Od4961 lipstick manufacturing industry report
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Od4961 lipstick manufacturing industry report Od4961 lipstick manufacturing industry report Document Transcript

  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   1IBISWorld Industry Report OD4961Lipstick Manufacturing in the USJanuary 2012 Mary GotaasLasting color: Demand stayed strong during therecession, but growth will require innovation2 About this Industry2 Industry Definition2 Main Activities2 Similar Industries2 Additional Resources3 Industry at a Glance4 Industry Performance4 Executive Summary4 Key External Drivers6 Current Performance8 Industry Outlook10 Industry Life Cycle12 Products & Markets12 Supply Chain12 Products & Services13 Demand Determinants13 Major Markets15 International Trade16 Business Locations18 Competitive Landscape18 Market Share Concentration18 Key Success Factors18 Cost Structure Benchmarks20 Basis of Competition21 Barriers to Entry22 Industry Globalization23 Major Companies23 The Procter & Gamble Company24 The Estee Lauder Companies Inc.25 Revlon27 L’Oreal SA29 Operating Conditions29 Capital Intensity30 Technology & Systems30 Revenue Volatility31 Regulation & Policy32 Industry Assistance33 Key Statistics33 Industry Data33 Annual Change33 Key Ratios34 Jargon & Glossarywww.ibisworld.com | 1-800-330-3772 | info@ibisworld.com
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   2Companies in this industrymanufacture lipstick. Companies thatmake a wide variety of cosmeticproducts, however, only themanufacture of lipstick, primarilymanufacture lipstick and lip stains areincluded within this industry (lip glossand lip balm are excluded).The primary activities of this industry areManufacturing of lipstickManufacturing of lipstain32561 Soap & Cleaning Compound Manufacturing in the USCompanies in this industry are primarily engaged in manufacturing and packaging soap and other cleaningcompounds, surface active agents, textile and leather finishing agents and toothpaste.32562 Cosmetic & Beauty Products Manufacturing in the USThis industry blends, compounds and packages beauty products and cosmetics. Industry products includeperfumes, make-up items (including lipstick), hair preparations, face creams and other toiletries.44612 Beauty, Cosmetics & Fragrance Stores in the USStores in this industry sell a range of beauty products including make-up, hair-care, bath and fragranceproducts.Industry DefinitionMain ActivitiesSimilar IndustriesAdditional ResourcesAbout this IndustryFor additional information on this industrywww.cosmeticindustry.comCosmeticsindustry.comwww.revlon.comRevlonwww.census.govUS Census Bureauwww.fda.govUS Food and Drug AdministrationThe major products and services in this industry areLip stainMatte lipstickOther (e.g. lip liner)Sheer lipstickIBISWorld writes over 700 USindustry reports that are updated upto four times a year. To see all reports,go to www.ibisworld.com
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   3Index100607080901703 05 07 09 11 13 15YearConsumer sentiment indexSOURCE: WWW.IBISWORLD.COM%change8−12−8−4041804 06 08 10 12 14 16YearRevenue EmploymentRevenue vs. employment growthProducts and services segmentation (2012)45.6%Sheer lipstick40.4%Matte lipstick9%Lip stain5%Other (e.g. lip liner)SOURCE: WWW.IBISWORLD.COMKey StatisticsSnapshotIndustry at a GlanceLipstick Manufacturing in 2012Industry Structure Life Cycle Stage MatureRevenue Volatility LowCapital Intensity HighIndustry Assistance LowConcentration Level HighRegulation Level MediumTechnology Change MediumBarriers to Entry MediumIndustry Globalization MediumCompetition Level HighRevenue$2.1bnProfit$228.4mExports$262.6mBusinesses69Annual Growth 12-173.2%Annual Growth 07-122.8%Key External DriversConsumersentiment indexDemand from beauty,cosmetics andfragrance storesDemand fromdepartment storesNumber of adultsaged 20 to 64Trade-weighted indexDemand from pharmaciesand drugstoresMarket ShareThe Procter &Gamble Company25.7%The Estee LauderCompanies Inc.17.4%Revlon 16.5%p. 23p. 4FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33SOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   4Key External Drivers Consumer sentiment indexThe consumer sentiment index reflectstrends in unemployment and disposableincomes. When sentiment is high,consumers are more likely to purchasethis industry’s high-end goods. Thisdriver is expected to increase during2012, creating a potential opportunity forthe industry.Demand from beauty, cosmeticsand fragrance storesBeauty and cosmetics stores create strongdemand for the industry’s products,especially as they rise to prevalence andfavor among consumers. As Americansswitch to this type of retail format, awayfrom department stores, this driver willincrease, causing industry revenue togrow. IBISWorld expects this driver toincrease during 2012.Demand from department storesThe level of demand derived from thiskey market segment has a stronginfluence on the performance of theindustry. Many lipstick products are soldin department stores. However, somedepartment stores are losing ground tocompetitively priced massmerchandisers. This driver is expected toincrease slowly over 2012.Number of adults aged 20 to 64Women aged 35 to 54 are the primarybuyers of products within this industry.As the number of people in this groupcontracts or expands, demand forExecutiveSummaryThe Lipstick Manufacturing industry hasexperienced long-lasting growth in thepast five years. Regardless of volatileconsumer sentiment and disposableincome, consumers continued to demandnew lipstick. During the recession,consumers indulged themselves insmaller luxuries, such as lipstick, to lifttheir spirits. Then as the economy beganto recover, they continued to buy newproducts to keep up with fashion trends.This growth did require effort from themanufacturers. Changing consumerpreferences and fashion trendsnecessitated new products, andcompanies had to continually innovate.From 2007 to 2012, industry revenue isexpected to grow at an average annualrate of 2.8% to $2.1 billion. In 2012alone, revenue will increase about 4.1%as consumer spending rises.From 2012 to 2017, industry revenuewill continue to remain lush. Highdisposable income and consumersentiment will enable consumers tospend more on discretionary productssuch as cosmetics. In addition, theindustry will continue to focus oninnovation and new products will drivegrowth. In the five years to 2017, revenueis forecast to expand an average 3.2% peryear to $2.4 billion. Profit margins willalso rise since firms improved efficiencyduring the recession by cutting costs andas sales continue to increase.Although the industry experiencedgrowing revenue, the industry has beenconsolidating. From 2007 to 2012,company numbers have decreased byabout 1.4% per year to 69 companies. Inorder to gain more market in thesaturated cosmetic market, largercompanies have been acquiring smallerones. As company numbers havedropped, employment numbers havefollowed. In the past five years,employment numbers have decreased anaverage 3.4% per year to $127.9 million.Industry PerformanceExecutive Summary   |   Key External Drivers   |   Current PerformanceIndustry Outlook   |   Life Cycle StageThe saturated industry will continue to focus oninnovation and new products to drive growth
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   5Industry PerformanceKey External Driverscontinuedlipsticks will likely fluctuate in line. Thisdriver is expected to increase slowlyduring 2012.Demand from pharmaciesand drugstoresDrug stores, mass merchandisers andsupermarket chains make up the largestmarket segment; therefore, the level ofdemand generated from this segment hasa strong bearing on the performance ofthe industry. However, as consumersmove to higher end lipsticks, drug storeswill feel the competitive pinch fromspecialty stores. This driver is expected todecrease slowly during 2012, posing apotential threat to the industry.Trade-weighted indexBecause this industry is moderatelyinvolved in international trade, anappreciation of the US dollar makescosmetic products less attractiveinternationally. This driver is expected toincrease during 2012.%change4−8−6−4−2021705 07 09 11 13 15YearDemand from department storesSOURCE: WWW.IBISWORLD.COMIndex100607080901703 05 07 09 11 13 15YearConsumer sentiment index
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   6Industry PerformanceLipsticks last throughthe recessionLipstick is a discretionary product andis, therefore, affected by changes inconsumer sentiment and disposableincome. During the recession, whenunemployment rose and the stockmarket plummeted, disposable incomeand consumer sentiment declined. As aresult, many Americans refrained frommaking discretionary purchases andindustry revenue decreased 1.9%. Thisdecline was not as drastic, however, asmany other industries that producediscretionary goods. Althoughdisposable income was limited, manyconsumers indulged themselves insmaller luxuries, such as a fancy cup ofcoffee and lipstick, which helped boostconsumer morale during a difficulttime. Consumers did reduce theamount they spent on lipstick, though.Color cosmetics has traditionally beenone of the few areas in beauty productsthat has been dominated by brands, butin 2009 sales of retailers’ private-labelcosmetics increased as consumerslooked for cheaper lipstick options.When the economy began to reboundin 2010 and 2011, the LipstickManufacturing industry followed suit.Disposable income increased andAmericans’ confidence in the economyrose, prompting consumers to expandtheir spending. Cosmetic salesexpanded, especially for higher-endproducers like Estee Lauder, asconsumer who had switched to cheapermake up during the recession switchedback to previous products.In addition to rising income,consumers spent more on lipstick in thepast two years as lipstick wearingbecame a rebounding trend incosmetics. Prior to 2010, lip gloss wasextremely popular among consumers.Lip gloss is cheaper and is often a bettermoisturizer for lips. In 2010 and 2011,however, lipstick wearing became morefashionable. Nude and bold colorlipsticks invaded runway beauty looksand consumers quickly began todemand lipsticks once again. This trendof nude and bold colors is expected tocontinue: as such, major player EsteeLauder introduced nude and neon lipcolor under their Bobbi Brown brand.New lip colors include atomic orange,neon pink and uber beige.Along with increasing sales, profithas been expanding. In 2012IBISWorld expects profit (earningsbefore interest and taxes) to reach11.1% of industry revenue, compared toCurrentPerformanceThe Lipstick Manufacturing industryhas been more than resilient in thepast five years. Despite volatiledisposable income and shifts inconsumer sentiment, industry revenueis expected to grow at an averageannual rate of 2.8% to $2.1 billion from2007 to 2012. Consumers indulging insmaller luxuries during the economicdownturn and new consumer makeuptrends kept lipstick sales afloat duringthis time period. However,manufacturers have had to continuallyintroduce new products to keep upwith American makeup trends andcompetition with other facial products,such as lip gloss. In 2012, industryrevenue is projected to grow 4.1% asconsumers purchase new lipstick toconform to new makeup trends.During the recession,consumers opted forcheaper, private-labellipstick varieties
