The Greek cosmetics market has managed to keep afloat despite the country’s dire economic situation but the future looks distinctly uncertain, reports Michael Kosmides from Athens
The Greek cosmetics market is still holding up but with difficulty as the country faces years of austerity measures and recession. Although there have been no major mergers or closures in the country’s personal care product market, the market looks far from healthy. The Greek debt crisis “is maintaining a protracted climate of uncertainty and affects to a great extent commerce in general and as a result the cosmetics sector,” said the country’s business information service ICAP in its October 2011 report noting that the decrease of consumers’ disposable income “is leading them to buy cheaper products or even decreasing or cancelling their purchases altogether”.
Theodoros Giarmenitis, president of the Hellenic Cosmetic Toiletry & Perfumery Association (PSVAK), told SPC that Greek personal care product sales in 2012 are expected to fall 30% on top of an estimated 20% in 2011. Sales at pharmacies dropped around 6% last year. Banks are reluctant to provide any liquidity and on top of that many are owed significant amounts of money by public health services. “Without liquidity pharmacists can no longer invest in cosmetics as they did in the past,” Giarmenitis commented.
Meanwhile spas and beauty salons have registered drops in business estimated at around 7% this year, a continuation of the downward trend the sector has experienced over the last ten years according to Kleopatra Tsirimokou, organiser of the leading industry exhibition, Beauty Greece. For example Bodyline, one of the biggest chains in Greece, used to have around 30 salons all over the country and now only has around six. Furthermore, two industry exhibitions in Greece have been cancelled in the past year and those that are still being staged have seen a notable drop in the number of participating companies.
The situation is no better in hair salons. Sources at DiCO, a company that has specialised in the professional hair care segment for over 20 years, told SPC that in January this year it saw a drop in sales of 25%-30% compared to January 2011. The only sector that has withstood this trend seems to be hair colouring products.
Supermarket distributed personal care products appear to be the least affected, although they are expected to fall around 5% this year. The major networks of supermarkets and big chains such as Hondos Center are better placed to hold their own during these times of crisis because, according to industry insiders, “they attract many consumers and they place huge bulk orders” putting them in a strong negotiating position with their suppliers. Indeed, supermarket sales are proving to be a lifeline for cosmetics manufacturers in Greece. Even so, the industry is forced to make significant price cutting offers almost every couple of weeks whether it be through private label, price reductions of 25%-30% or two for one offers.
ICAP data collected from 50 representative manufacturing and importing companies across all sectors showed a 66.5% drop in net profits before tax in 2010 and a drop in profits EBITDA (earnings before interest, tax, depreciation and amortisation) of 36.9%. Johnson & Johnson in its 2011 annual report noted rather gloomily that “recent economic challenges in... Greece... have impacted certain payment patterns, which have historically been longer than those experienced in the US and other international markets”.
Those faring better under these conditions are companies that have been consistently healthy through time and without debt such as cosmetics manufacturer and distributor Sarantis. It has been operating for a long time across the Balkans and recently established a subsidiary in Bosnia & Herzegovina. However, while exports have been strong, cosmetics industry sources in Greece warn that there could be trouble ahead this year. Exports with their slower payments are creating commercial problems because of Greek banks’ reluctance to provide liquidity and the government’s inability to pay VAT refunds.
The crisis is also hitting companies in unexpected ways. For example, some Greek cosmetics brands using production facilities owned by major manufacturer Alapis (which also sold baby products and pharmaceuticals under its own brand) are now having to seek alternatives because Alapis’ owner has been charged with fraud and embezzlement associated with a private bank (he has apparently denied the allegations).
Under these conditions nobody can exclude the prospect that at some point in future any of the three major producers in Greece (Johnson & Johnson, Colgate and Sarantis) will move part of their processes to other Balkan countries, which will impact on the Greek personal care product industry.
ICAP expects that 2012 will see the industry operating in an intensely competitive environment and a ‘suffocating’ market. As a result some may face profit losses and “in some cases the viability of others may be threatened”. The future is uncertain. According to Giarmenitis: “Every day will be worse than the day before. The industry will have to go through a shake off period this year before hopefully understanding in 2012 what’s to come in 2013.”