asians drive the premium skin care market - Mirae Asset Global ...

Cosmetics, Asian Rushpersonal-care markets over the past decade,and Estée Lauder CEO Fabrizio Freda hasdeclared his intent to make it the company’s“second home market .” While the globalbeauty market has grown by 5% annuallyover the past 10 years, the Chinese beautymarket has expanded by 12% per annumover the same period. Prestige beauty hasproven to be a particularly dynamic segmentof the industry in China, growing in excess of20% each year.Skincare has been a key catalyst for prestigebeauty growth in China. Asian consumerstend to have more sophisticated skincareregimes compared to their global counterparts.An Asian woman, on average, will useeight different skincare products each day,including special products like whiteningcreams . A recent survey by China RealityResearch found that middle-class Chinesewomen are much more likely to trade up intheir beauty regimen, rather than tradedown in order to save money. The Chineseconsumer is most aspirational in terms ofskincare, as an overwhelming 68% surveyedsaid they would trade up compared to only2% planning to trade down.Fast-Growing Skincare MarketSkincare is a major strength for EstéeLauder, as it is the company’s most profitableand fastest-growing product segment. Assuch, the company has largely focused itsinnovation and advertising efforts in thisarea. In the fall of 2012, Estée launched aluxury skincare line specifically targeting thelocal preferences of Chinese consumers, inhopes to further penetrate the most importantmarket for the category globally. Osiao,as the brand is known, was developed over afive-year period with dedicated R&D specialistsin Shanghai who extensively studied differenttypes of Asian skin and téd the producton several thousand women across theregion. The company has ambitions forOsiao to become one of the major brands ofits Asian portfolio.A booming travel trend among emergingSales (Euro Million)3,5003,0002,5002,0001,5001,0005000Skin Care: Best Performing in Chinese Premium Category53% of Total2001Source : Euromonitor, UBS ReasearchSkincare Makeup Fragrances Hair etc.Estée Lauder is well-positionedto benefit from the seculartailwinds of the rising emergingmarket consumer.market consumers is yet another growthdriver for the prestige cosmetics industry.Estée Lauder has been able to capitalize onthe trend by shifting some of the focus awayfrom its traditional department store businessmodel toward faster-growing, moreprofitable channels, like travel retail.The company’s travel retail business hasbecome an especially important driver ofearnings growth in recent years, as it hasemerged as a key beneficiary of increasedtravel rates in Asia. Over the past decade,Chinese outbound travel activity has grownby more than 20% each year and is anticipatedto rise by 15% annually over the nextdecade to more than 100 million people .While traveling, consumers have anincreased proclivity to shop, whether in airportretail or downtown stores. And brands63% of Total2011with strong recognition in their home marketare more likely to be purchased by consumerswhen traveling abroad. Because of this,increased travel trends largely benefit multinationalcosmetics companies with strongbrand equity, like Estée Lauder. The companyrecently cited that for every $1 worth ofcosmetics sold in China, it is able to generate$2 abroad from Chinese consumers . Astravel retail trends continue to grow, EstéeLauder’s sales figures should follow closely inline.Estée Lauder offers a sustainable competitiveadvantage over its peers operating inthe personal care industry due to its pureplayexposure to the prestige beauty market,strong geographic footprint in emergingeconomies, and increased focus on highgrowth,high-margin product categories andretail channels. The company is well-positionedto benefit from the secular tailwinds ofthe rising emerging market consumer, and itcontinues to invest more heavily in the businessto gain market share globally.We believe this is one of the strongestglobal growth stories taking place in themarket today and will be following the companyclosely in years to come.Emerging Markets Insight 13