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   7Industry PerformanceLipsticks last throughthe recessioncontinued10.0% in 2007. Companies have beenconsolidating their manufacturingfacilities, which have reduced costsand improved profit margins. Alsorising sales have continued to boosttotal profit.Consolidation Although industry revenue has beenrising, the industry has beenconsolidating. From 2007 to 2012,company numbers have declined at anaverage annual rate of 1.4% to 69 firms.Industry players face high competition,and organic growth can be difficult togenerate due to a very saturated market.Therefore, firms gain market share and alarger customer base by acquiring othercompanies. In 2010, for instance, EsteeLauder acquired Smashbox Cosmetics,which increased the company’s customerbase among younger women.Along with consolidation, theindustry’s establishment numbers andemployment numbers have beendeclining. With declining sales during theTrends andinnovationIntroducing new products andimproving existing products is a keyfactor in keeping sales constant in theLipstick Manufacturing industry.Manufacturers need to be aware ofbeauty looks on fashion runways andoverarching consumer trends. Overallconsumer preferences have shifted inthe past five years, resulting in newkinds of lipsticks. One major consumertrend is that Americans’ schedules arebecoming fuller and thereforeconsumers are looking for convenientand time-efficient products. As a result,this industry continues to focus onproducing long-lasting lipstick. In2009, Revlon introduced RevlonColorStay Ultimate liquid lipstick, withpatented long-wearing technology andfood-proof wear for up to 12 hours.Since then, the product has beenimproved and is advertised to last up to24 hours. Also with busier schedules,consumers have less time to keep theirface primped and healthy, so lipstickproducers continue to focus on offeringlip color that not only looks great butimproves the healthiness of lips. Majorplayer Procter & Gamble recentlyintroduced CoverGirl LipPerfectionLipcolor. The product is said to improvethe moisture levels and smoothness oflips in just seven days.Another rising trend among consumersis an increased demand for natural andorganic products. Americans arebecoming more health-conscious and arebecoming more aware of the chemicals intheir everyday consumer products.Increasingly, Americans are moving awayfrom chemical-based products and towardmore natural products. This trend holdstrue in cosmetics too: Americans aredemanding cosmetics with naturalingredients. Smaller niche cosmeticproducers have been able to benefit fromthis trend. Companies such as BareEscentuals pride themselves on producing100.0% natural cosmetics. The companyoffers 100.0% natural lip color under itsbareMinerals brand. These products donot have parabens, sulfates, synthetic dyesand petrochemicals.Manufacturers areincreasingly catering toAmericans’ demand fornatural products
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   8Industry PerformanceConsolidationcontinuedrecession, companies focused onimproving manufacturing efficiencies andclosed down underperforming facilities.As plants closed, employment numbersdeclined an average 5.0% per year to anestimated 2,092 employees in 2012.Consumer preferencesand new productsSimilar to the previous five years,innovation will remain very importantto this industry’s growth potential.With so many choices of lipsticks,industry participants will continue toroll out new lipsticks to attractcustomers. Long-lasting lipsticks andmoisturizing lipsticks will keep beingintroduced into the marketplace. Theseimprovements cater to the busyAmerican who does not have time tore-apply makeup or improve the healthof their lips. The irony of theseimprovements is they do not comehand and hand. Sheer and stainlipsticks tend to be more moisturizingthan other types of lipsticks, but theirpigmentation is weaker, which maycause the color to fade faster.IBISWorld also expectsmanufacturers to change thepackaging of their lipsticks. With somany consumers constantly on therun, industry participants are expectedto produce goods that are easier toapply. For instance, industry playerExude! offers lipsticks in clear tubesthat twist to release the gel colorformula. The company’s lipstickapplicator makes it easier for womento put on lipstick without a mess.Improved applicators will help promptnew revenue for this industry.Manufacturers are also projected toreevaluate the ingredients they put intheir lipsticks. Like the previous five-yearperiod, consumers will demand organicand natural products. In order to stayIndustryOutlookThe Lipstick Manufacturing industry isnot projected to experience much changeover the five years to 2017. The industry ismature and lipstick is widely acceptedamong consumers, so improvements inthe products entice customers tocontinually buy new lipsticks. With thesefactors taken into account, IBISWorldexpects industry revenue to grow at anaverage annual rate of 3.2% to $2.4billion. The industry will display othertraits that are typical of a mature industry,including greater exports and higher profitmargins for industry participants.The rebounding economy willpositively affect the industry, promptingconsumers to continue in theirspending on discretionary items. In2013, revenue is forecast to grow 3.8%as disposable income increases andconsumers increase their confidence inthe economy. Meanwhile, the numberof companies participating in theindustry is expected to fluctuate,ultimately displaying an averageincrease of 0.3% from 2012 to 2017.With a saturated market, new entrantswill find it difficult to establishthemselves among large players likeProcter & Gamble and Estee Lauder;however, some firms may be able tosurvive by catering to a niche market.With so many lipstickchoices, producers willroll out new lines toattract customers
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   9Industry PerformanceConsumer preferencesand new productscontinuedcompetitive, firms will have to create newgoods that attract these customers. Inaddition, consumers are concerned overhaving animal by-products in theircosmetics and are expected to steer awayfrom these goods. If large lipstickproducers do use animal by-products,IBISWorld expects them to create alipstick line without these ingredients toattract customers with these concerns.With all these shifts in consumerlifestyles and preferences, research anddevelopment (R&D) will remain a keycost for this industry. In 2012, R&D isexpected to account for about 14.8% ofindustry revenue. Cosmetic laboratoriesand highly skilled workers makeinnovation a high cost for the industry.R&D is expected to rise in the next fiveyears, but with revenue increasing, R&Pcost margin will remain the same.Meanwhile, profit margins are expectedto grow. With improved efficiency in theprevious five-year period and growingdemand for lipstick, profit margins willstrengthen to about 11.5% in 2017. Alongwith profit, total wages are forecast toincrease. From 2012 to 2017, wages areprojected to rise at an average annualrate of 2.5% to $144.7 million.Business abroad Although innovation boosts revenue foran industry in a saturated market, sellingproducts internationally also gives theindustry a push. Over the five years to2017, exports are expected to increase byan average annual rate of 6.4% to $358.3million. Growing income in emergingeconomies is expected to facilitate higherlipstick sales overseas. Somemanufacturers have already establishedoperations overseas, and IBISWorldexpects this trend to expand in 2016.Manufacturers will have to change someproducts to appeal to internationalcustomers. For instance, many consumersin the Middle East follow a halal diet andtherefore cannot use any goods thatcontain pork by-products or alcohol.%change16−12−8−4048121804 06 08 10 12 14 16YearRevenue ExportsRevenue vs. exportsSOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   10Industry PerformanceThis industry is highly competitive,limiting the number of participantsProduct segments are well defined, butinnovation drives demand for new productsThe industry’s value added remainsin line with US GDPLife Cycle StageSOURCE: WWW.IBISWORLD.COM302520151050–5–10–10 100 20–5 155 25 30%Growthofprofit/GDP%GrowthofestablishmentsDeclineCrash or Grow?PotentialHiddenGemsFuture IndustriesQualityGrowthHigh growth in economicimportance; weaker companiesclose down; developedtechnology and marketsTimeWastersHobby IndustriesMaturityCompanyconsolidation;level of economicimportance stableShake-outShake-outQuantityGrowthMany new companies;minor growth in economicimportance; substantialtechnology changeKeyFeaturesofaMatureIndustryRevenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brandsSoap&CleaningCompoundManufacturingPharmacies&DrugStoresDye&PigmentManufacturingCosmetic&BeautyProductsManufacturingDepartmentStoresLipstickManufacturing
