od4961 lipstick manufacturing industry report

WWW.IBISWORLD.COM� Lipstick�Manufacturing�in�the�US January 2012 1

IBISWorld Industry Report OD4961Lipstick Manufacturing in the USJanuary�2012� Mary�Gotaas

Lasting color: Demand stayed strong during the recession, but growth will require innovation

2� About�this�Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3� Industry�at�a�Glance

4� Industry�Performance4 Executive Summary

4 Key External Drivers

6 Current Performance

8 Industry Outlook

10 Industry Life Cycle

12� Products�&�Markets12 Supply Chain

12 Products & Services

13 Demand Determinants

13 Major Markets

15 International Trade

16 Business Locations

18� Competitive�Landscape18 Market Share Concentration

18 Key Success Factors

18 Cost Structure Benchmarks

20 Basis of Competition

21 Barriers to Entry

22 Industry Globalization

23� Major�Companies23 The Procter & Gamble Company

24 The Estee Lauder Companies Inc.

25 Revlon

27 L’Oreal SA

29� Operating�Conditions29 Capital Intensity

30 Technology & Systems

30 Revenue Volatility

31 Regulation & Policy

32 Industry Assistance

33� Key�Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34� Jargon�&�Glossary

www.ibisworld.com��|��1-800-330-3772��| ��[email protected]


Companies in this industry manufacture lipstick. Companies that make a wide variety of cosmetic products, however, only the

manufacture of lipstick, primarily manufacture lipstick and lip stains are included within this industry (lip gloss and lip balm are excluded).

The�primary�activities�of�this�industry�are

Manufacturing of lipstick

Manufacturing of lipstain

32561 Soap�&�Cleaning�Compound�Manufacturing�in�the�USCompanies in this industry are primarily engaged in manufacturing and packaging soap and other cleaning compounds, surface active agents, textile and leather finishing agents and toothpaste.

32562 Cosmetic�&�Beauty�Products�Manufacturing�in�the�USThis industry blends, compounds and packages beauty products and cosmetics. Industry products include perfumes, make-up items (including lipstick), hair preparations, face creams and other toiletries.

44612 Beauty,�Cosmetics�&�Fragrance�Stores�in�the�USStores in this industry sell a range of beauty products including make-up, hair-care, bath and fragrance products.

Industry�Definition

Main�Activities�

Similar�Industries

Additional�Resources

About�this�Industry

For�additional�information�on�this�industry

www.cosmeticindustry.com�Cosmeticsindustry.com

www.revlon.com�Revlon

www.census.gov�US Census Bureau

www.fda.gov�US Food and Drug Administration

The�major�products�and�services�in�this�industry�are

Lip stain

Matte lipstick

Other (e.g. lip liner)

Sheer lipstick

�IBISWorld writes over 700 US industry reports that are updated up to four times a year. To see all reports, go to www.ibisworld.com


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Consumer sentiment index

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2012)

45.6%Sheer lipstick

40.4%Matte lipstick

9%Lip stain

5%Other (e.g. lip liner)


Key�Statistics�Snapshot

Industry�at�a�GlanceLipstick�Manufacturing�in�2012

Industry�Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity High

Industry Assistance Low

Concentration Level High

Regulation Level Medium

Technology Change Medium

Barriers to Entry Medium

Industry Globalization Medium

Competition Level High

Revenue

$2.1bnProfit

$228.4mExports

$262.6mBusinesses

69

Annual�Growth�12-17

3.2%Annual�Growth�07-12

2.8%

Key�External�DriversConsumer�sentiment�indexDemand�from�beauty,�cosmetics�and�fragrance�storesDemand�from�department�storesNumber�of�adults�aged�20�to�64Trade-weighted�indexDemand�from�pharmacies�and�drugstores

Market�ShareThe Procter & Gamble Company 25.7%

The Estee Lauder Companies Inc. 17.4%

Revlon 16.5%

p. 23

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33



Key�External�Drivers Consumer sentiment indexThe consumer sentiment index reflects trends in unemployment and disposable incomes. When sentiment is high, consumers are more likely to purchase this industry’s high-end goods. This driver is expected to increase during 2012, creating a potential opportunity for the industry.

