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The global beauty and personal care industry generated some US$21 billion of incremental retail value in 2011, of which the emerging markets fuelled a whopping 81%, according to the latest data from Euromonitor International. But, as the world's economy teeters on the edge of a new downturn, triggered by debt crisis in the EuroZone, can the industry continue to count on consumers in emerging markets to offset lackluster demand in Europe and North America?
There is an overriding sense of unease surrounding the global consumer goods market at the moment as international investors and multinational companies alike get jittery about the prospect of a global recession, and in particular its effect on fast-growing emerging markets.
The primary concern is that an economic slowdown in 2012 could prove more damaging than the 2008 financial crisis, firstly because emerging Asia—and China in particular—looks more exposed than four years ago, and secondly because high commodity prices are applying upward pressure on inflation almost everywhere in the world. As a result, even if the emerging markets continue to post upbeat GDP growth, their consumers are unlikely to feel as insulated as in 2008.
Since 2008, emerging markets have been essential ballast to the weakness of developed markets. Total beauty and personal care spending is still higher in developed markets, at around US$226 billion in 2011 compared to US$177 billion, but growth in the emerging markets was 10 times stronger over the 2008-2011 period, according to Euromonitor International.
That emerging market growth translated into an incremental retail value of US$46 billion compared to US$7 billion in developed markets. It would be fair to say that in the post-Lehman Brothers global operating environment, consumers in emerging markets have thrown the beauty and personal care industry a lifeline of new business.
The exposure of leading multinational beauty and personal care companies to emerging markets varies widely, ranging from 74% of retail sales in the case of Avon to 30% in the case of L'Oréal, according to data from Euromonitor International. The key question is which of these players will be most insulated from a possible global economic slowdown.
L'Oréal's comparatively weak exposure to emerging markets has been, arguably, its biggest strategic weakness since 2008. But, with the emerging markets looking more vulnerable to contagion than four years ago, could L'Oréal's lower exposure be viewed as a strategic strength in 2012?