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   11Industry PerformanceIndustry Life Cycle The Lipstick Manufacturing industry is inthe mature phase of its life cycle, moststrongly indicated by its stagnantcontribution to the US economy. Industryvalue added (IVA) is forecast to grow atan average annual rate of 2.4% over the10 years to 2017. Gross domestic product(GDP) is expected to grow 1.9% per yearover the same time, so the industry addsonly marginal value to the economy.Additionally, the number of industryplayers has been declining in the fiveyears to 2012 and is expected to remainstagnant over the next five years. Thistrend indicates that opportunities are notreadily available for new entrants, leavingthe existing operators dominant. Thedomestic market fully accepts theindustry’s products, so little room is leftfor new products. Manufacturers haveincreased their exports over the past fiveyears, growing at an average annual rateof 5.9%. In 2012, international marketsaccount for 12.8% of industry revenue.IBISWorld projects that the marketwill expand even further to account for14.9% of revenue by 2017.Product innovation is a key componentof industry growth. Over the five years to2012, introductions and developments ofnew varieties of lipstick have boostedconsumer demand. Promises of long-lasting color and healthier lips have keptmanufacturers viable and profitable.This industryis Mature
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   12Products & ServicesAlthough many industry operatorsproduce a variety of lip cosmetics, thisindustry includes only the manufacturingof lipstick, lip stain and some lip linerproducts that use the same productionprocesses and facilities. The industrydoes not include the manufacture of lipgloss. Sheer lipsticks account for about45.6% of total industry revenue, whilematte lipsticks currently account for anestimated 40.4% of industry revenue.Sheer lipsticks generally contain asignificant amount of oil, with less waxand pigment than matte lipsticks, makingthem more translucent. Matte andsemi-matte lipsticks contain more waxes,filling agents (such as silica) andpigment. Lip stains are estimated tomake up 9.0% of industry revenue. Lipstains are mostly water and gel, thoughProducts & MarketsSupply Chain   |   Products & Services   |   Demand DeterminantsMajor Markets   |   International Trade   |   Business LocationsKEY BUYING INDUSTRIES44611 Pharmacies & Drug Stores in the USPharmacies and drug stores selling an array of cosmetics including lipstick.44612 Beauty, Cosmetics & Fragrance Stores in the USSpecialty beauty supply stores sell a range of industry products.45211 Department Stores in the USDepartment stores sell high-end industry products.99 Consumers in the USA number of players and subsidiary brands in the industry sell their products directly toconsumers, through websites, catalogs and manufacturer owned stores.KEY SELLING INDUSTRIES32513 Dye & Pigment Manufacturing in the USLipstick manufacturers purchase key product ingredients from this industry.32519 Organic Chemical Manufacturing in the USLipstick manufacturers source organic chemicals from companies in this industry.56191 Packaging & Labeling Services in the USThis industry provides lipstick manufactures with contracted packaging and labeling services.Supply ChainProducts and services segmentation (2012)Total $2.1bn45.6%Sheer lipstick40.4%Matte lipstick9%Lip stain5%Other (e.g. lip liner)SOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   13Products & MarketsMajor Markets Mass merchandisers and drugstoresMarkets for the Lipstick Manufacturingindustry range from mass merchandisersto direct sellers. In 2012, IBISWorldestimates that mass merchandisers anddrugstores account for nearly half of allsales (46.4%). This segment’s share of thepie has been relatively steady over theDemandDeterminantsA wide array of discretionary variablessways demand for industry products. Forexample, fashion trends, new productdevelopments and heavy industrymarketing play a strong role ininfluencing demand.Industry players spend significantsums on developing and marketing newproducts to increase demand in anotherwise mature and saturatedmarketplace. Marketing is aimed atconvincing consumers of better quality,multifunctionality and convenience.Furthermore, fashion swings and trendscan have a significant impact on industryperformance and it is crucial for industryoperators to market themselves asfashion forward and in-step with currenttrends. For example one factor boostingindustry sales over the current period isa return to rich and dramatic lip colorsin high profile runway shows. Thisfashion trend has helped boost lipsticksales and decrease external competitionfrom more muted industry substitute lipglosses and balms.Physiological and environmentalattitudes also determine demand forindustry products. Like the broadercosmetics and beauty sector, industryproducts featuring natural and organiccomponents are increasingly gainingfavor on the market. This trend reflectswide concerns about the health andsafety of products as well as also growingconcern over environmental factors andheightened interest in more sustainablelifestyle choices.Disposable income and consumerconfidence also play a role indetermining demand for industryproducts. While most industry productsare viewed as discretionary they are notalways cut out when consumers facetough of uncertain economic times.Some consumers do not eliminate theiruse completely, but switch to lower pricepoint products. At the same time, lipstickis often viewed as a small luxury, inwhich many consumers indulge whenhaving to cut back or postpone largerluxury purchases. This factor has helpedto boost demand for lipstick over thepast three years and pushed a strongindustry growth despite a sluggisheconomic recovery.Products & Servicescontinuedsome have added oils combined withsynthetic or natural dyes. Lip stains canlast up to 18 hours, are less viscous thanlipsticks prior to application and moresmudge-proof after application.A few trends have been impacting theindustry’s product lines over the pastfive years, including health concernsand increasing demand for organicproducts. Health concerns about skincancer have opened consumers’ eyes tothe risk of unprotected sun exposure.As a result, an increasing number ofindustry products have releasedproducts with added sunscreenprotection. Additionally, the recentpush for organic and environmentallyfriendly cosmetics has boosted industryplayers’ new product development andmarketing efforts aimed atcapitalizing on environmentallyconscious consumers.
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   14Products & MarketsMajor Marketscontinuedpast few years. The recession made thesebuyers more of an important resource forthe industry during the height of therecession as cash-strapped consumersflocked to the low-priced retailers. As theeconomy recovers from the globalfinancial downturn, however, sales todepartment stores have been increasingat a faster rate than food, drug andmass-merchandise retailers.Department storesSales to department stores are estimatedto account for about 21.6% of totalindustry revenue in 2012. Demand fromthis market segment dipped over 2008and 2009, when consumers have opted tomake similar purchases at drugstores andmass merchandisers to save money.Beginning in 2010, though, demand fromdepartment stores has been rising at afaster pace than the overall industry asconsumers began spending more onsmall luxury items while delaying largerpurchases in the face of economicuncertainty and the sluggish pace of therecovery. Additionally, retail sales inhigh-end consumer product marketsacross the board have fared far betterthan the general retail sector during theeconomic recovery, helping to boost thismarket segment.Direct-to-consumer salesAvon and Mary-Kay are direct sellerscharacterized by their door-to-doorcosmetic sales. These companies eitherpurchase their products directly fromproducers or integrate manufacturingcapabilities within their own supplychains. This type of business modelfocuses on cost savings by eliminatingstorefronts and other associatedexpenses. Other industry players, such asL’Oreal (The Body Shop) and EsteeLauder (MAC), own and operate theirown branded storefronts and sellindustry products direct to consumers.Sales through this market segment havedeclined slightly over the past five yearsand are estimated to make up about 8.0%of industry revenue in 2012.ExportsThe US Lipstick Manufacturing industrymakes about 12.8% of its revenueinternationally. This portion has beensteadily increasing over the five years to2012, growing from about 11.0% in 2007.Because it is in the mature phase of itslife cycle, industry players have beenseeking out new markets for theirproducts. So far, this move has beensuccessful since overseas retailers dependon the appeal of American-made goodsMajor market segmentation (2012)Total $2.1bn46.4%Drug, food andmass merchant retailers21.6%Department stores12.8%Export markets11.2%Other (Wholesalers,specialty beautysupply andcosmetic stores)8%Direct toconsumerSOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   15Products & MarketsInternational Trade The Lipstick Manufacturing industry hasa moderate level of international trade,with exports only accounting for 12.8% ofrevenue and imports accounting for12.1% of domestic demand. Nevertheless,the role of international trade is still animportant one within the industry. Overthe five years to 2012, exports havegrown faster than the industry itself, atan average annual rate of 5.9% to anestimated $262.6 million in 2012. Thisaccelerated growth has increased exports’share of domestic revenue from 11.0% in2007. The perception of high-qualitymakes American products appealing tointernational consumers. In