Product and Service

Companies included in cosmetic& perfumes sector in personal care industry primarily are manufacturers, marketers, and distributors of fragrance, color cosmetics, skin& body car, and hair Solon.


Demand for Product and Service

As indicated by typical sales data, the demand from retailers for cosmetic and fragrance products seems to being declining in the past several years as mall/stores’ traffic slowed down. However, the demand will be gaining support from fundamental factors.

The Sector

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend
  1. Generally, the demand from retailors for cosmetic and fragrance products has been weak and presented downward trend in the past three years as indicated by the typical company’s data of sales.
  2. Weak demand has resulted in intensive competition among different brands and companies thus have to turn to lower price to keep sale volumes. Increased consolidation activities may be also a result of increased competition and decreased margin of companies in this sector.
  3. Unfavourable retail industry climate, as it does on other consumer manufacturer, has had less impact on higher price products and had less impact on European and Asian market than on US market.
  4. Companies pursue growth from e-commerce to offset the pressure from slowing down store traffics.
Causes behind the trend
  1. Demand for products in this sector should be able to gain support due to general economic development, favourable demographic changes, growth in household income, and change in consumers’ lifestyle.
  2. Slowing down store/mall traffic significantly has influenced sales of companies in this sector that traditionally depend on retailers as major distribution channels.
Industry Future
  1. Traditional distribution mode is facing challenge and those companies that are more flexible in adjusting their product to deal with new shopping habit of consumers or companies that provide high end products may feel more comfortable in the current market.


General Financial Performance of Companies In the Sector

It seems that demand, from retail distribution channels, for cosmetic, perfume, or skin& hair care products of companies in this sector in US market has been weak since 2015. This has been reflected by the decreasing sales volumes among most of those companies (-3-1% of annual growth rate) during this period. International market seems to have had a better performance than US market.
The downward trend in US market seems also related to the slowing down shopping mall traffics. And this may be the reason why higher price products performed better. And it seems that it may be helpful in improving sales performance of companies as they give more focus on e-commerce sales. Unfavourable industrial retail environment may probably be behind the increasingly consolidation activities in this sector.
Sales pressure resulted in increasing pressure on price and the intensive promotions obviously hurt margin of companies in this sector. We have seen a slight declining in typical companies ‘gross margin (about 59% in 2017) and the larger spending in SG&A including promotion (typical SG&A as percentage of sales is about 53% in 2017).  Therefore, the typical operating margin went down to about 7% from about 12% since 2014.
The typical average stock price/sales ratio is about 1.5.

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