BW Confidential - Issue #8 - October/December 2011 - (Page 88)

Market watch: Russia Country overview The market’s return by Yana Krupenina After a tough few years, the Russian beauty market looks to be recovering. BW Confidential analyzes the state of the market, retail trends and what lies ahead T he Russian beauty market seems to have made a good recovery from the recession, which hit the sector hard in 2008 and 2009. Last year total cosmetics and fragrance sales were up by 11% to $11bn, and the market is forecast to see growth of 14% in 2011, according to industry sources. At the height of the crisis, consumers had become a lot more selective about what they were buying and looked to cheaper brands. This saw growth in the prestige segment decline significantly: from a high of 20% growth by value in 2007, prestige cosmetics were flat in 2009, according to Euromonitor. Imported prestige brands also suffered as a result of the devaluation of the ruble. The category however, managed to return to growth in the 10 to 15% range in 2010. Indeed, last year Russians saw their income begin to increase and the country’s consumer confidence index rose. Consumers began to spend again, almost in line with pre-crisis buying behavior, say analysts. “The crisis definitely affected our brands. However, the second half of 2010 and the beginning of 2011 show a steady sales growth, which leads us to believe that brands have seen their consumers come back and have acquired new ones,” comments distributor of premium brands MBG Beauty head of advertising and PR Tatiana Kupriyanova. This has led brands to introduce higher-priced and more sophisticated products, contributing to the ‘premiumization trend’. Fragrance is still a leading category, with sales of $2.2bn in 2010, but this segment is said to have suffered more than make-up and skincare over the past two years. Higher growth is expected to come from color and skincare categories, rather than fragrance. Last year make-up managed to put in good growth, up 11.7% to $1.9bn. Not growing fast enough? But while this growth is encouraging, some players had expected the market to recover faster and are disappointed not to see the 20% increases experienced five years ago. Others say the market, especially in the main cities of Moscow and St Petersburg, has reached a certain level of saturation. The lure of prestige Despite the rise of private-label, prestige beauty brands continue to be seen as superior and as having better technology and ingredients. A study conducted by consulting company Amico in 2010 showed that 44.3% of respondents preferred prestige cosmetics, although around 92.3% said that they buy mass-market items. Brand image and luxury positioning plays an important role in Russians’ product preference. “Exclusivity has been rated as the first reason for buying prestige cosmetics for image-addicted Russian consumers. This is still one of the most affordable ways for them to enter the luxury market,” the study stated. Nine out of 10 respondents (91%) in Moscow and St Petersburg purchased luxury cosmetics in perfumery and cosmetics chains, according to Nielsen. These chains are liked for having a wide offer and offering discounting campaigns and lower prices than department stores and standalone stores. For Russians, well-trained staff and a wide assortment are the most important factors when it comes to choosing a store. 88 In addition, Russians began travelling again and spending abroad rather than in the domestic market. Indeed, the second most popular distribution channel for Russians after perfumery chains is duty-free stores, according to Nielsen. The increase in cheaper and private-label beauty may also be affecting the market’s value sales. Mass-market products are said to be performing better than prestige, even though consumers are beginning to spend a little more freely. Indeed, demand for mass products is one reason for the rapid growth of beauty in the drugstore channel. More retailers have also launched their own lines or are expanding their in-house brands. Leading perfumery chain L’Etoile for example, introduced a private-label make-up line in June. And although Russians are still attached to the cachet of high-end Western brands, some consumers may stick to the private-label or cheaper lines they bought during the recession. Commenting on its first-half sales in June, L’Oréal ceo Jean Paul Agon said that the development of Eastern Europe was disappointing, and that the region—particularly Russia and Ukraine—was weakening. L’Oréal is the second largest player in prestige the October-December 2011 - N°8 - BW Confidential

Table of Contents for the Digital Edition of BW Confidential - Issue #8 - October/December 2011

Cover
Comment
Contents
Update
- Brand & retail news recap
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
Launches
- The latest in fragrance, skincare & make-up
Interview
- Estée Lauder Companies group president international Cédric Prouvé
Insight: Fragrance
- Category overview
- Retailer roundtable
- Retailing strategies
- Rare fragrance brands
- Launch roundup
Wellness
- Spa chains
- Spa case studies
Retail
- E-commerce
- Store concepts
Travel retail
- Sector analysis
- Hainan & China Duty Free Group
- Retail concepts
- Passenger habits
Digital
- Industry experts on harnassing the power of social networks
Radar
- Six up-and-coming beauty brands
Market watch: Russia
- Country overview
- Prestige retailing
- Industry viewpoint
Packaging
- Market outlook
- Sustainabilty
- Trends
Last word
- Buyology Inc president & co-founder Donna Sturgess

BW Confidential - Issue #8 - October/December 2011