Natural/Organic Trend is on the Rise

Q2 sales boosted by profits in emerging markets for a number of beauty firms

Direct selling companies did relatively well in 2008. We often see direct sales do well during economic downturns as unemployment rises, which results in an increase in independent sales consultants for the direct companies. For example Swedish direct seller Oriflame experienced an increase in the average size of its sales force by 19% to 3.1 million consultants and closing sales force was up by 25% in the beginning of 2009, Oriflame’s Q1 report revealed.

The direct sales channel registered growth of a little over 6% in 2008, reaching about 10% of US cosmetics & toiletries market. Direct marketers were successful in 2008 for a number of reasons as consumer traffic shifted away from department and specialty stores. However it has been reported that in the second quarter of 2009, sales for several direct seller beauty firms dropped. Some figures show that emerging regions stood up better than developed markets. For example Tupperware’s best performing regions were Brazil, Venezuela and Argentina, and profit increased in comparison to breaking even in the same period last year according Tupperware’s Q2 press release.

Direct sales encounter greater opportunity in emerging markets because the channels of distribution (and access to those channels) are much less developed, especially in rural areas.

Direct seller Avon shows weaker sales figures as well in comparison to the previous year contributed to a drop of 36 percent in net income, exacerbated by increased advertising and promotional costs. According the official press release this month, Avon reported second-quarter 2009 total revenue of $2.5 billion. Beauty sales in the second quarter 2009 were 10% lower versus the prior-year period, but increased 5% on a local-currency basis. Avon’s recently launched 2009 restructuring program reflects its continuing determination to transform cost structure and help fund growth. In emerging regions, such as Latin America Avon saw second-quarter 2009 revenue 3% lower year over year, but up 15% on a local-currency basis.

Emerging markets have positive impact on sales of other cosmetics companies. The big news is that L’Oreal is venturing into the direct sales channel in Brazil in 2009, through a partnership with a Brazilian company.

As the recession drags on in the US and Europe, L’Oreal says that robust sales in emerging markets helped to boost preliminary results for the company in its most recent quarter. The company-reported sales were down 2.1 percent on a like-for-like basis during the second quarter. The company said that India was accelerating, while China and Brazil were maintaining previously strong levels of growth. Likewise Mexico and Russia were both showing signs of improvement.

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