Italy's personal care market perks up in 2018

Mergers and acquisitions are always motors of change in the beauty and personal care product sector, and 2017 saw some significant shifts in the key Italian industry.

Important acquisitions designed to extend product portfolios and boost market share included the move by the Lombardy-based make-up and skin care major Intercos to acquire Cosmint, a contract manufacturer of skin, hair and body care products.

In August 2017, Intercos confirmed it had inked an agreement to acquire, for an undisclosed amount, the Como-based family-owned manufacturer.

The Intercos-Cosmint partnership will create one of the largest B2B groups in the beauty world, with expected revenues of €700m. Additionally, the new Intercos-Cosmint group will command a total number of employees of close to 5,000, and count 15 plants and 11 research centres in Europe, Asia and the Americas.

Also in August, Intercos announced a new financing partner: the Ontario Teachers’ Pension Plan Board (OTPP), which acquired a 20.5% equity participation in the Italian company. The OTPP investment will enable Intercos to continue pursuing its future development plans, according to Dario Ferrari, President and CEO of the company.

“Intercos is developing in a dynamic way, as evidenced by the recent Cosmint acquisition, which enables us to improve our presence in several market segments and to significantly increase our production capacity,” he says. “OTPP is an ideal financial partner and we are excited to partner with their outstanding team to grow and expand Intercos.”

The acquisition of LLG’s 500 stores will significantly boost Douglas’ presence in Italy, from its existing 126 Italian stores, and bring its total number of perfumeries across Europe to over 2,000 in addition to its online shops, present in 19 European countries. The merger will also accelerate the e-commerce business that LLG started just before the buy-out deal.

Modest growth

Source: Cosmetica Italia.
* = forecast

Despite signs of dynamism like these, the growth of Italy’s beauty and personal care (BPC) sector remained modest in 2017.

Total market growth is expected to have exceeded just over one percentage point in 2017, reaching a total value of €11bn, Gian Andrea Positano, head of Cosmetica Italia’s Research Centre, confirms to Cosmetics Business.

This reflects the slow recovery of the Italian economy in general, with the national statistics agency Istituto Nazionale di Statistica (ISTAT) reporting a monthly rise in gross domestic product (GDP) of between 0.5% and 0.6% in December 2017, with full-year GDP growth expected to reach 1.4%.

While this would be the strongest growth rate since 2010, the Italian economy continues to lag behind other EU countries.

Additionally, Italy’s annual inflation rate was steady at 0.9% in December, the agency confirmed, with prices rising on average by 1.2% in 2017, compared with a 0.1% drop in 2016. The prices of the most frequently bought goods in Italy, such as food, household items and BPC products, rose 1.5% in 2017.

According to the most recent data available at the time of writing, based on Cosmetica Italia’s preliminary July 2017 report, Forecasts, trends and investments in the cosmetic sector, the Italian BPC market looked set to remain stable through 2017.

Exports continued to bolster the sector and are expected to have exceeded €4.8bn in 2017, representing a positive year-on-year trend of over nine percentage points, the report stated. Positano also confirmed that, as a result of such strong export growth, company revenues and the value of production grew in 2017 by more than 3%.

According to Cosmetica Italia data, BPC exports in 2016 reached around 41% of Italy’s BPC sector sales, 48% of which were outside of Europe and 52% of which were within the Eurozone.

Italian-made cosmetics gained ground in European markets, significantly increasing their market share in 2016, compared with 39% in 2015.

Indeed, Italy’s top-ten trading partners in 2016 were: Germany (12.3% of total exports); France (10.8%); the US (9.4%); Britain (7.7%); Spain (6.5%); Hong Kong (3.7%); the United Arab Emirates (3.5%); the Netherlands (3.5%); Russia (3.3%); and Belgium (3.3%).

Record growth was recorded in exports to Belgium (+55.7% compared with 2015), Germany (+25.6%) and the US (+24.4%), while there was no major slowdown in any of the country’s top ten export markets or product categories, evidencing the popularity and high growth potential of Italian-made BPC products abroad.

Competitive pricing

Source: Cosmetica Italia

However, because of the Italian economy’s modest growth, Italian consumers will likely remain careful with their spending on BPC products in the coming year, an analyst from Euromonitor International tells Cosmetics Business.

“Italians will continue to welcome products offering a high degree of functionality but at competitive prices, having a particular interest in green positioned products, for example those with natural and organic ingredients, or free from perceived harmful components.

“Multifunctional and antioxidant-containing products able to offer protection from increasing pollution is also expected to be a key area of development over the forecast period,” says the analyst.

A continued growth in lipstick sales is one reason behind the growth in colour cosmetics; this sub-sector posted the biggest growth in 2017. According to Cosmetica Italia’s 2016 data, sales for lipsticks and lip gloss grew by 8.5% in 2016, followed by foundations and coloured creams (+5%), and eyeliners and pencils (+5%).

Positano also notes how changing consumer needs and behaviours have remained polarised with consumers seeking competitive prices but also more expensive premium products, “with particular attention to product customisation”. “The popularity of ‘green’ and natural products is also constantly developing,” he likewise notes.

One example is the fast-growing Lombardy-based Nashi Argan brand, specialising in professional hair care and skin care products using 100% certified organic argan and linseed oils.

