Baltic cosmetics have suffered locally but are thriving abroad, says Monika Hanley, reporting from Riga
Despite being one of the regions hardest hit by the global financial crisis and its resulting recession, the cosmetics industry of the Baltic States (Estonia, Latvia and Lithuania) is doing surprisingly well. Although local sales have been under pressure, companies have begun expanding abroad in the last year.
According to the Lithuanian Cosmetics and Household Chemicals Producers Association (Likochema), most southerly Baltic States’ national sales of locally produced cosmetics have fallen about 20% in year-on-year in 2009 as of August.
“The financial crisis has affected sales, and because we have very few producers, about 4-5% of all the market, consumers rely more on imports,” says Inara Joniskiene, executive director of the association. And there is little hope for a quick turnaround in the Lithuanian cosmetics market. “The market will get worse, there is still a big crisis in Lithuania,” says Joniskiene.
INTERNATIONAL PRESSURE
With competition from big international brands such as L’Oréal, Baltic States brands find it hard to compete.
“The main thing perhaps is that we are selling more decorative cosmetics (mascaras, lipsticks etc) than other [importing] companies,” Joniskiene continues.
Regional sales could help. After seeing little success in its small national market, Attirance, a Latvian supplier of soaps, bath salts, bath milks and natural cosmetics has plans to become more active in Lithuania and Estonia by the end of 2009, says executive Martins Jaunzems. Currently the company exports nearly 90% of all products.
“Overall our total sales in the Baltic States make a fairly small share of all sales – approximately 10-15%. Therefore the effect on our business from the Baltics is fairly small,” says Jaunzems.
NATURAL STRENGTHS
But this could grow, especially as Baltic States cosmetic firms have found success in selling organic and natural products regionally. Natural and organic soaps and cosmetics from international competitors are not as popular.
Baltic companies have reported a rise in summertime sales for this niche, especially in Estonia. Estonian natural cosmetics company GoodKaarma says that while spring sales were hit by the financial crisis they were balanced out by summer sales. “In the spring the crisis caused some of our shop clients to reduce their orders. In the summer things are back to normal,” says company founder Stephen Greenwood.
GoodKaarma also exports to ten EU countries. It is most active in the UK, Ireland, northern continental Europe and its Baltic States neighbours and has plans to expand. The company currently produces 14 different soaps, all with at least 97% organic ingredients. The company uses a cold process to create its soaps, which it says leaves skin moisturising ingredients such as olive oil and cocoa butter purer than other processes. As a green business, the company told SPC that it has tried to create its own niche by using fair trade ingredients and inventive methods.
“The organic sector in Estonia requires more, more, more: entrepreneurs, investment, EU support and commitment from government,” says Greenwood.
Estonia’s Orto also specialises in natural cosmetics. The company currently exports 15% of its products to other EU nations. Currently the company is rated fourth in the country among skin care manufacturers in terms of turnover (after Nivea, L’Oréal, and Lumene) and first in sales volume for the cosmetics market as a whole. Orto’s Estonia sales increased 14% in January-March 2009. The company’s annual turnover in 2008 was €1.4m (£1.22m).
While the company is small with just 22 employees, ceo Gunnar Laas says it aims to create four to eight new products per year.
Euromonitor has reported that natural ingredients are gaining popularity amongst Estonian cosmetics producers as more consumers are becoming environmentally aware. Most local brands place emphasis on natural, local or organic ingredients in their cosmetics. This contrasts with the Lithuanian market, long known for favouring cheaper cosmetics. However, even there, consumers have begun demanding more natural ingredients, giving rise to several small but successful natural cosmetic companies.
BIOK UAB, marketing the brands Rasa, Margarita, Smilga and Faustas, has capitalised on this nascent consumer demand and created low preservative natural cream soaps, professional shampoos and bulk products for use in the beauty industry.
The company is active in all three Baltic States and its year-on-year sales in the first half of 2009 increased 15% to €1.8m (£1.6m). In 2008, sales reached €3.33m, an increase of 22.4% year-on-year. Chairman of the board Linas Cereska says this built on the last quarter of 2008, when the company saw a record turnover, with sales of the Rasa brand up 50%. The company currently employs a staff of 48.
The success of these Baltic States natural cosmetics companies has been noted internationally. Latvian company Stenders, manufacturer of soaps and bath products, was recently named the most successful conceptual cosmetics manufacturer since The Body Shop by the UK’s The Franchise Magazine.
Stenders, with 19 stores in China, and another eight planned for the end of 2009, is finding success outside the local market. Marketing director Maija Abolins told SPC that although the company has also been affected by the crisis it has not been too worried by a 20% drop in sales in 2009 thus far. “We are not about to give in to panic, just the opposite. We have pulled together and are trying to find investors to help us achieve our long-term goals. We have also lowered prices in the local markets,” says Abolins.
Retail sales of cosmetics in Latvia as of January 2009 had decreased by 18.9% year-on-year, indicating a 1.3 % drop compared to December. The larger Latvian companies are now looking outside their borders for new markets with less inflation, and more revenue.
The Dzintars company has historically seen the most success in the region and abroad. Dzintars currently has 50 perfumery and cosmetics stores in Latvia, with plans to expand to 65 by the end of 2009. The company is also performing well in the Russian market with anti-ageing products, scents and decorative cosmetics. Dzintars has plans to expand elsewhere in the former Soviet Union in late 2009, although it has been suffering short-term problems; exports shrank 50% year-on-year in the final quarter of 2008.
However, the home market has also been weak, with Latvian retail trade in general plunging nearly 30% year-on-year by June 2009, and so Dzintars will continue to concentrate on the international scene. “We must [expand] in the Lithuanian and Estonian markets... where there are more normal prices, and a more controllable situation,” says Dzintars chairman, Ilja Gercikovs.
The company has continued to expand, unveiling natural brands Nature’s Recipe and Sea Secrets. It currently produces more than 350 different cosmetic products.
GROWTH FACTORS
Because the Baltics States enjoy low operating costs in EU terms, industry experts predict that as Baltic companies shift their focus away from the local markets, international brands will be more able to operate successfully, especially online.
“Customers within these new EU countries are looking for a wider choice of products than are currently available to them. We have already seen the market for fragrance and make-up grow at an incredible speed, and we do not see this ending any time soon,” says international beauty and cosmetics retailer J Glamour’s head of marketing. Meanwhile, market researcher Global Insight forecasts that by 2011 the Latvian, Lithuanian and Estonian cosmetic market sizes will reach €0.22bn, €0.33bn, and €0.18bn respectively.