Toiletries and Cosmetics
SIC 2844
NAICS 325620
The toiletries industry manufactures the world's perfumes, cosmetics, shampoos, and related personal toilet preparations. Coverage of general soap and detergent manufacturing may be found under the heading Soaps and Detergents..
The cosmetics and toiletries industry experienced difficult times during the early 2000s. Overall profits and growth stagnated in January 2001, and dropped even more after the September 2001 acts of terrorism in the United States. This followed regular, if unspectacular, profits for many companies through the end of 2000. Kline & Co. reported that the U.S. cosmetics and toiletries industry grew by less than 2 percent in 2003, the third consecutive year of single-digit growth. Mature markets and saturation from competing lines were major factors that contributed to flat sales. Conditions improved slightly in 2004, however, with global sales approaching US$150 billion, an increase of more than 4 percent.
Global Cosmetic Industry blamed price cutting at megastores such as Wal-Mart for the decrease in large profit margins that many department stores and other outlets typically enjoyed. In addition, sales in such stores have blurred the once definitive line between producers of luxury care products and those typically bought by ordinary consumers.
In a separate industry analysis, published in the June 2004 issue of Global Cosmetic Industry, Euromonitor data placed the global retail market for cosmetics and toiletries at US$201.5 billion in 2003, up 4.8 percent from the previous year. At US$62.9 billion (31.2 percent), Western Europe held the largest market share, followed by North America (24.6 percent), Asia Pacific (23 percent), Latin America (9.3 percent), Eastern Europe (6.2 percent), Africa/Middle East (4.4 percent), and Australasia (1 percent). The greatest growth in 2004 was attributed to growing markets such as Argentina, Brazil, Russia, and China.
Of the 11 categories tracked by Euromonitor, the top five accounted for more than 75 percent of global sales. At US$42.5 billion, hair care was by far the leading category, with 21.1 percent of sales, followed by skin care (19.1 percent), color cosmetics (13.9 percent), fragrances (11.1 percent), and bath/shower products (10.3 percent). Worldwide sales of perfume rose almost 9 percent in 2004, reaching US$25.2 billion. Increased interest in luxury brands helped drive this growth, according to Euromonitor.
As the industry headed into the late-2000s, better times seemed to be on the horizon, according to the observations of several industry leaders. Growth in anti-aging products was expected as the baby-boomer generation headed into its senior years, while new interest in grooming products for men suggested significant potential in that relatively untapped segment.
The structure of the toiletries industry is complicated by the vertical integration of many of its firms. Multinational companies from various countries are active in the market. These large multinational firms are engaged in every aspect of the production process, from the cultivation of the plants and flora used in fragrances through the final production stages. The major cosmetics companies traditionally originated as either marketing companies or research companies, yet modern corporations generally operate in both areas.
These major companies may have several brands in the market at one time. For instance, L'Oréal, the French giant, sells Lancôme brand cosmetics and fragrances in department stores, and at the same time markets L'Oréal beauty supplies in mass outlets, next to the shelf with its other brand names such as Belle Colour haircolor.
Department store sales of cosmetics stayed relatively stagnant in the late 1990s, but mass brands such as Revlon, Cover Girl, and Maybelline sold very well, harvesting double digit growth. Fragrance sales, however, run much the opposite, with department store sales higher than those at mass retail outlets. Department stores find that bringing new fragrances to the market reaps sales, but mass stores contend that tried and true scents do better on their shelves. Existing perfumes, such as Jovan for Women and Vanilla Fields, performed distinctly better in the United States than the retail launches of Coty's Raw Vanilla or Revlon's Cherish. In Great Britain, 43 percent of cosmetics and toiletries sales are at mass-market counters such as Boots, where high-end brands declined. The balance of Europe is similar, with drug stores and mass-market retailers accounting for much of cosmetic and toiletry sales. While high-end companies have traditionally avoided placing their products in mass retail outlets, some U.S. companies have begun to tap this potentially lucrative distribution channel. In 2004, for example, Estée Lauder announced an agreement to become the exclusive beauty products supplier for Kohl's stores, a discount chain with about 600 stores in the United States. Lauder will create three new brands for Kohl's, and will retain ownership of these brands.