addition, theweakened US dollar made US productscheaper during 2008 and 2010, boostingexports 8.7% and 15.1%, respectively.Imports have grown at a five-yearannualized rate of 7.1% to an estimated$247.3 million in 2012. The UnitedStates mainly sources high-value,high-quality lipstick products fromFrance, Canada and Belgium.Together, these three countries accountfor nearly half of all import values.China and India supply some lower-end products, which are mostly sold indrugstores and through massmerchandisers. Imports declinedstrongly in 2009, though, as a result ofthe weakened domestic economy andconsumers’ unwillingness to buydiscretionary beauty products.Canada and Mexico are both largedestinations of trade within this industry.Their proximity to the United States andthe advantage of duty-free trade enjoyedunder the North American Free TradeAgreement (NAFTA) allow these twonations to engage in high levels of trade.Major Marketscontinuedfor their perceived high quality.Additionally, the weakness of the USdollar has made domestic productscheaper on the international market,increasing their appeal.Other market segmentsOther industry markets includewholesalers and specialty cosmetic andbeauty supply retailers. Althoughwholesalers have been losing marketshare, they still represent about 5.5%of all sales. Over the five years to 2011,the trend of wholesale bypass hasincreasingly edged out this part of thesupply chain. Large retailers, such asmass merchandiser Walmart, havelooked past the middleman andsourced directly from manufacturers tocut purchasing costs. Manufacturers,in turn, have increasingly sold directlyto retailers, offering them an agreed-upon price and retaining margins.Specialty cosmetic and beauty supplyretailers represent 5.7% of revenue.These specialty boutiques have lostmarket share because many of theindustry products they carry areincorporated into one-stop-shopretailers, like department stores,drugstores, mass merchandisers oronline-only shops.$million500−400−250−100502003501804 06 08 10 12 14 16YearExports Imports BalanceIndustry trade balanceSOURCE: WWW.IBISWORLD.COMLevel & TrendExports in theindustry areMedium andIncreasingImports in theindustry areMedium andIncreasing
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   16Products & MarketsBusiness Locations 2012MO1.0WestWestWestRockyMountains PlainsSouthwestSoutheastNewEnglandGreatLakesVT0.2MA1.9RI0.1NJ13.8DE0.2NH0.2CT4.0MD6.6DC0.015372648 9AdditionalStates(as marked on map)AZ0.5CA6.0NV0.3OR0.7WA1.0MT0.3NE0.2MN0.3IA0.4OH16.0VA0.8FL2.0KS0.2CO0.2UT0.2ID0.5TX2.1OK0.0NC15.9AK0.1WY0.1TN1.0KY0.4GA0.5IL2.3ME0.2ND0.0WI0.2 MI0.6PA0.4WV0.0SD0.1NM0.0AR0.2MS0.1AL0.2SC0.2LA0.2HI0.6IN0.5NY16.5567832149SOURCE: WWW.IBISWORLD.COMMid-AtlanticRevenue(%) Lessthan3% 3%tolessthan10% 10%tolessthan20% 20%ormore
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   17Products & MarketsBusiness Locations The Lipstick Manufacturing industry ishighly concentrated in the Mid-Atlanticregion of the United States, accountingfor about 37.5% industry revenue. NewYork (accounting for 16.5% of revenue),New Jersey (13.8%) and Maryland(6.6%) are among the top revenue-producing states in the industry and arelocated within this area. This region isan attractive location for cosmetic andbeauty product manufacturers becauseit is close to upstream suppliers likechemical producers and also close tokey downstream markets inmetropolitan areas like New York City.Facilities in New York and New Jerseyare also close to major shipping ports,which have become increasinglyimportant over the past five years asan increasing number of operatorshave engaged in importing andexporting products to expand theindustry’s market.For similar reasons, the Southeastregion is the second most concentratedarea for this industry, accounting for21.5% of revenue. In the Southeast,North Carolina brings in the mostrevenue with 15.9% of the industry total.A number of upstream suppliers arelocated in the region, which cuts downtransportation costs for lipstickmanufacturing companies. Additionally,Florida – one of the most populousstates – is a key market for lipstickbrands, so manufacturers that set upshop in the area can get their product todownstream markets quickly.The Great Lakes region accounts for19.6% of industry revenue, with Ohioholding the largest portion for theregion at 16.0% of the industry’s total.Upstream manufacturers, including theInorganic and Organic ChemicalManufacturing industries (IBISWorldreports 32518 and 32519, respectively)are highly concentrated in this region.Being in close proximity to supplierscuts costs for these facilities and allowsfor larger profit margins.The West only contributes 8.7% ofindustry revenue, and a typicalestablishment in the West does notbring in a large amount of revenue.While a large market for the industry’sproducts exists in the state’s large cities,upstream suppliers are not plentiful inthe region, creating high transportationcosts. The rest of the regions make upthe remainder of revenue for theindustry (12.7% of the industry total).No other region accounts for more than10.0% of revenue.%400102030SouthwestWestGreatLakesMid-AtlanticNewEnglandPlainsRockyMountainsSoutheastRevenuePopulationRevenue vs. populationSOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   18Cost StructureBenchmarksCosts and returns vary by firm anddepend on its size, location, supplycontracts and mix of productsmanufactured. The following figures areindustry averages.ProfitProfit (earnings before interest and tax)for lipstick manufacturers is relativelyhigh, accounting for an estimated 11.1%of revenue, up from 10.0% in 2006.Consolidation within the industry and ofproduction operations have helpedindustry operators improve profitperformance over the past five years,despite the economic downturn.Additionally, the low price point of theindustry’s luxury products makes themless vulnerable to decreases in disposableincome levels. In fact, sales of lipstick,particularly at the higher end, have risensubstantially over the past three years,while the economic recovery has beensluggish. This has occurred as consumershave increased consumption of smallerluxuries, while having to postpone largerpurchases during times of economichardship or uncertainly.PurchasesPurchases are the largest cost for theaverage operator within this industry,Key Success Factors Having contacts within key marketsHigh brand visibility is important inincreasing sales and market share in theindustry.Access to niche marketsIf not a major player, niche and ultra-niche positioning is important for successin this industry.Ability to control stock on handIf not a niche player, significant marketstrength is required for success.Having marketing expertiseIn this highly competitive industry,marketing and brand awareness are veryimportant in gaining market share.Development of new productsLipstick manufacturers rely on productinnovation to stimulate growth.Production of goods currentlyfavored by the marketLipstick manufacturers must be awareand be able to adapt to fashion andlifestyle trends in order to remaincompetitive, although some of the largermanufacturers may set trends ratherthan follow them.Market ShareConcentrationIndustry concentration measures theextent to which large companiesdominate the industry. IBISWorldestimates that, in 2012, the top fourindustry participants will hold acombined share of about 73.8% of totalindustry revenue. This suggests a highlevel of concentration since the majorityof market power is spread over a smallnumber of operators.The level of industry concentration inthe industry has been graduallyincreasing over the past decade. Whilethere are a number of small players in theindustry specializing in product lines toserve niche markets, major players in theindustry will continue to expand and gaingreater market control. Major playerL’Oreal, for example, has well-recognizedbrands in a variety of price points,including Maybelline, Lancome and YvesSaint Laurent.Competitive LandscapeMarket Share Concentration   |   Key Success Factors   |   Cost Structure BenchmarksBasis of Competition   |   Barriers to Entry   |   Industry GlobalizationLevelConcentration inthis industry is HighIBISWorld identifies250 Key SuccessFactors for abusiness. The mostimportant for thisindustry are:
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   19Competitive LandscapeCost StructureBenchmarkscontinuedaccounting for 30.4% of revenue.Manufacturers must buy inputs such aswax, dyes, essential oils and lotions. Anychanges in raw material prices affect theoverall costs and the bottom line. Also,the purchase of packaging materialsrepresents a substantial cost within thiscategory; a significant amount of productsales depend on product presentationand appearance. For instance, operatorsthat manufacture luxury lipsticks for thehigh-end market spend more onattractive packaging than their mass-market counterparts. Over the past fiveyears, this cost category has remainedrelatively steady.WagesWages account for 6.2% of total revenue,and human capital is important withinthis industry. Employees must performinspection and quality control to ensurethe highest-quality products are deliveredto downstream buyers. Additionally,experienced and highly educatedemployees are essential to the corporate,marketing and research and development(R&D) activities in this highlycompetitive industry. Over the past fiveyears, wages have declined as a portion ofrevenue as the combined effects of costcutting during the economic recessionand the general trend towardconsolidation and automation have takenhold.R&D and marketingR&D is a significant cost for operators,at about 14.8% of revenue. Newproduct development is a keycompetitive factor in this mature andsaturated industry. R&D costs haveincreased over the past few years ascompanies have vied to set themselvesapart by offering new anddifferentiated lip color products to staySectorvs.IndustryCosts■Profit■Wages■Purchases■Depreciation■Utilities■Rent■OtherAverageCostsofallIndustriesinsector(2012)IndustryCosts(2012)0204060Percentageofrevenue801009.114.51.1 