The cosmetics industry has grown significantly over time from ancient Egypt and Rome to a $160 billion global industry today. Major companies like L'Oreal, Procter & Gamble, and Unilever have consolidated market share. While the industry faces threats from large retailers like Walmart, competitors differentiate through new products and brand loyalty to maintain dominance. The future of the industry depends on expansions in emerging markets and growth areas like men's products and anti-aging.

1. Wesley D. Gougeon 21 October 2009

2. History of Cosmetics Industry Cosmetics Industry Present Day Five Forces in the Beauty Products Industry Case Discussion Questions Questions

3. 4000BC: the earliest documented use of cosmetics in Egypt Emergence of eye decorations and scents Ancient Romans and Greeks also used makeup Middle Ages: makeup was frowned upon and banned by the church 1800s: makeup was primarily used by prostitutes Queen Victoria commanded that makeup was only to be worn by actors and actresses

4. 1909: L’Oreal of France was founded 1910: Max Factor and Elizabeth Arden were founded in the United States 1911: Nivea of Germany and Shishedo of Japan were founded

5. $160 billion-a-year global industry Industry encompasses: Makeup Skin and Hair Care Perfumes Cosmetic Surgery Health Clubs Diet Pills Nail Polish Spa Treatments

6. According to our text, the cosmetics industry has been growing at roughly 7% per year, as a result of: Wealthier, aging baby-boomers in developed economies More prosperous middle class in rising economies Women outlive men by roughly eight years Our rapidly growing youth-obsessed culture “ Men can age in an attractive way while women are expected to replicate – and Restylane – their 20s into their 60s.” Maureen Dowd, Op-ed Columnist

10. The world is more youth and looks obsessed than ever There is a vast-array of cosmetic procedures to make people look more youthful Botox Lip Injections Face Lifts Teeth whitening

11. Rue McClanahan, 51 Golden Girls

12. Madonna Madonna, 51

14. Large number of competitors in the cosmetic industry While rival companies are all different sizes, they offer very similar products Example: lipsticks, moisturizers, blush Example: CoverGirl

15. CoverGirl Sold primarily in drugstores, convenience stores and supermarkets Competitors include: L’Oreal Olay Garnier Fructis Revlon Maybelline Almay Neutrogena Physician’s Formula Max Factor Sally Hansen Milani Rimmel Wet ‘n Wild NYC Cosmetics Private Label

16. A number of new entrants have emerged: Chanel Dior Ralph Lauren Yves Saint Laurent Johnson & Johnson, Procter & Gamble and Unilever pose major threats to the industry

17. Procter & Gamble and Unilever pose the most serious threats to the industry As their products such a diapers and soaps advance, they continue to add resources into their beauty divisions In 2008, L’Oreal, Procter & Gamble, Estee Lauder, Unilever and Johnson & Johnson became the top five companies in the cosmetics and toiletries markets They had a combined market share of around 43% The market became more consolidated from 2003-2008 2008: Unilever and Johnson & Johnson gained share while L’Oreal and Estee Lauder lost share Procter & Gamble’s share held steadily

18. Incumbents in the industry combat potential entrants through non-scale base advantages. Example: L’Oreal actually advertised how many patents they have filed on their products Product differentiation may also be used as a weapon The two underlying sources are brand identification and customer loyalty Brand loyalty: Are customers loyal? Example: Maybelline

19. Walmart Supermarkets are the leading retail outlet for cosmetics Changes in consumer behavior help low-cost retail chains such as Wal-Mart gain bargaining power Has the ability to significantly reduce prices of cosmetic goods Wal-Mart only wants to work with several big suppliers, such as L’Oreal and Procter & Gamble Smaller cosmetic companies such as Estee Lauder and Revlon are hurting as a direct result

20. Competitors of Wal-Mart are fighting back, by highlighting the unique benefits and qualities of their products Shiseido stated that its Body Creator skin gel can melt 1.1 kilograms of body fat per month Estee Lauder boasts about its Advanced Night Repair that has a ‘Synchronized Recovery Complex’ In addition to supplying cosmetics to traditional department stores, companies may establish a number of free standing stores through forward integration Example: MAC Cosmetics Companies that have extensive brand portfolios are in a better position to bargain and negotiate with retailers than their smaller counterparts

21. Given smaller household budgets, consumers are more cautious about buying certain beauty products Retail sales of fragrances declined 5% in 2008 Sales of premium cosmetics declined 3% in 2008 Salon hair sales also declined 6% in 2008 Not all cosmetics and toiletries were negatively effected in 2008

22. Substitute products for salon and spa visits such as hair dye, perms and nail polish had a strong performance in 2008 Women preferred to color their hair at home Gave themselves manicures/pedicures Adapted a ‘do-it-yourself’ attitude Other buyers include retail buyers Example: CVS Private Label Now CVS’s private label competes with other suppliers for shelf space Backward Integration

23. Private label experienced gains in 2008 Shares increased to 3% of value In 2003, private label only had a 2% value share Private label’s share growth in 2008 was mostly on account of the weakening economy Consumers cut back by purchasing private label products, Large gains for private label occurred in bath and shower products, oral hygiene and sun care.

25. Between 2008 and 2013: Sales of cosmetics and fragrances are forecasted to decline by 3% in constant value Men’s grooming products are expected to show great growth Anti-aging products are expected to grow 17% Battery toothbrushes and teeth bleaching kits are expected to grow 15% Body wash, shower gel, liquid soaps and hand sanitizers are expected to grow as well Private label brands are expected to grow

26. Why do incumbents have long staying power in the industry? Great brand recognition Ability of industry leaders to reinvent themselves Strong competition forces them to strive to work harder on developing the highest quality products at the best possible price

27. How do new entrants overcome entry barriers? Luxury good firms, such as Chanel and Dior have developed cosmetic products and fragrances Procter & Gamble and Unilever are pouring resources into their beauty divisions Private labels How do incumbents react to new entries? Incumbents highlight their unique products Focus on their quality and brand loyalty

28. Why do retail chains gain bargaining power as buyers at the expense of department stores? Changes in consumer behaviors help chains such as Wal-Mart gain bargaining power Department stores have higher selling costs Sales in premium cosmetics are declining

29. Should traditional competitors focus on expanding new country markets in emerging economies, or on entering hot new growth product markets in developed economies? In order to stay on top of this competitive environment, traditional competitors should focus their efforts on both Traditional competitors should focus on expanding new country markets in emerging economies such as Brazil, China, India, Russia and South Korea They should also enter into new growth product markets such as teeth whitening and anti-aging products in developed economies, such as the United States

31. http://www.articlesbase.com/health-articles/history-of-makeup-1163802.html http://www.portal.euromonitor.com/passport/ResultsList.aspx http :// www.nytimes.com/specials/women/nyt9http://www.thehistoryof.net/the-history-of-cosmetics.html8/21angi.html http://www.nytimes.com/2009/09/20/opinion/20dowd.html