The cosmetic sectors in the Nordic markets remain reasonably confident despite the world economic downturn. Many consumers are turning to cheaper products and they are often looking to buy from domestic producers
The cosmetics markets in Scandinavia, as elsewhere in the developed world, face an uncertain 2009. Iceland’s economic crisis is well documented but the few surviving local producers are presenting a determined front to the challenges they face. On the other hand, the markets of Finland, Sweden, Norway and Denmark look likely to slow after healthy growth in 2008 – though this growth almost universally excluded sunscreens on account of the wet summer of 2008 – but also to escape the worst of the problems. One industry expert said he anticipated help from the “lipstick index”, whereby when times get hard, consumers cut back on major expenses such as holidays but spend more money on small treats, often in the form of cosmetics.
And international retailers continue to seek to expand in the region. Last year, following the merger that created Alliance Boots, several local Norwegian chemist stores were converted into Boots stores, with Boots brands such as No7 and Botanics being introduced to the shelves. In Denmark, international brands remain dominant, but local brands such as Matas are increasing share.
SWEDEN: LOCAL STRENGTHS
Swedish cosmetics company Oriflame reported its strongest quarter in October since its stock exchange listing in 2004, with local currency sales increasing by 32% and the average size of the sales force increasing by 22%. The company, which markets products through catalogues and direct selling, also increased capacity at its Swedish factories, a country where there remains a strong preference for purchasing cosmetics by mail order. According to Oriflame’s data, sales for the first nine months of 2008 were strong in Finland but weaker in other Nordic countries.
Meanwhile, Malmo-based Scandinavian Cosmetics and Lithuania-based Sirowa went ahead with the purchase of a majority two-thirds stake in Nordic Cosmetics, Finland’s leading fragrance distributor, which handles scent brands such as Hugo Boss, Gucci, Dolce & Gabbana and Lacoste. Both companies now own one third of the company, with the remainder retained by the original owner, Christer Gripenberg, who is now md of the new company. Gripenberg says the takeover will enable all three companies to improve distribution through the region. “Through this cooperation we can offer our suppliers distribution, not only in Finland but also in the Baltics and Sweden,” he explains.
Baby care product sales are also expected to continue to grow in the region, despite the economic crisis. The Scandinavian market has grown by around 0.8% each year for most of the present decade, with sales led by Svenska Cellulosa Aktiebolaget, followed by P&G and Johnson & Johnson.
DENMARK: VALUE OVER VOLUME
In Denmark, the cosmetics industry appears well placed to deal with the wider economic problems. According to Kim Christiansen, chairman of the Association of Danish Cosmetics and Detergent Industries, the sector “almost stagnated” in terms of volume, with projected growth of around 1% in 2008. Sales by value, however, were more encouraging, with a projected increase of around 5%. Leading sectors included make-up (+9%), skin care (+4%) and male skin care (+18.5%), though from a low base. However, the cosmetics sector did slow down in the last quarter of 2008, and Christiansen reported an increasing trend towards discounting.
“The Danish economy is in good shape compared to others in Europe,” says Christiansen, adding that the increasing trend towards discounting would favour local manufacturers. “There’s a significant growth in private labels and they are manufactured by local companies.”
FINLAND: COPING WELL
The Finnish Cosmetic, Toiletry and Detergent Association (TY), which represents 53 member companies (who account for approximately 90% of total domestic sales) is reasonably upbeat about the industry’s prospects during the credit crisis. The association reports that local brands, such as Lumene, are coping well against competition from the international brands.
Production figures for 2008/2009 were due out at the end of February, but the Finnish association expects sales to have slowed to around 2%, compared with 10.7% for 2007/2008. “The market is growing, and steadily, but it is definitely slower than before,” says Eeva-Mari Karine, co-ordinator for TY. “Sales of cosmetics in pharmacies are growing fastest, but on the other hand the sales volume for this sector is so much smaller than other distribution channels.”
Other local trends and fashions may bring differing implications for producers in the next 12 months. Sales of perfumes are unlikely to be affected by the credit crisis for the simple reason that, like the rest of Scandinavia, Finns prefer fragrance-free products. On the other hand, the hair care market may be vulnerable, since according to Karine, Finns spend more money proportionately on hair care than on other personal care products, which she says is unique in western Europe.
