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Research firm publishes report on health of cosmetics market

By Guy Montague-Jones , 25-Aug-2008

The Wall Street Transcript has published a 52-page report on the health of the cosmetics market in uncertain economic times.

Chief executives and analysts were interviewed for the report, which takes an in-depth look at how the economic slowdown and energy cost pressures are affecting the market.

The Wall Street Transcript interviewed Linda Bolton Weiser, from Caris & Company, who said beauty sales have stood up fairly well in the current climate but margins have suffered under the weight of higher oil prices.

Bolton Weiser predicted that with raw material and energy prices likely to remain high companies would turn to cost-cutting programs and restructuring to protect their profits.

Joseph Altobello from Oppenheimer & Co agreed with this analysis.

He told the Wall Street Transcript: “It’s amazing how cost saving projects move to the front of the line when these companies come under commodity cost pressures.

“You are seeing a number of companies across the board really start to cut back on any type of discretionary spending in order to maintain margin levels.”

Meanwhile, Nik Modi from UBS Securities emphasized the importance of innovation.

Modi said there is clearly a slowdown in the US especially in the prestige market and the signs are that this will spread to Western Europe.

To protect themselves against reduced spending at beauty counters, Modi said companies have now learnt that innovation rather than marketing is the best way forward.

Making carefully chosen acquisitions in emerging markets is another strategy that cosmetic companies may employ to boost their top-line, added Modi.

He said major cosmetics players are afraid of tackling the local competition in emerging markets without considerable local knowledge. Acquiring small companies in these markets gives them the understanding they need to take maximum advantage of the growth potential offered.

The analyst cited the recent acquisition of India-based Forest Essentials by Estee Lauder as an example of this strategy.

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