Sector Insight: Cosmetics - Face value

consumers. There is surprisingly little brand loyalty in make-up,
meaning differentiation through marketing is key. Combined UK sales of
fragrances and cosmetics reached £1.73bn in 2004, a 21% rise since
2000.

The fortunes of the cosmetics sector are largely tied to the prosperity
of women, with an increase in female employment reflected in sales.

The sector comprises a series of categories: face make-up such as
foundation and blushers, eye products such as eye shadow and mascara,
lip make-up and nail varnish. Of these, eye products and face make-up
are the best performers, with the latter accounting for about 35% of the
sector.

UK sales of colour cosmetics grew by 28% between 2000 and 2005,
according to Mintel. Sales in 2004 were valued at £867m and should
reach £915m by the end of this year.

A trend toward natural-looking make-up in the early-90s hindered market
growth, but the recent popularity of more colourful make-up has since
revitalised the sector.

In many ways the market is saturated, and future growth is therefore
likely to come from the heavier use of existing cosmetics as well as a
move toward more premium products.

With women aged 15 to 19 accounting for the highest sales, according to
TGI, manufacturers may also be able to expand the market by selling more
to 20- to 24-year-olds and those aged 44 and above, as both groups are
projected to grow in the UK. Older women are mostly neglected at the
moment, as the market is strongly driven by fashion trends among the
young.

Own-label brands

The development of new products is a key area. Features previously found
in skincare products are now being introduced to make-up, leading to
products such as volumising mascara and lipsticks that moisturise.

The market has also been shaken up by well-known make-up artists
introducing their own brands to compete with established names,
especially at the higher end. A new segment, dubbed 'masstige', has
emerged in which mass-market products and prestige make-up meet.

Colour cosmetics is a relatively fragmented market, with little brand
loyalty among consumers. The leading brand, Boots No7/17, has a 17%
share, followed by Rimmel on 13% and Avon on 10%. L'Oreal has three
sub-brands - L'Oreal Paris, Lancome and Maybelline - which have a
combined share of 12%.

Boots is in a unique position as both the leading retailer and leading
manufacturer of cosmetics. The retailer has had some difficult times of
late, but beauty remains a key driver of its sales.

This February it relaunched the No 7 range it first introduced in 1935
with the extensive reformulation of many products. Boots' 17 range,
which is aimed at the younger adult or teenage market, sees constant
launches and limited editions. It is currently undergoing a major
packaging revamp, due to be rolled out this month, to modernise its
look.

Helen Tarver, No7's brand development manager, says: 'Boots' strategy is
to offer the widest range of colour cosmetics in the market. Be it a
£1.99 lipstick or a Chanel one, we want a breadth of offerings in
good surroundings.'

Rimmel is owned by Coty, a US company and one of the world's biggest
beauty operators, with ranges in both the prestige and mass markets.
Colour cosmetics account for about 20% of Coty's worldwide sales,
following its acquisition of Unilever Cosmetics International in May
this year.

Rimmel is part of the Coty Beauty division and has repositioned itself
as a streetwise, cutting-edge, mass-market brand playing heavily on its
London heritage. It effectively shed its old, fusty image with the
signing of supermodel Kate Moss as the face of its brand in 2001.

Avon calling

Avon is the world's biggest direct sales company, with 4.9m reps across
more than 100 countries. It has suffered from a perception as a
downmarket brand in the UK, although it is aiming to improve its image.
Avon signed actress Tamzin Outhwaite in 2003 to front its ads. She has
since appeared in the brand's first major UK TV campaign since the 'ding
dong, Avon calling' ads of the 60s.

The leading make-up brand in the premium sector is Estee Lauder, which
owns the Prescriptives and Origins brands. It also produces designer
brands under licence, such as Aveda, MAC, Bobbi Brown and Stila. Its
global distribution has helped build many of these niche brands into
bigger operations.

The Clinique range is less fashion-orientated, with a loyal consumer
following attracted by its allergy-tested, fragrance-free
positioning.

The population may be ageing, but the make-up market is dedicated to
youth and seems certain to remain firmly aligned with fashion
trends.

Increased value in the sector is likely to come from improvements in
technology and added benefits.

Mintel predicts that colour cosmetics will continue to grow at rates
similar to those of the past five years. The UK market is expected to
grow by 29% between 2005 and 2010, taking it to a value of £1.18bn
a year.

COLOUR COSMETIC BRANDS BY RETAIL VALUE

Brand 2004 2002 02-04
pounds m pounds m % chng
1 Boots No7/17 148 131 13.0
2 Rimmel 113 97 16.5
3 Avon 86 78 10.3
4 Max Factor 82 78 5.1
5 Estee Lauder 45 39 15.4
6 L'Oreal Paris 43 39 10.3
7 Lancome 36 32 12.5
8 Maybelline 36 29 24.1
9 Clinique 35 32 9.4
10 Revlon 26 23 13.0
11 Elizabeth Arden 24 23 4.3
12 Marks & Spencer 15 15 0
13 The Body Shop 13 19 -31.6
Other/own-label 166 141 17.7
Total 867 776 11.7

Source: Mintel



FRAGRANCE AND COLOUR COSMETICS RETAIL VALUE BY YEAR

Brand 2005 2003 2000 02-04
pounds m pounds m pounds m % chng
1 Fragrances 900 823 750 20.0
2 Colour cosmetics 915 823 677 35.2
Total 1815 1646 1427 27.2

Source: Mintel

ANALYST COMMENT - IAN BELL, SENIOR UK AND IRELAND ANALYST, EUROMONITOR
INTERNATIONAL

Sales of colour cosmetics in the UK have been characterised in recent
years by the move toward premium and, perhaps more important, branded
items.

The premium segment continues to forge ahead in 2005, with bigger houses
such as Lauder and Clinique investing in NPD, especially in mascara and
foundation - which, along with lipstick, are the cash cows of the
industry.

The market has benefited from the general shift toward a more
aspirational focus, a society-wide trend that now sees BMW, rather than
Ford, produce the UK's most popular car. On the back of this, recent
arrivals MAC and Benefit have taken the UK by storm, providing
fashion-led aspirational cosmetics to younger consumers.

Colour cosmetics have become high-value, high-fashion, sexy products for
the masses. So why are some of the most exciting developments coming
from private labels?

Boots' updating of its No7 and 17 lines has been one source of interest,
the revamp of the former generating an 18% rise in sales in the two
months after launch.

The real noise, though, has been coming from the multiples. Tesco
recently expanded its Barbara Daly Collection and Asda has invested
heavily in a George colour cosmetics range (due to launch this
month).

With a number of fashion magazines championing these budget lines, the
existence of a growing band of consumers labelled Proud Realisers of
Added Value (PRAVs) has been brought into focus. True, availability and
convenience is part of the picture. But the acceptance that a private
label is not solely the preserve of lower income groups is helping to
change perceptions.