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Southeast Asia remains a market of contrasts

FRIday - 13/01/2017 04:34
Southeast Asia is a region that has sharp contrasts in economic development, from the wealth of Singapore to countries such as Myanmar, where poverty is endemic and consumer markets are relatively undeveloped.
Such contrasts pose challenges for beauty companies seeking regional strategies to tap the markets of the Association of Southeast Asian Nations’ (ASEAN) ten countries, whose cosmetics suppliers have to comply with the standards of the ASEAN Cosmetics Directive, which was modelled on European Union legislation.

Singapore – only the best

Yet even in the region’s most mature cosmetics market, in the city state of Singapore, growth is continuing, albeit at a modest rate in the calendar year 2015. Growth was put at 2.5%, according to market researcher Euromonitor International.

As would be expected in a country with a high average of disposable income (the World Bank estimated per capita gross national income at US$52,090 in 2015), the market is characterised by premiumisation, with cosmetics boasting high-value ingredients and polished packaging and marketing, particularly in colour cosmetics, skin care and fragrance.

Blemish creams and colour correcting creams were the strongest segments in colour cosmetics, followed by lipstick, which had value sales growth of 6%. Cosmeceutical products – cosmetics that claim to have medicinal properties, such as anti-ageing creams – are also increasing in popularity in Singapore and are likely to continue to do so up to 2020, according to a Euromonitor note.

Singapore: One area that appears to be ripe for development, and perhaps oddly absent from a country that is progressive in many other ways, is the organic sector."

However, overall growth is likely to be modest up to that time, according to a Euromonitor spokeswoman, as “high penetration of beauty and personal care deemed as daily necessities, such as bath and shower and oral care, will dampen the overall growth rate of the market”.

While international brands like L’Oréal continue to dominate, the past year has been striking for the emergence of South Korean brands, according to Euromonitor.

“The Korean beauty wave continued to be a major driver of the growth for colour cosmetics as it gained mass acceptance,” says the spokeswoman. This expansion included the Innisfree brand opening three stores in 2015 and Sulwhasoo unveiling its first standalone boutique store in the same year – both brands are owned by AmorePacific.

Internet sales continue to rise, though Euromonitor says these are far from displacing shop sales.

“More beauty brands are expected to establish partnerships with online retailers like Hermo [a beauty e-tailer] to target the increasing share of sales that comes from internet retailing,” says the spokeswoman. “But store-based retailing will remain an important channel.”

One area that appears to be ripe for development, and perhaps oddly absent from a country that is progressive in many other ways, is the organic sector. Speaking at a roundtable on natural and organic cosmetics in Singapore last year, Amarjit Sahota, Founder and President of Organic Monitor, a UK-based research and consulting company, said that “Asian consumers don’t really know what organic means” and added that the absence of mainstream retailers of organic products has led to “a disorganised sector where there is a strong competition for shelf space with pseudo-natural brands”.

Issues around greenwashing and companies that overstate or simply invent organic credentials are being addressed by the International Organization for Standardization (ISO) standard ISO 16128-1:2016, which provides guidelines on definitions for natural and organic cosmetic ingredients. The ASEAN Cosmetics Association plans to implement and adopt these standards in 2017 to harmonise the quality of organic products made within ASEAN.

Malaysia – image Conscious

Meanwhile, colour cosmetics continues to dominate the $1.7bn market in middle-income Malaysia, where per capita GDP was $9,766 in 2015. A note from Euromonitor says that facial make-up, eye make-up and lip products sell particularly well, and reflect a culture where many women feel they have “to portray a certain self-image”. Sales remained strong last year despite price rises in almost all categories of colour cosmetics.

Overall, Euromonitor data suggests that sales of many non-essential cosmetics and toiletries slowed in Malaysia in 2015 as consumers cut back on spending amid rising living costs, and the introduction of a goods and sales tax.

The colour cosmetics category is dominating in Malaysia, 
with Korean brands like Sulwhasoo and halal-certified Crystal Dia
from Talent Cosmetic proving particularly popular

“Shrinkage in consumer [purchasing] could be significant in lowering value growth,” says the spokeswoman.