2.03.159.211.011.143.03.23.03.130.46.2SOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   20Competitive LandscapeBasis of Competition Companies within the LipstickManufacturing industry are highlycompetitive among each other. In amature industry with relatively lowbarriers to entry, operators aim to standout from the crowd in several ways.Price is particularly important forindustry products targeted towards thedrugstore and mass-merchant retailoutlets. Because products within thissubsegment are highly undifferentiated,their price can push downstream buyersto choose one brand over another. Inhigh-quality markets, price is less of acompetitive factor because consumerspurchase the product based on itspromised performance, brand appealand level of fashion.Marketing and brand awareness arevery important bases of competitionwithin the industry. The industry’slargest players have extensivemarketing departments that overseefar-reaching and often high-profilecampaigns; however, this factor issomewhat less important in the nicheand ultra-niche markets.Quality is another important basis ofcompetition for industry participants.High-end lipsticks (or those perceived assuch) carry a price premium, whichboosts company revenue and profit.Premium packaging is an indicator ofproduct quality, so over the past fiveyears, midtier product manufacturershave invested money in appearance toattract consumers on the basis ofperceived high quality.Research and development of newproducts is growing in importance as abasis of competition. In a saturatedindustry, companies look for newopportunities in untapped markets orthrough satisfying unmet needs forexisting consumers. Along these lines, theingredients in cosmetic productsincreasingly sway consumers. Over thepast five years, the focus on naturallymade or organic lip color products hasintensified. A company’s ability torespond to ingredient changes isimportant to its survival.External competitionUS lipstick manufacturers competeagainst substitute products such as lipgloss and lip balm as well as importedlipsticks. Competition from substituteproducts is currently on the decline as aresult of fashion trends toward bold lipcolors. Such trends are expected tocontinue to influence consumerCost StructureBenchmarkscontinuedrelevant. In addition, the growingdemand for restorative and protectiveproducts (adding components likemoisturizers and sunscreen) and thedevelopment of environmentally soundproducts have also contributed to theneed for increased research.Marketing and sales costs are also asignificant industry expense, resting atabout 23.8% in 2012. The industry’slargest companies have traditionallyspent a significant amount of revenueon prime advertising outlets, includingnational network televisioncommercials and major fashionmagazines. Competitors are alsoknown for investing in marketingcampaigns that include significantexpenses for celebrity endorsements.Other costsDepreciation accounts for an estimated3.1% of revenue, which is slightly lowerthan the sector average of about 5.0%.This expense has decreased slightly overthe five-year period due to theconsolidation of manufacturing facilitiesand equipment within the industry.Other industry expenditures includedistribution and administrative costs.Level & TrendCompetition in thisindustry is High andthe trend is Steady
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   21Competitive LandscapeBarriers to Entry Barriers to entry into the LipstickManufacturing industry are not high, butthey are moderate. Establishedmanufacturers, which benefit fromeconomies of scale and scope, can pose abarrier for potential entrants. Theseoperators have cost-minimizingmeasures, established relationships withdownstream markets and extensiveresources for marketing. These factorsensure an advantage in competing forthe shelf space necessary to marketproducts in the largest downstreammarkets. Their established andsometimes well-known brand names arealso a deterrent for new entrants.The mature and somewhat saturatednature of the market tends to act as afurther barrier, limiting the scope for newentrants with new products. However,niche and developing markets (e.g.organics, vegan and halal makeup) aswell as product innovation can offer anopportunity for aspiring lipstickmanufacturers. Capital investments canalso act as a barrier for new entrants.Lipstick and lipstain manufacturingrequires production equipment andindustrial space, which can add up to asubstantial cost. Securing financialmeans is a hurdle new operators mustovercome to enter the industry.Basis of Competitioncontinuedpreferences in the future, which will mostlikely add some volatility to industryrevenue. Imports have increasedsubstantially over the past three years,following the recession. This growth isexpected to decelerate over the next fiveyears and imports are expected toincrease only slightly as a share of totalindustry demand to 13.6% by 2017, from12.1% in 2012.BarrierstoEntrychecklist LevelCompetition HighConcentration HighLife Cycle Stage MatureCapital Intensity HighTechnology Change MediumRegulation & Policy MediumIndustry Assistance LowSOURCE: WWW.IBISWORLD.COMLevel & TrendBarriers to Entryin this industry areMedium and Steady
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   22Competitive LandscapeIndustryGlobalizationThe Lipstick Manufacturing industry hasa medium level of globalization. Whilemost of the industry’s largest players arelocated in the United States, operatorsare subject to an increasing level ofexposure to the international market.Each of the largest companies operateson a global scale, reflecting the industry’sworldwide reach. In addition, one of thetop four companies in the industry,L’Oreal, is foreign-owned and accountsfor nearly 15.0% of industry revenue.The industry is also subject tomoderate levels of imports and exports,which have strengthened their grasp onthe domestic industry over the past fiveyears. Imports have increased their shareof domestic demand from 9.9% in 2007to an estimated 12.1% in 2012. Unlikeother consumer product industries whererising import levels signal rising demandfor lower cost import products, thisgrowth reflects an increase in high-endlipstick brands over the past three years.High end lipsticks are more likely to bemanufactured overseas (mainly Belgium,France and Canada), while lower pricepoint brands are more oftenmanufactured within the US. Over thesame period US exports are expected togrow to represent 12.8% of revenue (upfrom 11.0% in 2007). This level ofglobalization exposes the industry toglobal conditions, including fluctuationsin exchange rates, supply levels andsocio-political factors.Level & TrendGlobalization inthis industry isMedium and thetrend is SteadySOURCE: WWW.IBISWORLD.COMTradeGlobalization GoingGlobal:LipstickManufacturing2000-2012Exports/RevenueExports/Revenue200150100500200150100500Imports/DomesticDemand Imports/DomesticDemand0 040 4080 80120 120160 160International trade is amajor determinant ofan industry’s level ofglobalization.Exports offer growthopportunities for firms.However there are legal,economic and political risksassociated with dealing inforeign countries.Import competition canbring a greater risk forcompanies as foreignproducers satisfy domesticdemand that local firmswould otherwise supply.Export ExportGlobal GlobalImportLocal ImportLocalLipstickManufacturing 20002012
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   23Player Performance The Procter & Gamble Company (P&G), aconsumer goods company that brings innearly $20.0 billion in annual sales, wasfirst incorporated in 1905. It operatesglobally, with a physical presence inabout 80 countries. The company’s salesprimarily come from drug stores, grocerystores and mass merchandisers, of whichWalmart and its affiliates bring in 16.0%.P&G divides its operations into threereportable segments: beauty andgrooming, health and well-being andhousehold care. It operates within theLipstick Manufacturing industry throughits beauty and grooming division.Within its beauty and groomingoperations, P&G owns several brands,including Olay (facial skin care); Dolce &Gabbana, Gucci and Hugo Boss (allfragrances); and CoverGirl, its makeupline that includes lipstick products. Thisreporting segment accounts for aboutone-quarter of total net sales for thecompany, and IBISWorld estimatesabout 2.5% of the beauty reportingsegment is derived from lipstick sales.P&G has a threefold growth strategy.The first tier is product innovation, whichfocuses on introducing new, better andmore consumer-responsive beauty items.The second part is centered on buildingbusiness with underserved customerswhose needs are not met through thecompany’s current products. The finalcomponent is the company’s globaldevelopment and expansion. BecauseP&G is operating in a mature industrywith little opportunity for productinnovation and a saturated domesticmarket, the company is looking outsidethe United States to expand its customerbase.Financial performanceOver the five years to 2012, P&G’s beautysegment revenue has expanded at anaverage annual rate of 3.0% to $20.8billion in global sales. IBISWorldestimates that the company’s USindustry-specific operations have grownat an average annual rate of 3.0% to$529.7 million during the same period.With consumer confidence returning, thebeauty segment has benefited fromhigher volumes through 2012; however,the price of inputs is volatile andunpredictable. With higher-than-averagecommodity prices over much of 2010,profit suffered through fiscal 2011. In themean time, the company continued toMajor CompaniesThe Procter & Gamble Company   |   The Estee Lauder Companies Inc.Revlon   |   L’Oreal SA   |   Other Companies26.2%OtherThe Procter & Gamble Company25.7%The Estee Lauder CompaniesInc. 17.4%Revlon 16.5%L’Oreal SA 14.2%SOURCE: WWW.IBISWORLD.COMMajor players(Market share)TheProcter&GambleCompany(USindustry-specificsegment)–financialperformanceYear*Revenue($ million) (% change)2006-07 457.2 N/C2007-08 497.9 8.92008-09 483.1 -3.02009-10 497.3 2.92010-11 513.9 3.32011-12** 529.7 3.1*Year-endJune,**EstimateSOURCE: IBISWORLDThe Procter &Gamble CompanyMarket share: 25.7%
