Recession hits Canadian cosmetics but there may be light at the end of the tunnel


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Recession hits Canadian cosmetics but there may be light at the end of the tunnel

Related tags Currency United states dollar Cosmetics

The economic downturn has taken its toll on the Canadian cosmetic manufacturing industry with revenue only growing a meager 0.7 percent per year to an average $1.7 billion in the last five years; but the next five are tipped to fare better.

Market researcher IBISWorld’s latest report ‘Cosmetic and Beauty Products Manufacturing industry’ in Canada, looks at the industry during the last five years to 2012 and reports that this mature market has faced some tough challenges.

“A decline in per capita disposable income in 2009 hurt industry performance from 2009 to 2011 due to weakened demand for high-margin luxury products,”​ says IBISWorld industry analyst Nikoleta Panteva.

“Still, sustained increases in disposable income are expected to underpin revenue growth of 2.9 percent in 2012.”

Brighter future

Revenue is also projected to fare better over the next five years, with per capita disposable income expected to continue to slowly rise, resulting in stronger downstream demand from wholesalers and retailers.

However, competition remains a key feature in the industry, with internal competition existing among operators on the basis of price, quality and ingredients.

According to IBISWorld, over the past five years, the focus on organically-derived inputs has risen, urging more companies to introduce natural products.

Currency effect

Industry participants also face external competition from imports. Imports satisfy 94.9 percent of the domestic demand for cosmetics and have risen from 89.2 percent over the past five years.

“As the Canadian dollar has appreciated, gaining strength against its trading partners' currencies, foreign-made goods have become relatively cheaper domestically,”​ adds Panteva. “In 2009, the Canadian dollar gained significant strength over the US dollar, causing imports to jump.”

IBISWorld anticipates this trend will continue over the next five years as the domestic currency continues its upward trend.

The high and rising price of crude oil, which represents a key input in most industry products, has also cut into industry profitability over the past five years.

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