The cosmetics retail market is a shining light amid retail recession fears

As 2019 comes to a close, retailers are measuring up hopes and expectations for the coming year. There have been worries about the state of Australia’s economy and about the retail market in particular. Despite the challenges, the cosmetics retail market looks to be attractive for new entrants and presents opportunities for both local and international retailers.

Retail recession looms

The concerns over a ‘retail recession’ have been building all year. Poor trading conditions and falling consumer confidence have many business owners worried and, despite income tax and official interest rate measures, the retail sector is bearing the brunt with tough sales conditions impacting car retailing, food, and household goods in particular. The volume of retail sales fell 0.1% in the September quarter and 0.2% over the last 12 months, amounting to the worst annual result since Australia’s previous recession.

Yet even in this climate, cosmetics sales are expected to be strong.

Trends in Cosmetics Sales in Australia

The beauty industry in Australia has been classified as one of the highest growth industries of the last 10 years. Not only was the cosmetics retail market worth approximately $7 billion in fiscal year 2016/17, on the back of an average annual growth of 2.5% over the past five years, but annual growth is expected to remain at approximately 2.1% over the next five years. Euromonitor statistics show that the Australian Skin Care market is growing at an annual rate of close to 10%.

This is the case even in the diminishing department store market. As department stores and discount stores around the country face the challenges of decreasing sales and stiff competition from online vendors, Australia’s cosmetics distribution channel has the highest market share of supermarkets and discount stores at 43.7%, followed by department stores at 21%, cosmetics retailers at 18.3%, and shop pharmacies at 17%. This has led to large supermarkets and discount stores bolstering in-store cosmetics displays and department stores and cosmetics stores focusing on mid-range brands and periodic promotions. The online cosmetics sales market is even more attractive, with sales up more than 14% over the past five years from 2012 to 2017, and expected to grow further over the next five years.

The cosmetic market might well be an attractive option for local and international retailers in 2020 in light of these signs of growth.

Opportunities highlighted by the cosmetics market

There are number of key indicators that explain and clarify the strength of the cosmetic retail market in the face of a weakening retail market in Australia overall.

  • As the Asian population grows, so too does the growth in Asian cosmetic product sales, especially from the much vaunted Korean market. This makes Australia an optimal and unique test bed to trial market responses to products from both the East and the West.
  • The shift away from store-front and department store sales is strongly evident in cosmetics. Sales are not only moving from large department stores and cosmetics stores to supermarkets and shop-type pharmacies, consumers are also finding it easier and more amenable than ever to purchase cosmetics online rather than through traditional sales channels.
  • Australian consumers have a strong reliance and commitment to particular cosmetics products, which they purchase selectively and on a regular basis. This includes well-known branded products that are rated highly, in particular organic products and skin-care items. Skin-care products, including creams, moisturizers and cleansing products, account for 46% of total sales, while organic cosmetics, in particular organic lip balm, manicure items, and colour cosmetics, capture 25.8% of the total.

There are clear opportunities for retailers in light of these trends in sales.

  • There is great potential for imports to succeed in the retail market in Australia, especially Korean cosmetics. Australia’s import tariff rate for cosmetics (HS Code 330499) is tax-free, and in 2018 these imports exceeded $600 million, while imports from South Korea accounted for about 3% of the total market of $30 million, up 32% from the previous year.
  • Businesses can tap into the strong demand for online sales. Online Beauty sales have been growing by 25-30% per year and account for 10-15% of the total market. The overall online based e-commerce market in Australia is expected to grow by 30% to 40% of the total market in the future.
  • Developing brand loyalty and recognition, and building a product base of natural and organic products, is a key factor in capturing a strong market share by appealing to consumer demand for popular brands and natural products. Sales of Australia’s organic cosmetics and personal care products have grown by 11.3% over the past five years to $345 million and are expected to grow by 8.8% over the next five years.

If you are involved in selling cosmetics or health products, or have the capacity to do so, then the concerns over the retail recession should not put you off from exploring your options. The cosmetics retail market looks set to grow despite weaknesses in other retail sectors. Selling cosmetics online from Korea and other Asia-Pacific markets appears particularly favourable. In light of the changing face of the retail market overall, and all the challenges 2020 looks set to bring to the Australian economy, the key in making the most of these trends in cosmetics retail is forward planning. The year might be ending, but now is the time to begin thinking about how you can secure your retail trade in 2020.

Calibre Business Advisory has extensive experience in supporting small and large businesses in retail. We provide a thorough range of services, that meet the financial needs of local and overseas entities in the retail industry. Moreover, our dedicated team can work with you to understand your objectives and provide relevant services and support across the life cycle of your company. Contact us to explore your opportunities in a changing retail climate in 2020.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.