Консалтинговое агенство “L’Agence de luxe”From the beginning of nineties the Russian perfumery-cosmetic market showed one of the highest rates of growth in Europe and the world as a whole. To the middle of 2000s rates have decreased to 10-15 %, however continued to grow. During the period 2007-2008 the market has grown on 7,9 % and has reached 9,3 billion dollars.
Along with quantitative changes there were also qualitative. The importance of distribution channels have essentially changed. In 1997-1999 40 % of sales of perfumery and cosmetics were done through open-air markets and approximately the same amount through department stores. In drugstores and supermarkets the cosmetic goods practically have not been presented, and direct sales made approximately 5 % of. Later 10 years it was possible to observe absolutely other picture – on a share of drugstores it is necessary already an order of 10 % of sales of cosmetic means, an order of 30 % on specialised perfumery-cosmetic retail, more than 20 % – on direct sales. The quantity of the open markets was reduced from 40 % to 9,5 %. Absolutely new channels of distribution of cosmetic means, such as hypermarkets, drugstores, Internet shops, concept store have started to appear and develop. It is especially interesting to note increasing popularity of a format drugstores. According to research agencies, the segment drugstores is filled only on 3-6 % (about 1000 shops), while a potential market capacity of 15-20 thousand shops.
Strengthening of a role of the regional markets became one of key tendencies for last decade. After intensive growth in the beginning 2000 when Moscow and St.-Petersburg it was necessary more than third of sales of all cosmetics in Russia, the capital market has appeared is oversaturated by cosmetic brands. Thereupon players even more often began to leave at retail in regions, and then, already having fixed the share, to try the forces in capital.
The main events of branch 1995-2005:
The first selective Russian cosmetics (Yllozure)
The first decorative cosmetic brand (Art Vizazh)
The first full ruler of sun-protection cosmetics (Linda)
The first Russian company of direct sales (Faberlic)
The first certificates of quality ISO (the Guelder-rose, the Neva cosmetics)
The first share issue IPO (Guelder-rose)
The first contract manufacture (Harmony Plus)
The first Russian packing companies ( Rome, Tuboplast Pleasant )
The first not state organisation representing interests of perfumery-cosmetic branch of the country (РПКА)
World financial crisis has mentioned also the Russian perfumery-cosmetic market. However, as well as a whole, world tendencies come to us with delay. Since September of last year sharp decrease in exchange cost of the largest perfumery-cosmetic concerns and catastrophic recession of consumption in the European, American and Asian markets has begun, for our country 2008 has come to the end without special shocks – from 7 to 20 % of growth in various sectors of the market. First of all, crisis of bank system has led to freezing of development of the large retail business in many respects depending on credits. Not the secret that, powerful growth of Russian cosmetic retail last years had in many respects extensive character – the largest networks – “L’Etoile”, “Ile de beaute”, “Rive Gauche” declared for 2009 opening of hundreds new shops.
Sharp devaluation of rouble after the long-term period of stability only strengthens negative influence of financial crisis on the national perfumery-cosmetic market. In 1998 г the country already endured a default, however then economics were not in a recession condition, and incomes of an essential part of the Russian consumers of products of beauty, especially a segment premium, have been adhered to the American currency. Today incomes of the majority of Russians – it is exclusive in roubles and their indexation in connection with devaluation is improbable in the near future. And the rise in prices for perfumery-cosmetic production is inevitable, as many segments of the market entirely depend on import. Even the Russian manufacture – no more than assembly line: components and packing arrive on our factories from abroad.
The rise in prices against decrease in the general consumer activity only strengthens consumption recession. In 2009 the sales volume can be reduced to 10-20 %. While not all importers rise in the price according to a new parity of currencies, first of all rouble and euro, for 30-40 %. Thanks to world financial crisis manufacturers and brands at last have refused concept of the recommended retail price for the end user that, by the way, already it was some years ago forbidden by instructions of the all-European legislation. Thus, retail operators have received now freedom in demand regulation through the price for regiments, naturally, at the expense of decrease in the profit. Reduction have arrived now very much characteristic feature for all players of the Russian perfumery-cosmetic market from importers to retailers or agents of direct sales. However if the rate of inflation grows (on a number of estimations, by the autumn 2009 the euro exchange rate can make over 50 roubles for euro) reserves on decrease in profit both at importers, and at retailers will be quickly spent, as, both the goods cost price, and service of credits, and rent rates in Russia basically are adhered to currencies.
It would be desirable to hope, as manufacturers will reconsider towards reduction of price on the production which for last 20 years of steady growth of consumption has essentially risen in price. And its rise in price is connected not so much with increase in the cost price of production (it just basically has decreased), namely with consumption growth that allowed to sell the cheap goods expensively. However times have changed. I think that if it will be not not made by manufacturers this year for them it will make the market, and not only official, but also grey-market. We already observe increase in a share of the parallel market of perfumery in Russia, especially in regions where the end user is more sensitive to the price, rather than in capitals.
Certainly, official retail operators also can and will reduce the prices for regiments, however in this case they begin to compete not to the parallel market as have essentially more expenses, and with each other. Similar already occurred in December 2008 when the companies №1 «L’ Etoile» reduced the prices for 40 % – 50 % that led to sharp deterioration of a condition both their competitors, and especially small independent shops. It is obvious that war of the prices between retail operators only begins and will have negative consequences for the market as a whole though the final customers will receive certain benefit. Certainly, it is possible to consider profit decrease as the recommended means of struggle against demand falling, however abusing it can lead to a financial collapse of the company.
Decrease in profit demands also carrying out of variety of the connected measures, namely – reduction of expenses, many of which were excessive, inefficient, and is frequent also unnecessary and took place earlier only at the expense of constant growth of demand and incomes. First, revision of adv expenses. Already January issues of glossy magazines left in 2 times is more thin, the quantity of advertisers was sharply reduced. Even in the autumn 2008 г we noticed that an advertising efficiency in glossy editions no more than 25 %. It is expedient to direct the basic stream of investments on goods advancement in points of sale and if you represent a large brand of wide consumption as, for example, L’Oreal – advertising on TV will give good effect. Secondly, closing of unprofitable shops, as entirely, and reduction of points of sale of this or that brand. It only at first sight seems that in conditions of falling of demand the best strategy of wholesales – to sell to everyone. Actually, reasonable will just reduce quantity of points of sale. Thirdly, an offer persification in the market. Change of demand for various brands will be various. Brands which in market growth led strategy of restraint of the offer least will suffer. Fourthly, the weighed decision-making, carrying out of consultations – during crisis errors in management of the companies can be fatal, right now value of experts sharply increases.
In the conclusion it would be desirable to pay attention that crisis will render also positive influence on the perfumery-cosmetic market. In new conditions loyalty of end users to products, brands will raise. Consumers will not be so randomly to rush about already, choosing from the avalanche offer ostensibly new products and ostensibly new brands, and begin to analyze more attentively and conformity of advertising slogans of real efficiency of offered means, and conformity of the price to quality. Certainly, not all products and brands will pass such test by the attentive consumer, but certain clarification becomes today development pledge tomorrow.