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   24Major CompaniesPlayer Performance Founded in 1946, The Estee LauderCompanies is a major producer ofskin-care, makeup, fragrance andhair-care products. Estee Lauder sellsits goods in more than 150 countriesunder a number of brand names,including Estee Lauder, Clinique,Origins, MAC and Bobbi Brown.Products are distributed through manydifferent outlets, such as departmentstores, specialty retailers, upscaleperfumeries and pharmacies andprestige salons and spas. As of June2011, the company employed 32,300people, with about 550 of those workersengaged in research and development.About 11,900 people are employed inthe United States and Canada.Of interest to this report is thecompany’s makeup manufacturingsegment. The company sells a full arrayof makeup products, including lipstick,lip glosses, mascaras, foundations, eyeshadows, nail polishes and powders.IBISWorld estimates about 20.0% ofmakeup sales are derived from lipstick,and 50.0% of those lipsticks are made inthe United States. For instance, lipsticksunder brand names MAC and Cliniqueare primarily manufactured in Belgiumand Canada, while Bobbi Brown is madein the United States.Player Performancecontinuedintroduce new products, such as theCoverGirl Queen Collection Lipcolor line.P&G’s expansion strategy has helpedthe company tap new internationalmarkets and introduce new products tonew consumers. In the wake of the USrecession, the company was able to sustainmuch of its revenue because its position invarious global markets mitigated anyisolated effects. The company is nowfocused globally on creating products forthe “$2-a-day” consumer or the verylow-income bracket.In 2010, the company turned itsfocus to sustainable products, whichare in line with the industry trend ofnatural products. This new long-termplan will change the way P&Gconducts business, from the power inits plants to limiting consumermanufacturing waste. Thesustainability commitment includes10-year goals; by 2020, P&G aims toreduce consumer packaging 20.0%and increase renewable energy use to30.0% of total plant power.TheProcter&GambleCompany(beautysegment)–financialperformanceYear*Revenue($ million) (% change)NetIncome($ million) (% change)2006-07 17,889 7.2 2,611 8.32007-08 19,515 9.1 2,730 4.62008-09 18,924 -3.0 2,664 -2.42009-10 19,491 3.0 2,712 1.82010-11 20,157 3.4 2,686 -1.02011-12** 20,788 3.1 2,740 2*Year-endJune,**EstimateSOURCE: ANNUAL REPORTThe Estee LauderCompanies Inc.Market share: 17.4%Industry Brand NamesCliniqueEstee LauderMAC CosmeticsBobbi Brown
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   25Major CompaniesPlayer Performance Revlon entered the industry about 75years ago. Today, it is a principal force,with brands that include Revlon, Almayand Ultima II. The company is alsoinvolved in the manufacture andmarketing of various personal-careproducts (including Mitchumdeodorant and Revlon Colorsilk hairproducts), skin care (Ultima II andGatineau) and fragrances (Charlie andJean Nate brands). Its color cosmeticsaccount for about 60.0% of totalcompany sales; its beauty care andfragrance products account for thePlayer PerformancecontinuedIn recent years Estee Lauder has madeacquisitions to increase its makeupmarket share. In 2010, the companyacquired Smashbox Beauty Cosmetics, asmall privately held company that wascreated for the needs of makeup artistsworking on photo shoots.Financial performanceOver the five years to 2012, industryspecific revenue has grown at an averageannual rate of 5.2% per year. Duringfiscal 2011 and 2010 (year-end June), thecompany’s makeup segment sales haveexpanded. The acquisition of Smashboxboosted sales, along with theintroduction of new products includingPure Color Long Lasting Lipstick fromEstee Lauder and Vitamin C LipSmoothie Antioxidant Lip Colour fromClinique. This growth was slightly offsetby the decline in other products,however, such as Clinique’s High ImpactLip Color SPF 15. During the recession,this segment’s revenue declined asconsumers reduced their spending, butnew product launches during that periodbrought in some revenue.TheEsteeLauderCompanies(makeupsegment)–financialperformanceYear*Revenue($ million) (% change)OperatingIncome($ million) (% change)2006-07 2,712.7 N/C 339.3 N/C2007-08 3,000.4 10.6 359.4 5.92008-09 2,830.9 -5.6 279.8 -22.12009-10 2,978.2 5.2 416.8 49.02010-11 3,370.8 13.2 493.8 18.52011-12* 3,480.1 3.2 494.2 0.1*Year-endJune,**EstimateSOURCE: ANNUAL REPORTTheEsteeLauderCompanies(USindustry-specificsegment)–financialperformanceYearRevenue($ million) (% change)2006-07 278.3 N/C2007-08 310.0 11.42008-09 293.1 -5.52009-10 307.8 5.02010-11 347.1 12.82011-12** 358.0 3.1*Year-endJune,**EstimateSOURCE: IBISWORLDRevlonMarket share: 16.5%
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   26Major CompaniesPlayer Performancecontinuedremainder. The company’s maincustomers are large-volume retailersand chain drug stores and food stores.It also sells beauty products to USmilitary exchanges and commissaries.As of December 31, 2010, the companyemployed 4,900 people, with 140dedicated to research and development.Revlon markets several different linesof Revlon lip makeup, including lipstick,lip gloss and lip liner. An example of lipproducts is the Revlon ColorStayOvertime which is a two-step long-wearlip color that lasts up to 24 hours. RevlonSuper Lustrous is the company’s mainwax-based lip color, which is made tomoisturize the consumer’s lips. Thecompany continues to introduce newproducts improving on factors such aslongevity, moisture and weight. Revlon’sAlmay brand also offers lipstick. All ofAlmay’s products are hypoallergenic,dermatologist-tested and fragrance-freecosmetics.Financial performanceOver the five years to 2012, Revlon’s USindustry-specific revenue decreased at anestimated average annual rate of 1.2%;however, the company’s revenue growthas a whole increased an estimatedaverage of 0.4% per year. In 2011,company revenue expanded due to highersales of cosmetic products specifically inthe United States, which enabled profit toincrease. In 2011, the company acquiredMirage, maker of Sinful Colors nailproducts. During 2010, revenue declinedprimarily due to lower sales of Almaycosmetics; however, higher sales ofRevlon makeup products boosted somesales. During the recession, sales ofRevlon and Almay makeup productsdropped, but this decline was partiallyoffset by higher sales of Revlon ColorSilkhair products. Lower consumer spendingcaused many Americans to reducepurchases of discretionary products.Along with lower sales, unfavorableforeign currency fluctuations hurt profitmargins. The changes in currencyRevlonInc.–financialperformanceYearRevenue($ million) (% change)OperatingIncome($ million) (% change)2007 1,367.1 N/C 118.4 N/C2008 1,346.8 -1.5 155.0 30.92009 1,295.9 -3.8 165.0 6.52010 1,321.4 2.0 190.1 15.22011 1,348.8 2.1 179.2 -5.72012* 1,392.5 3.2 181.0 1.0*EstimateSOURCE: ANNUAL REPORT AND IBISWORLDRevlonInc.(USindustry-specificsegment)–financialperformanceYearRevenue($ million) (% change)2007 361.9 N/C2008 352.2 -2.72009 336.6 -4.42010 328.1 -2.52011 332.5 1.32012* 340.2 2.3*EstimateSOURCE: IBISWORLD
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   27Major CompaniesPlayer Performance Beauty and cosmetics company L’OrealSA was first incorporated in 1907. Itdistributes mass-market products,such as Maybelline, through massmerchandisers, drug stores andgrocery stores. Its luxury cosmetics,like Lancome, are distributed throughdepartment stores and niche retailers.L’Oreal divides its operations into foursegments: professional products,consumer products, luxury productsand active cosmetics. It operateswithin the Lipstick Manufacturingindustry through its luxury productsand consumer products divisions.Primary lipstick brands include:Maybelline, L’Oreal, Lancome andYves Saint Laurent.Over the past few years, L’Oreal hasfocused on emerging markets sincethey are less saturated than currentmarkets. Two markets the companyhas invested in include men, who haveshown a growing interest in skin careand cosmetics, and an olderpopulation, which has an interest inanti-aging products.Financial performanceFrom 2007 to 2012, L’Oreal’s totalcompany revenue is expected to grow atan average annual rate of 4.6% to $29.2billion (estimated in US dollars). In theconsumer products segment, Maybellinehas been driving growth with theintroduction of new products, such as theInstant Age Rewind Eraser TreatmentMakeup. The luxury products segmentPlayer Performancecontinuedexchanges resulted in higher costs ofgoods in most international markets ongoods purchased from the company’sfacility in Oxford, NC. The company did,however, increase its manufacturingefficiencies and lower freight costs.L’OrealSA–financialperformanceYearRevenue($ million) (% change)OperatingIncome($ million) (% change)2006 23,383.1 N/C 3,874.1 N/C2007 25,802.5 10.3 4,008.2 3.52008 24,360.9 -5.6 3,594.2 -10.32010 25,880.9 6.2 4,058.2 12.92011 28,264.6 9.2 4,565.7 12.52012* 29,253.9 3.5 4,615.8 1.1*EstimateSOURCE: ANNUAL REPORT AND IBISWORLDL’OrealSA(USindustry-specificsegment)–financialperformanceYearRevenue($ million) (% change)2007 233.9 N/C2008 258.2 10.42009 243.8 -5.62010 258.9 6.22011 282.8 9.22012* 292.7 3.5*EstimateSOURCE: IBISWORLDL’Oreal SAMarket share: 14.2%
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   28Major CompaniesPlayer Performancecontinuedhas also been expanding, with stronggrowth from the company’s Lancome lineand Yves Saint Laurent fragrances.Despite the popular brands, therecession did take a toll on the company.In 2009, overall cosmetic sales declinedin the United States as many Americansreduced their purchases of makeupbecause of less disposable income. Inorder to attract sales, L’Oreal marketedits products more aggressively andintroduced new products.