First launched in 2012, today the brand counts numerous bricks-and-mortar stores in Milan, Rome, Florence, Parma and Bergamo, in addition to being used and sold in a number of professional beauty salons, both in Italy and abroad.

The success of the brand reflects the modern Italian consumer’s demand for natural, sustainable products that are also highly functional and competitively priced.

Indeed, the recyclable packaging has zero environmental impact and all products are free from controversial substances like sodium chloride, sulfates, phosphates and parabens.

Another important part of the brand’s recent success is its direct social media connection to consumers and the importance of consumer involvement in eventual product development, Nashi Argan’s CEO, Fabrizio Ascoli, tells Cosmetics Business.

“We recognise the value of our online community of Nashi lovers as a direct and important point of contact with our customers, who have even requested and helped us launch new Nashi Argan products that reflect their needs, such as the latest launch, Hair Mist, a perfume for the hair.”

Last November 2017, Nashi Argan opened a novel concept store in Milan, which features a retail corner and brand-operated salon. The group expects to have closed 2017 with revenues of more than €18m, after having closed 2016 with €15m.

Meanwhile, leading cosmetics and skin care brand Kiko Milano is also targeting the more digitally-minded consumer through the opening of new concept stores aimed at creating a real connection.

The brand, which celebrated 20 years of operation in 2017, opened its biggest bricks-and-mortar store yet, in the heart of Milan. Extending over 2,153sqft, the store debuts a new retail strategy concept, named ‘KIKOiD’, with ‘iD’ standing for ‘identity’, in an effort to meet all consumers’ needs while respecting their different identities.

The high-tech concept store features a dual-arm robot, built specifically for Kiko Milano and able to customise a selection of products in minutes through laser engraving.

The store has a wide range of tablets available to consumers, equipped with specially designed apps offering advice and suggestions to consumers based on their individual needs. Kiko achieved a turnover of over €600m (2016), with 1,007 stores in 20 countries and e-commerce sites available in 36 countries.

The highest growth [is being] registered in new selling channels, such as single-brand retail, e-commerce and direct sales

Sales channel shifts

The success of brands such as Kiko Milano and Nashi Argan are emblematic of the changing landscape affecting beauty retailers in Italy, with losses registered by traditional retail channels and the highest growth registered in new selling channels, such as single-brand retail, e-commerce and direct sales.

Indeed, the June Cosmetica Italia report forecast that the direct sales channel nationwide would grow by 8.5% in 2017 compared with the previous year, reaching €820m in total sales.

Much of this success is due to continued double digit growth in e-commerce sales, says Positano: “In 2017, we expected an increase of 20%. However, sales values remain low overall in this sub-channel, not exceeding €300m.”

Similarly, professional hair salons are among the retail outlet winners in 2017, as they have responded well to new consumer trends, working to strengthen customer loyalty schemes and renew their offerings; this channel was expected to grow last year by 1.5% compared with 2016, reaching €570m in total sales.

Similarly, 2.3% growth in spa and beauty centres was estimated over the previous year, reaching €235m in total sales.

Herbalist stores were expected to grow by 0.9%, reaching €440m in 2017, while mass retailers, which represent 40% of all cosmetics distribution in Italy, are experiencing slower growth, up 0.7% from the previous year, with 2017 sales expected to have hit just over €4bn.

Pharmacy BPC sales were expected to grow modestly, up 0.5% from 2016, to reach €1.8bn, while total sales at perfumeries are not expected to have grown in 2017, although the channel remains an important one, with revenues of €2bn projected.

Source: Cosmetica Italia.
* = forecast

Among the reasons for such stagnancy in the perfumery channel, the Cosmetica Italia report cited the failure of traditional chains to adapt product offerings and services to reflect consumers’ new needs and habits.

Overall, retail channels that can tap into consumers’ new and diversified needs will reap the most rewards, the report stated: “The future will impose integration between the traditional channels and new distribution models, and these will be characterised by the speed of delivery, interaction with consumers and degree of personalisation.”

Feel-good factor

Regarding product category sales, Italian consumers are increasingly attuned to a ‘wellness culture’ and products that are natural or contain natural active ingredients remain popular, says Cosmetica Italia.

“Among the trends that have most influenced the market is certainly the orientation toward products with natural ingredients and to those allowing higher degrees of personalisation,” Positano confirms.

Products following the green trend represent 10% of the total Italian market, with a value that is close to €1bn, and “with an ever-growing trend in terms of sales, much more dynamic than the other types”.

Indeed, Italian, family-owned company Mirato demonstrated its belief in the potential of green-positioned products in the Italian market, acquiring Genoa-based Gianasso Group, owner of the mid-market organic BPC brand I Provenzali, in September.

Boasting revenues estimated at around €20m, I Provenzali counts more than 100 green products that are sold in the mass retail market. With the deal, Mirato enriched its portfolio of brands, which already included Splend’Or, Malizia, Intesa, Clinians, Geomar, Breeze, Nidra and Glicemille.

“The acquisition of I Provenzali was a strategic move for Mirato, which is interested in the growing sensitivity to the natural, organic and eco-sustainable sensibilities,” says Mirato VP Fabio Ravanelli.