Some consumers are now trading down to cheaper alternative brands as a larger number of mass brands are launching similar colour cosmetics products as premium brands. For example, matte lipsticks are being sold not only by premium brands such as New York-based MAC Cosmetics, but also Malaysian brand SILKYGIRL, owned by Alliance Cosmetics, which distributes cosmetics and personal care products in Malaysia, Singapore, Brunei and Indonesia.

 

Conversely, a report from US-based management consulting firm Bain & Company suggests that the luxury end of the cosmetics market continues to do well in Malaysia.

Colour correcting creams recorded significant growth, said Bain – 14% value growth in 2015 – though the sector remains in its infancy and is seen as a key driver for growth up to 2020 to offset other declining or stagnating sectors.

Another emerging trend is that of the air-cushion format facial make-up, which is used by many colour cosmetics manufacturers as it helps to even out skin tone and conceal pores. Several products in this category were launched in 2015, including L’Oréal-owned Lancôme’s Miracle Cushion foundation and South Korea’s Sulwhasoo Evenfair Perfecting Cushion foundation compact.

Across the personal care sector, the popular mass brands include SILKYGIRL, Maybelline and Revlon, available through retail channels such as Malaysian pharmacy chain Guardian, Hong Kong-based health and beauty store Watsons and AEON Wellness drugstores. French luxury fashion companies Chanel and Dior, and personal care product outlets such as France’s Sephora and Hong Kong-based SaSa, have been thriving through targeting well-off Malaysians seeking premium items.

Euromonitor and other analysts anticipate that value sales share of local players like Malaysia’s Alliance Cosmetics will increase as they launch new products, but that international brands such as the US’s Estée Lauder, Bobbi Brown Cosmetics and MAC Cosmetics will also benefit from a rapid expansion in their distribution network.

An area of potential growth is that of halal cosmetics – free from pork, alcohol and sometimes also free from ingredients such as sulfates and parabens. In 2014, Talent Cosmetic, a South Korean beauty company with halal certification, launched products in Malaysia.

Philippines – ethical considerations

Meanwhile in the Philippines, another Southeast Asian country with a middle range of wealth – albeit significantly poorer than Malaysia at $2,899 GDP per capita in 2015 – market growth is already leading to specialisation in consumer trends.

Here, consumers are displaying an increasing fondness for ethical and environmentally-themed cosmetics, with local brands seeking to tap this demand. According to Euromonitor, Philippines retail value sales for cosmetics in 2015 grew by 4.2% year-on-year to $3.5bn.

“Ethical brands will start to take off in the Philippines, with 89% of Filipino consumers having a more favourable perception towards ethical and environmental credentials,” says Irene Bi, Associate Analyst with Canadean, another UK-based market researcher. “In the Philippines, local brands, such as Ever Bilena and Careline, are among the leading cosmetic brands, despite facing competition from Avon and Maybelline.”

With the Philippines having a large young population – 61.5% of the country’s 98.3 million people were under 30 years old in 2015, says Canadean – social media and e-commerce have played weighty roles in the cosmetics business. This allows domestic brands to present themselves professionally to a large audience relatively inexpensively, helping them escape the low-price segment that they have traditionally served. An example is Makati, Metro Manila-based Ellana Mineral Cosmetics, which sells powdered colour cosmetics in the medium-to-high-price segment, stressing its health benefits and formulations that meet the requirements of Southeast Asian skin types.

“We are doing hypoallergenic products, which, with local ingredients, cater to the humid and hot weather here,” explains Diego Buenaflor, Ellana Mineral Cosmetics’ CEO. “By contrast, foreign brands come in and bring in their formulas that were created for Caucasians, Latin Americans and Afro-Americans living in a dry climate,” he notes.

According to Buenaflor, 2016 has been a good year for Ellana Mineral Cosmetics amid the Philippines’ robust economic growth, which has benefitted retail in general (the World Bank predicts the country’s economy will grow by 6.4% this year). This has helped the brand push into brick-and-mortar retail, with 2015 launches of sales channels through specialised boutiques in Manila and Davao.

Makati-based Ellana Mineral Cosmetics
sells hypoallergenic cosmetics for Filipino consumers

Another Filipino brand successfully emphasising ethical and environmental themes is Human Nature (owned by