Cosmetics & Toiletries Companies Make Gains Despite Soft Market.

Registering overall growth of just over 2% in 2004, the U.S. cosmetics and toiletries industry has only recently reversed a multi-year decline in sales growth. But despite the slow advances of a mature market, the leading players have managed to make significant gains over the past ten years, according to a newly published study by Kline & Company.

While the top three leaders in sales at the manufacturers’ level — Procter & Gamble, L’Oreal, and Unilever — manage to leverage their market share with mergers and acquisitions, it is strong marketing and attention to innovation and newness that define the competition in the marketplace, as indicated in COSMETICS & TOILETRIES USA 2004.

The cosmetics and toiletries industry has been dominated by Procter & Gamble for more than a decade after the company claimed the top spot from Avon during the tremendous growth of the 1980s. For the past ten years, P&G has been followed by L’Oreal, Unilever, and Estee Lauder, with L’Oreal recently claiming the number two spot from Unilever, as L’Oreal acquired a number of brands and Unilever divested some of its own.

Below the top four positions, however, there has been significant movement, and in looking at Kline’s 40 years of data tracking the cosmetics and toiletries industry, it is apparent that while acquisitions can give an instant boost to a company’s market share, the keys to growth have shifted. Procter & Gamble acquired Clairol and Wella in 1999, and then at the beginning of 2005, P&G was able to purchase Gillette. However, such large moves are the exception rather than the rule in the mature cosmetics and toiletries market.

“Organic growth is coming through strong, well-executed marketing campaigns accompanied by newness, which helps to maintain a competitive edge,” says Lenka Contreras, vice president and head of the Consumer Products practice of Kline’s research division.

Contreras points to Limited Brands as a master of maintaining newness within its Bath & Body Works and Victoria’s Secret stores. The company has seen 5% growth for the past five years, earning approximately $1.4 billion in cosmetics and toiletry sales at the manufacturers’ level in 2004 despite spending virtually nothing on television advertising and relying instead on the visibility of its storefronts and direct mail efforts.

“The launch of Bath & Body Works in 1990 took Limited Brands from being a virtual non-player in the beauty business ten years ago up to the fifth ranking among all marketers today, which is phenomenal,” says Contreras.

Another company that has made an impressive advance in its ranking among the leaders over the past ten years is Johnson & Johnson.

Johnson & Johnson acquired Neutrogena in 1994 and Aveeno in 1998, giving it the number ten slot in the industry. Since then, the company’s attention to innovation in the skin care category — the largest and strongest growing segment of the industry — and a process of continually marketing new and well-timed products like home-use chemical peels and at-home microdermabrasion kits has allowed it to jump to the sixth position within five years. J&J generated $1.2 billion in manufacturers’ sales of cosmetics and toiletries in 2004, according to Kline’s study.

“Continued innovation and strong marketing efforts have helped these companies to advance, even though overall market growth hasn’t been spectacular,” says David Vladyka, head of Kline’s Consumer Products consulting practice.

For more information at http://www.klinegroup.com