Milano, Madina, Womo and Bullfrog labels — also set sail toward the East since the appointment of Cristina Scocchia as its chief executive officer last July.
Scocchia, who previously served as ceo and president of L’Oréal’s Italian division for four years, said Kiko Milano’s main strategy is to prioritize markets experiencing high rates of growth.
“We want to consolidate our brand, as we have always been strong retailers and now we want to strengthen the brand awareness; invest in the quality of the products, and move from West to East, opening 70 doors in the next two and half years in Asia, India, Turkey and the Middle East,” said Scocchia.
The company’s new business strategy affected its American business, as the firm shut down 27 of its 30 bricks-and-mortar units in the U.S. and closed its New York headquarters, after Kiko USA filed for bankruptcy in January.
“In the last five years, the American branch has always been the one giving us less satisfactions,” said Scocchia, pointing to both the intense competition from stronger, local beauty players operating in the same price range as Kiko Milano and the general retail crisis that hit the American market. “In general, 7,300 doors closed [overall] in 2017 there, so the U.S. was difficult for us and is difficult for retail, and we have other priorities.”
Among these, enhancing the digital presence of the company is key. In the U.S., Kiko inked a partnership with Amazon and the company is looking to replicate the move also with digital players in Asia and the Middle East.
“Only 3.5 percent of our sales are made online, and we have the potential to increase this number and reach at least 6 percent in three years, as our international competitors,” said Scocchia, explaining that, unlike other labels, Kiko Milano will offer fewer items online compared to the assortment in store. “In our bricks-and-mortar units we have 1,500 to 2,000 stockkeeping units, while for the e-commerce we will select the best-selling 1,000 items to offer more visibility to these.”
To enhance the company’s digital implementations, both in terms of internal operations and marketing, Scocchia said that the firm aims to invest 25 million euros over the next three years, which in part of a total investment plan of 90 million euros.
In light of this ambitious strategy, Scocchia confirmed the company “at the moment is in advanced negotiations with a fund that has specific expertise in one of the sectors in which we would like to grow.” To find such a minority shareholder “that has to bring not only a capital increase but also some expertise,” Kiko Milano reportedly hired Rothschild last March. Back then, Apollo, Carlyle, Investindustrial and Peninsula were among the funds interested in the deal.