Swedish cosmetic group firing on all cylinders
emerging markets has put Swedish cosmetic group Oriflame on route
for its sixth consecutive year of sales growth, writes Sibonelo
Radebe.
Oriflame sells its skin care products, colour cosmetics, fragrances and toiletries through a sales network which has swelled to about 1,5 million independent agents operating outside the traditional retail environment in 55 countries. The network delivered seven per cent growth in revenue, reaching €331 million during the first half of 2004, while operating profit increased by six per cent to reach €58.6 million.
The group recently launched its products in Lebanon, thereby sustaining its penetration into emerging markets. It debuted in Moldova, Armenia and Vietnam last year. Two major product supply centres representing the biggest infrastructure roll out in the group's history are coming on board in China and Russia.
These developments are set to further increase the significance of the markets outside west and central Europe for Oriflame's financial health. Already the group derives more than 50 per cent of its revenue outside the west and central European markets. Eastern Europe contributed the largest chunk representing about 46 per cent of revenue while Latin America and Asia contributed five per cent each.
Hopes of this expansion have been pinned on the growing share of cosmetic expenditure, as a percentage of total disposable income amongst consumers across the world. The trend is expected to rise as more people are engulfed by the health and beauty craze.
The growth potential is enormous in the emerging markets following the increasing liberalisation of many former centrally planned economies particularly in Eastern Europe and Asia where Oriflame is setting up major distribution infrastructure.
"As GDP per capita continues to approach western levels in a number of emerging markets, a disproportionate amount of growth in cosmetics and toiletries is expected to come from such regions," said the group.
Eastern Europe is already flying high producing a 14 per cent sales growth during the period under review. This growth level is in line with Oriflame's long-term objective of growing sales by between 10 per cent and 15 per cent accompanied by an 18 per cent operating margin.
While not currently represented in China, the group has taken a keen interest in that market, and a letter of intent to purchase land within the economic and trading development zone of Kunshan near Shanghai has been signed.
The experience of other cosmetic groups in China is encouraging. For instance, Nuskin the American equivalent of Oriflame reported a sales increase of 400 per cent in mainland China in its latest figures.
When China comes on board it will join countries like India and Sri Lanka which in the latest figures reported double digit growth.
This expansion is being complemented with a revamped marketing strategy. The group's catalogues carried by sales agents on their face to face sales drive are receiving a facelift to reflect the changing product range recently boosted by introduction of a new brands such asOriflame Essentials daily skin care range, the fragrance Freya, and the Visions color cosmetics range.
These products are sold outside the traditional retailing environment by independent agents. If implemented successfully, this model produces significant operational benefits translating into superior returns because the sales infrastructure is established with negligent capital expenditure.
