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Emerging Markets Still Hold Promise for Beauty

Posted: October 4, 2012

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The most unpredictable emerging market region is the Middle East and Africa, but none of the leading players are heavily positioned there and ought to be able to absorb any short to medium term sales slowdown. By far the most significant exposure is in Latin America and emerging Asia, fuelled by Brazil and China, the two fastest-growing beauty and personal care markets in the world since 2008, based on incremental value. Were demand in either of those markets to slow significantly, there would be negative reverberations for a raft of companies, notably Unilever, Avon and Colgate-Palmolive.

Spreading Emerging Market Risk Increasingly Important

In the third quarter of 2011, China's economy grew year-on-year by 9.1%, down from 9.5% in the second quarter but still a powerhouse performance. And even if economic growth continues to slow in 2012, pushed down by slower export demand from Europe, it would need to fall a long way before having any major downside impact on domestic demand, which is booming in the coastal regions and spreading inland too.

Brazil could be more vulnerable than China to a European recession. Indeed, the country's resident, Dilma Rousseff, has been warning of tougher times ahead. And the latest figures seem to bear this out, with the economy contracting marginally in the third quarter. However, Brazil has a strong banking sector, substantial international reserves and, crucially, consumers that are fundamentally spenders rather than savers.

All things considered, exposure to China, Brazil and other first-tier emerging markets should continue to yield a positive rather than a negative influence on the balance sheets of beauty and personal care companies in 2012. Growth might well be weaker than in 2011, but strong BRIC positions will continue to be a central factor in how well a company performs globally.

Emerging market growth is not all about the BRICs, however. In 2011, those four countries fuelled collectively some 54% of incremental beauty and personal care growth in the emerging markets, but that still left second- and third-tier emerging markets accounting for an incremental growth value of some US$8 billion. Of those, key growth markets included Mexico, Argentina, Indonesia, Thailand and Turkey, according to data from Euromonitor International.

Going forward, beauty and personal care companies ought to look at strengthening their positions across a broad range of second-tier emerging markets, not least to dilute some of their growth dependency on the BRICs. Some of these second-tier emerging markets do carry significant investment risk. But, as the global economy tilts toward a potentially protracted downturn, risk is central to strategic planning if companies with a global outlook are to keep their bottom lines looking healthy.