The Forecast Model’s Q3 update reveals a slight downgrade of US$4 billion to the beauty and personal care industry, when compared to the Passport Baseline. While this is marginal, it indicates a protracted recovery in weak markets such as Brazil. The scenario is compounded by Brexit, which leaves the industry at the peril of further uncertainty. Mass segment players tend to be more exposed to a slowdown, while the Brexit impact calls for UK-centric players to diversify their geographic presence.
The latest quarterly revision (Q3 2016) in the Industry Forecast Model indicates a moderate downgrade in growth forecasts over 2015-2020 with the global Passport baseline value CAGR slipping to 2.7% from 3%. The downgrade results from an economic recovery anticipated to take longer than expected to rebuild momentum.
A deterioration in Brazil’s GDP forecast for FY2016 is the single biggest contributor to the weakening projections in emerging markets. Brazil and China are largely responsible as their level of consumer spending weighs heavily on growth in beauty and personal care.
Companies such as Unilever and L’Oréal have greater exposure to market weaknesses in emerging markets as the latter remain mass-dominated in the beauty industry. The aforementioned players also tend to suffer from local rivals’ competitiveness. However, both companies have a broad geographic coverage that helps to limit revenue losses.
The UK CAGR prospects over 2015-2020 have been downgraded by 0.3 percentage points. However, in the worst-case scenario of a disorderly Brexit, the impact could be stronger, and exposes those brands most that generate a substantial proportion of their sales in the UK. A diverse global presence helps to contain such risk.
While growth projections in beauty and personal care are generally lukewarm, there are pockets of strength that have seen global multinationals, including L’Oréal, Unilever and Johnson & Johnson, heightening their merger and acquisition activity over Q2 of 2016, of niche luxury brands and skin care with a health focus.
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