The toiletries industry is affected by the continued threat of government regulation and intervention, consumer concern over animal rights, and environmental concerns. However, these issues are not new— they have affected the industry for more than 100 years. The first law concerning colorings in food and other goods was enacted in Germany in 1887. It remained in effect for 90 years, until a new German cosmetics law superseded it in 1977. In 1936 the second law came when the U.S. Pure Food and Drug Act was passed. What were then called "coal tar" colors were not permitted to be used in cosmetics; today they are known as colorants or synthetic organic dyestuffs. In 1952 the German Research Association published a list of approved food colorings and pigments that had proven safety records.
In the late 1960s, several fragrance suppliers united to form the Research Institute for Fragrance Materials (RIFM). Their mission was to test independently fragrances for safety. RIFM tested approximately 1,400 materials and restricted or prohibited the use of about 100. The International Fragrance Association (IFRA), representing 100 manufacturers in 15 countries, also works to conduct these types of tests independently and impartially and issues recommendations for use, as well as restrictions, through its "Code of Practice."
Consumer outcry against the use of animals in cosmetics research has led to numerous changes in the industry. One particular test that came under attack was Lethal Dosage 50 or LD50, which involved the force-feeding of animals with cosmetics until half of the animals died. On 23 December 1980, Revlon announced that it was setting up a research project with the Rockefeller University of New York to find an alternative to the Draize Testa test in which albino rabbits' eyes where injected with shampoos to test for irritation, often resulting in blindness.
Companies continue to search for alternatives to animal testing. A January 1995 article in Self magazine reported that 40 percent of U.S. cosmetics makers had begun to test cosmetics on artificial skin rather than lab animals. In this process, cells from discarded human foreskins are cultured on a nylon mesh to form a living laboratory skin for testing.
Concern about aerosols and fluorocarbons emerged in the mid-1960s. The ozone depletion theory suggests that release of fluorocarbons into the air lowers the ozone level in the atmosphere—the layer that protects the earth against the heat of the sun. The U.S. government ordered that fluorocarbons no longer be used after 1978. Other product ingredients also continue to cause concern, such as a new group of skin care ingredients that emerged on the marketplace in the early 1990s called alpha hydroxy acids (AHAs). In 1997, AHA-product sales approached US$1 billion. The substances include malic acid (from apples), citric acid (from citrus fruit), tartaric acid (wine), lactic acid (sour milk), and glycolic acid (sugar cane). Studies indicated that AHAs can effectively treat dry skin, cleanse pores, improve skin tone and texture, reduce skin discoloration and age spots, and protect against damage from harsh substances. However, the U.S. FDA received over 100 reports of blistering, bleeding, rashes, and stinging from such products.
Senator Edward Kennedy, in a September 1997 press release regarding the FDA reform bill, quoted a GAO study that found that "cosmetics are being marketed in the United States which may pose a serious hazard to the public." The study reported 125 potentially carcinogenic substances used in cosmetics. In December 2001, according to the San Francisco Chronicle, the FDA reported that companies would need to provide warning labels if they proceeded to manufacture certain popular dandruff control products with higher levels of coal tar. U.S. and U.K. warnings to consumers and hairdressers were released in 2001 that said there were studies suggesting a link between certain permanent hair dyes and bladder cancer. In 2002, a new federal Child-Resistant Closure Rule came into existence that affected toiletries such as baby oil containing 10 percent or more hydrocarbons by weight with a viscosity of less than 100 Saybolt Universal Seconds (SUS) at 100 degrees F., according to Global Cosmetic Industry. The high-hydrocarbon content was associated with a number of infant deaths and thousands of emergency room visits, according to FDA spokespersons.
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