Yet Karine is optimistic for the Finnish market this year. “In Finland there are still opportunities for the cosmetic sector to grow and I think our sector will gain a little growth in 2009. The cosmetics market in Finland is highly concentrated and at present all the main players operate on a very steady basis. This suggests that the decline would probably not have a very strong impact on the cosmetics sector in Finland. However, one sign that can be seen now is that consumers have become a bit more price sensitive.”
The general pharmacy and cosmetics retail industry in Finland is expected to ride out the economic storm quite comfortably, according to a spokesman for Sirowa, which distributes a range of products to multi-product chemist stores in the country: “I doubt we will see a decline in sales, but we probably won’t see much growth.” Finland is unusual in Europe in that large chains of chemists are non-existent. Instead, each pharmacy must be individually owned and has a set limit of stock it can provide, although that does still include cosmetic products. “It’s a medieval system, but I doubt it will adversely affect chemists’ sales during the crisis,” adds the Sirowa spokesman. “People will always need medicines and when they are in the shop they will still buy other cosmetic products.”
NORWAY: IMPORT RELIANCE
The Norwegian Association of Cosmetics, Toiletries and Fragrance Suppliers (KLF) represents 21 suppliers, of which just one is a producer while all the others are importers of ready-made products. Consequently there is little domestic production of cosmetic products in Norway and sales are dominated by the major players, such as Procter & Gamble, Yves Rocher and Elizabeth Arden. One company, Maritex AS, has made something of a name for itself however by launching production of processed cod sperm as a binding agent for body lotions and make-up products.
A spokesman for the Norwegian federation says the industry was circumspect about the prospects for 2009. “It’s too early to tell,” he says. “We’re not giving out any estimates about what may happen.” The industry has seen healthy growth over the past four financial years up to 2007/08 of 6.1%, 5.1%, 6.6% and 6.7% respectively. However, it is understood that this will have dipped “slightly” in 2008/2009.
ICELAND: COLD COMFORT
It will come as little surprise that the cosmetics industry in Iceland initially struggled in line with the country’s economy. Although dominated by multinationals, the country still has a handful of small, family owned companies that produce cosmetics for domestic sale and for export. “They are having difficulties during the credit crunch like everybody else,” said a spokesman for the Icelandic Environment and Food Agency, which has a department responsible for trade issues related to the cosmetics sector. “There are a lot of sales in the industry taking place in order to simply shift goods because most of the population is sitting on the little money it has left,” he says. “Unemployment has gone from 1.8% to 8% in just a few weeks and no-one and no industry is immune from that.”
The small domestic industry, involving brands such as NoName Cosmetics, Enzyme and Purity Herbs has developed a niche in recent years by developing a range of organic and additive-free perfumes, creams, complexion cosmetics and other toiletries.
Enzyme has developed face creams that contain cod liver ingredients, while Purity Herbs uses pure water from Iceland’s glaciers for its products and lays great emphasis on the absence of chemical and artificial materials. Ásta Kristín Syrusdóttir, marketing director of Purity Herbs, said local companies appeared to have now weathered the worst of the storm. “When the crisis broke, people didn’t really know what to do so they just saved their money. We supply a number of pharmacies and because they had a lot of stock they decided to use that up before taking anything more, so that had an effect on us.”
But 2009, perhaps surprisingly, is looking more positive for the handful of Icelandic cosmetics producers. International retailers have had to increase prices by up to 100%, but local cosmetics outlets have kept rises to around 9%. “The Euro has sent the cost of supplies from Europe sky-high,” says Syrusdóttir. “But what has helped us it that people have decided to stick together and are buying Icelandic goods.”
The major change in trends, perhaps unsurprisingly, is that Icelanders now seek cheaper products. “It used to be the case that Icelanders had to have the most expensive cosmetic product, just because it was fashionable, but now they are more interested in buying Icelandic goods. They used to buy their facial care products from the inter-nationals, now they buy from us. For the time being we are doing really well. We won’t sell as much as last year but we are quite optimistic.”