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   29Capital Intensity The Lipstick Manufacturing industry hasa high level of capital intensity. For everydollar spent on labor, $0.50 is spent onmachinery, which indicates that lipstickmanufacturing is highly automated. As aresult, lipstick products are massproduced. During the recession, theindustry came to rely even more heavilyon capital since employment was one ofthe easiest places to cut costs. However,depreciation expenses also decreasedslightly over five year period due toindustry consolidation of manufacturingfacilities and equipment. Over the nextfive years, IBISWorld forecastsdepreciation costs will rise as the overallUS manufacturing sector cohesivelymoves towards greater automation,increasing the industry’s level of capitalintensity.Operating ConditionsCapital Intensity   |   Technology & Systems   |   Revenue VolatilityRegulation & Policy   |   Industry AssistanceToolsoftheTrade:GrowthStrategiesforSuccessSOURCE: WWW.IBISWORLD.COMLaborIntensiveCapitalIntensiveChangeinShareoftheEconomyNewAgeEconomyRecreation,PersonalServices,HealthandEducation. Firmsbenefit from personal wealth sostable macroeconomic conditionsare imperative. Brand awarenessand niche labor skills are key toproduct differentiation.TraditionalServiceEconomyWholesaleand Retail. Relianton labor rather than capital tosell goods. Functions cannotbe outsourced therefore firmsmust use new technologyor improve staff training toincrease revenue growth.OldEconomyAgricultureandManufacturing.Traded goods can be producedusing cheap labor abroad.To expand firms must mergeor acquire others to exploiteconomies of scale, or specializein niche, high-value products.InvestmentEconomyInformation,Communications,Mining,FinanceandRealEstate.To increase revenuefirms need superior debtmanagement, a stablemacroeconomic environmentand a sound investment plan.Soap&CleaningCompoundManufacturingPharmacies&DrugStoresDye&PigmentManufacturingCosmetic&BeautyProductsManufacturingDepartmentStoresLipstickManufacturingCapital intensity0.50.00.10.20.30.4SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensityCapital units per labor unitLipstickManufacturingManufacturingEconomyLevelThe level of capitalintensity is High
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   30Operating ConditionsRevenue Volatility Performance in the LipstickManufacturing industry is driven bysteady consumer demand andsentiment for its products throughnumerous distribution channelsincluding department stores, cosmeticTechnology& SystemsIn general, industry production involvesmixing and blending readily availableingredients in batch operations. A widearray of chemicals is used inmanufacturing lipsticks, includingemollients, antioxidants, pigments, oilsand waxes to provide protection, colorand texture to lips. Recent advances inproduction techniques include increasedautomation and mechanization. Liquidproducts are mixed using batch orcontinuous blending processes. In batchblending, small amounts of ingredientsare added to the subsequent mixture attimed intervals. In continuous blending,the ingredients are continuously mixedtogether to form a final product.Product innovations andreformulations define this matureindustry. Research and developmentcosts are an increasingly importantinvestment for operators, accounting foran estimated 14.8% of industry revenuein 2012. In addition, with such highindustry concentration, major playerswill continue to aggressively market thesenew product lines to capture additionalmarket share. IBISWorld estimates salesand marketing costs will account for23.8% of industry revenue in 2012.Growing environmental concerns havecaused changes in the production processand in the packaging of industry productsover the past few years. Lipstick productsand their packaging are increasinglydesigned to minimize waste andenvironmental alterations. Many lipstickmanufacturers have introduced post-consumer plastic containers. Forexample, major player Procter & Gambleintroduced an eco-friendly initiative in2010. It spans major aspects ofproduction, including packaging andplant emissions. IBISWorld expects thistrend to become even more pronouncedover the five years to 2017.IBISWorld rates the industry as havinga medium level of technology change dueto significant R&D spending, the steadyrate of new product innovations andincreasing level of automatedmanufacturing processes.LevelThe level ofTechnology Changeis MediumSOURCE: WWW.IBISWORLD.COMVolatilityvsGrowthRevenuevolatility*(%)10001001010.1Fiveyearannualizedrevenuegrowth(%)–30 –10 10 30 50 70HazardousStagnantRollercoasterBlueChip* Axis is in logarithmic scaleLipstickManufacturingA higher level of revenuevolatility implies greaterindustry risk. Volatility cannegatively affect long-termstrategic decisions, such asthe time frame for capitalinvestment.When a firm makes poorinvestment decisions itmay face underutilizedcapacity if demandsuddenly falls, or capacityconstraints if it risesquickly.LevelThe level ofVolatility is Low
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   31Operating ConditionsRegulation & Policy The major regulating body overseeingcosmetic products in the United States isthe US Food and Drug Administration(FDA). Lipstick manufacturers do nothave industry specific regulations theymust comply with, but they are subject toregulations covering the larger cosmeticproduct industry.The FDA governs the laws andregulations relating to themanufacturing, labeling and marketing oflipsticks. Basically, lipstickmanufacturers that distribute products inthe United States much comply withbasic regulatory requirements outlined inthe Federal Food, Drug and Cosmetic(FD&C) Act and the Fair Packaging andLabeling (FP&L) Act.Adulterated or misbranded cosmeticsThe FD&C prohibits the distribution oflipsticks that are adulterated ormisbranded. A cosmetic product isconsidered adulterated if it contains asubstance that may make the productharmful to consumers under customaryconditions of use. The FD&C Act alsoprotects consumers against productscontaining filthy, putrid or decomposedsubstances. A product is misbranded if itslabeling is false or misleading, if it doesnot bear the required labelinginformation, or if the container is madeor filled in a deceptive manner.Cosmetic labelingCosmetics distributed in the UnitedStates must comply with the labelingregulations published by the FDA underthe authority of the FD&C and theFP&L. Labeling refers to all labels andother written, printed or graphic matteron or accompanying a product. Thelabel statements required under theauthority of the FD&C must appear onthe inside and on any outside containeror wrapper. FP&L requirements, such asingredient labeling and statement of thenet quantity of contents on the maindisplay panel, only apply to the label ofthe outer container.Declaration of ingredientsCosmetics for retail sale to consumersare required to bear an ingredientdeclaration. Cosmetics not customarilydistributed for retail sale (e.g. hairpreparations or makeup products usedby professionals on customers) areexempt from this requirement providedthese products are not also sold toconsumers at professionalestablishments or workplaces for theirconsumption at home.The California Safe Cosmetics Act of2005 requires cosmetic companiesselling products within the state ofCalifornia to disclose details to theDepartment of Health Services of anyingredients that contain chemicalsidentified as causing cancer orreproductive toxicity (particularly thosechemicals in the phthalate family). Theinitial bill was opposed by the industry.Label warningsCosmetics that may be hazardous toconsumers when misused must bearRevenue Volatilitycontinuedstores and supermarkets. This helpsprotect the industry from product-specific spikes and keeps revenuerelatively smooth. However, factors thatmay affect year-to-year industryrevenue fluctuations include changes infashion trends and disposable incomelevels. Over the five years to 2012,lipstick manufacturers enjoyed itsstrongest growth of 6.5% in 2011 whilesuffering a slight decline of 1.9% in2009 as the overall economycontracted. Overall, industry revenueaveraged a 2.8% annual change over thefive-year period, giving the industry alow level of revenue volatility.Level & TrendThe level ofRegulation isMedium and thetrend is Steady
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   32Operating ConditionsIndustry Assistance The industry is partially protected frommoderate levels of imports and exportswith tariffs with limited tariffs. Thesetariffs vary depending on the ingredientsused in individual products. In general,imported makeup preparations (includeslip makeup preparations, eye makeuppreparations, manicure preparations,pressed or loose powders, and rouges)are subject to a 1.0% tariff. Importedcosmetics are also regulated by the foodand drug administration as they aresubject to the same laws and regulationsas cosmetic products produced in the US.Regulation & Policycontinuedappropriate label warnings and adequatedirections for safe use. The statementsmust be prominent and conspicuous.Some cosmetics must bear label warningsor cautions. Cosmetics in self-pressurizedcontainers (aerosol products), femininedeodorant sprays and children’s bubblebath products are examples of productsrequiring such statements.The FD&C does not require thatcosmetic manufacturers or marketers testtheir products for safety. However, theFDA strongly urges cosmeticmanufacturers to conduct appropriatetests to substantiate the safety of theircosmetics. If the safety of a product is notadequately substantiated, it may beconsidered misbranded and may besubject to regulatory action.Other regulationsOther regulatory bodies include theOccupational Safety and HealthAdministration (OSHA), which isresponsible for the OSHA HazardCommunication Standard, LaboratorySafety Regulations, and GeneralEmployee Rights. The OSHA HazardCommunication Standard attempts toensure that the hazards of all chemicalsproduced or imported are evaluated, andthat information concerning theirhazards is transmitted to employers andemployees. Information is transmittedvia comprehensive hazardcommunication programs, which mustinclude container labeling and otherforms of warning, material safety datasheets and employee training.Also of relevance is the EnvironmentalProtection Agency (EPA), which isresponsible for infectious waste laws andhazardous waste laws, and the USDepartment of Agriculture (USDA),which is responsible for animal welfarecompliance laws.Level & TrendThe level ofIndustry Assistanceis Low and thetrend is Steady
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   33Key StatisticsRevenue($m)IndustryValue Added($m)Establish-ments Enterprises EmploymentExports($m)Imports($m)Wages($m)DomesticDemandAverage Consumer Expen-diture on Personal Items($)2003 1,674.3 355.4 107 77 3,112 174.7 160.4 164.5 1,660 5272004 1,690.8 371.2 107 78 3,138 177.5 168.3 166.6 1,681.6 5812005 1,731.7 390.8 105 77 3,064 184.8 175 167.4 1,721.9 5412006 1,771.1 390.9 100 75 2,875 193 171.7 158.9 1,749.8 5852007 1,795.3 389.2 96 74 2,705 197.5 175.6 152.2 1,773.4 5882008 1,806.4 363.9 92 70 2,523 214.8 179.9 143.5 1,771.5 6162009 1,771.5 346.7 83 65 2,248 197.4 158.8 130.6 1,732.9 5962010 1,856.5 372.5 81 64 2,162 227.2 189.7 127.4 1,819 6262011 1,977.3 399 79 66 2,115 232.6 228.6 126.1 1,973.3 6382012 2,057.9 420.2 78 69 2,092 262.6 247.3 127.9 2,042.6 6522013 2,135.8 435.9 79 70 2,152 284.1 256.6 132.6 2,108.3 N/A2014 2,198.6 448.1 77 68 2,138 299.6 271.5 133.7 2,170.5 N/A2015 2,245.7 459.1 78 70 2,183 328.1 284.1 138 2,201.7 N/A2016 2,331.3 475.8 77 69 2,187 335.9 303.5 140.1 2,298.9 N/A2017 2,408.4 493.9 78 70 2,237 358.3 322.2 144.7 2,372.3 N/AIVA/Revenue(%)Imports/Demand(%)Exports/Revenue(%)Revenue perEmployee($’000)Wages/Revenue(%)Employeesper Est.Average Wage($)Share of theEconomy(%)2003 21.23 9.66 10.43 538.01 9.83 29.08 52,859.90 0.002004 21.95 10.01 10.50 538.81 9.85 29.33 53,091.14 0.002005 22.57 10.16 10.67 565.18 9.67 29.18 54,634.46 0.002006 22.07 9.81 10.90 616.03 8.97 28.75 55,269.57 0.002007 21.68 9.90 11.00 663.70 8.48 28.18 56,266.17 0.002008 20.15 10.16 11.89 715.97 7.94 27.42 56,876.73 0.002009 19.57 9.16 11.14 788.03 7.37 27.08 58,096.09 0.002010 20.06 10.43 12.24 858.70 6.86 26.69 58,926.92 0.002011 20.18 11.58 11.76 934.89 6.38 26.77 59,621.75 0.002012 20.42 12.11 12.76 983.70 6.22 26.82 61,137.67 0.002013 20.41 12.17 13.30 992.47 6.21 27.24 61,617.10 0.002014 20.38 12.51 13.63 1,028.34 6.08 27.77 62,535.08 0.002015 20.44 12.90 14.61 1,028.72 6.15 27.99 63,215.76 0.002016 20.41 13.20 14.41 1,065.98 6.01 28.40 64,060.36 0.002017 20.51 13.58 14.88 1,076.62 6.01 28.68 64,684.85 N/AFigures are inflation-adjusted 2012 dollars.Revenue(%)IndustryValue Added(%)Establish-ments(%)Enterprises(%)Employment(%)Exports(%)Imports(%)Wages(%)DomesticDemand(%)Average consumer expen-diture on personal items(%)2004 1.0 4.4 0.0 1.3 0.8 1.6 4.9 1.3 1.3 10.22005 2.4 5.3 -1.9 -1.3 -2.4 4.1 4.0 0.5 2.4 -6.92006 2.3 0.0 -4.8 -2.6 -6.2 4.4 -1.9 -5.1 1.6 8.12007 1.4 -0.4 -4.0 -1.3 -5.9 2.3 2.3 -4.2 1.3 0.52008 0.6 -6.5 -4.2 -5.4 -6.7 8.8 2.4 -5.7 -0.1 4.82009 -1.9 -4.7 -9.8 -7.1 -10.9 -8.1 -11.7 -9.0 -2.2 -3.22010 4.8 7.4 -2.4 -1.5 -3.8 15.1 19.5 -2.5 5.0 5.02011 6.5 7.1 -2.5 3.1 -2.2 2.4 20.5 -1.0 8.5 1.92012 4.1 5.3 -1.3 4.5 -1.1 12.9 8.2 1.4 3.5 2.22013 3.8 3.7 1.3 1.4 2.9 8.2 3.8 3.7 3.2 N/A2014 2.9 2.8 -2.5 -2.9 -0.7 5.5 5.8 0.8 3.0 N/A2015 2.1 2.5 1.3 2.9 2.1 9.5 4.6 3.2 1.4 N/A2016 3.8 3.6 -1.3 -1.4 0.2 2.4 6.8 1.5 4.4 N/A2017 3.3 3.8 1.3 1.4 2.3 6.7 6.2 3.3 3.2 N/AAnnual ChangeKey RatiosIndustry DataSOURCE: WWW.IBISWORLD.COM
  • WWW.IBISWORLD.COM Lipstick Manufacturing in the US January 2012   34Jargon & GlossaryBARRIERS TO ENTRY Barriers to entry can be High,Medium or Low. High means new companies struggle toenter an industry, while Low means it is easy for a firmto enter an industry.CAPITAL/LABOR INTENSITY An indicator of how muchcapital is used in production as opposed to labor. Level isstated as High, Medium or Low. High is a ratio of lessthan $3 of wage costs for every $1 of depreciation;Medium is $3 – $8 of wage costs to $1 of depreciation;Low is greater than $8 of wage costs for every $1 ofdepreciation.CONSTANT PRICES The dollar figures in the KeyStatistics table, including forecasts, are adjusted forinflation using 2012 as the base year. This removes theimpact of changes in the purchasing power of the dollar,leaving only the ‘real’ growth or decline in industrymetrics. The inflation adjustments in IBISWorld’sreports are made using the US Bureau of EconomicAnalysis’ implicit GDP price deflator.DOMESTIC DEMAND The use of goods and serviceswithin the US; the sum of imports and domesticproduction minus exports.EARNINGS BEFORE INTEREST AND TAX (EBIT)IBISWorld uses EBIT as an indicator of a company’sprofitability. It is calculated as revenue minus expenses,excluding tax and interest.EMPLOYMENT The number of working proprietors,partners, permanent, part-time, temporary and casualemployees, and managerial and executive employees.ENTERPRISE A division that is separately managed andkeeps management accounts. The most relevantmeasure of the number of firms in an industry.ESTABLISHMENT The smallest type of accounting unitwithin an Enterprise; usually consists of one or morelocations in a state or territory of the country in which itoperates.EXPORTS The total sales and transfers of goodsproduced by an industry that are exported.IMPORTS The value of goods and services importedwith the amount payable to non-residents.INDUSTRY CONCENTRATION IBISWorld basesconcentration on the top four firms. Concentration isidentified as High, Medium or Low. High means the topfour players account for over 70% of revenue; Mediumis 40 –70% of revenue; Low is less than 40%.INDUSTRY REVENUE The total sales revenue of theindustry, including sales (exclusive of excise and salestax) of goods and services; plus transfers to other firmsof the same business; plus subsidies on production; plusall other operating income from outside the firm (suchas commission income, repair and service income, andrent, leasing and hiring income); plus capital work doneby rental or lease. Receipts from interest royalties,dividends and the sale of fixed tangible assets areexcluded.INDUSTRY VALUE ADDED The market value of goodsand services produced by an industry minus the cost ofgoods and services used in the production process,which leaves the gross product of the industry (alsocalled its Value Added).INTERNATIONAL TRADE The level is determined by:Exports/Revenue: Low is 0 –5%; Medium is 5 –20%;High is over 20%. Imports/Domestic Demand: Low is0 –5%; Medium is 5 –35%; and High is over 35%.LIFE CYCLE All industries go through periods of Growth,Maturity and Decline. An average life cycle lasts 70years. Maturity is the longest stage at 40 years withGrowth and Decline at 15 years each.NON-EMPLOYING ESTABLISHMENT Businesses withno paid employment and payroll are known asnon-employing establishments. These are mostly set-upby self employed individuals.VOLATILITY The level of volatility is determined by thepercentage change in revenue over the past five years.Volatility levels: Very High is greater than ±20%; HighVolatility is between ±10% and ±20%; ModerateVolatility is between ±3% and ±10%; and Low Volatilityis less than ±3%.WAGES The gross total wages and salaries of allemployees of the establishment.Industry JargonIBISWorld GlossaryFOOD AND DRUG ADMINISTRATION (FDA) A federalagency that regulates the release, labeling andingredients of food and health products.HALAL A term designating any object or an actionwhich is permissible to use or engage in, according toIslamic law.PARABEN A chemicals used widely in cosmetics as aproduct preservative. Recent research has linkedparabens to cancer.
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