Demand from beauty, cosmetics and fragrance storesBeauty and cosmetics stores create strong demand for the industry’s products, especially as they rise to prevalence and favor among consumers. As Americans switch to this type of retail format, away from department stores, this driver will increase, causing industry revenue to

grow. IBISWorld expects this driver to increase during 2012.

Demand from department storesThe level of demand derived from this key market segment has a strong influence on the performance of the industry. Many lipstick products are sold in department stores. However, some department stores are losing ground to competitively priced mass merchandisers. This driver is expected to increase slowly over 2012.

Number of adults aged 20 to 64Women aged 35 to 54 are the primary buyers of products within this industry. As the number of people in this group contracts or expands, demand for

Executive�Summary

The Lipstick Manufacturing industry has experienced long-lasting growth in the past five years. Regardless of volatile consumer sentiment and disposable income, consumers continued to demand new lipstick. During the recession, consumers indulged themselves in smaller luxuries, such as lipstick, to lift their spirits. Then as the economy began to recover, they continued to buy new

products to keep up with fashion trends. This growth did require effort from the manufacturers. Changing consumer preferences and fashion trends necessitated new products, and companies had to continually innovate. From 2007 to 2012, industry revenue is expected to grow at an average annual rate of 2.8% to $2.1 billion. In 2012 alone, revenue will increase about 4.1% as consumer spending rises.

From 2012 to 2017, industry revenue will continue to remain lush. High disposable income and consumer sentiment will enable consumers to spend more on discretionary products such as cosmetics. In addition, the industry will continue to focus on innovation and new products will drive growth. In the five years to 2017, revenue is forecast to expand an average 3.2% per year to $2.4 billion. Profit margins will also rise since firms improved efficiency during the recession by cutting costs and as sales continue to increase.

Although the industry experienced growing revenue, the industry has been consolidating. From 2007 to 2012, company numbers have decreased by about 1.4% per year to 69 companies. In order to gain more market in the saturated cosmetic market, larger companies have been acquiring smaller ones. As company numbers have dropped, employment numbers have followed. In the past five years, employment numbers have decreased an average 3.4% per year to $127.9 million.

Industry�PerformanceExecutive�Summary�� |�� Key�External�Drivers�� |�� Current�PerformanceIndustry�Outlook�� |�� Life�Cycle�Stage

� The saturated industry will continue to focus on innovation and new products to drive growth


Industry�Performance

Key�External�Driverscontinued

lipsticks will likely fluctuate in line. This driver is expected to increase slowly during 2012.

Demand from pharmacies and drugstoresDrug stores, mass merchandisers and supermarket chains make up the largest market segment; therefore, the level of demand generated from this segment has a strong bearing on the performance of the industry. However, as consumers move to higher end lipsticks, drug stores

will feel the competitive pinch from specialty stores. This driver is expected to decrease slowly during 2012, posing a potential threat to the industry.

Trade-weighted indexBecause this industry is moderately involved in international trade, an appreciation of the US dollar makes cosmetic products less attractive internationally. This driver is expected to increase during 2012.

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Demand from department stores


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Lipsticks�last�through�the�recession

Lipstick is a discretionary product and is, therefore, affected by changes in consumer sentiment and disposable income. During the recession, when unemployment rose and the stock market plummeted, disposable income and consumer sentiment declined. As a result, many Americans refrained from making discretionary purchases and industry revenue decreased 1.9%. This decline was not as drastic, however, as many other industries that produce discretionary goods. Although disposable income was limited, many consumers indulged themselves in smaller luxuries, such as a fancy cup of coffee and lipstick, which helped boost consumer morale during a difficult time. Consumers did reduce the amount they spent on lipstick, though. Color cosmetics has traditionally been one of the few areas in beauty products that has been dominated by brands, but in 2009 sales of retailers’ private-label cosmetics increased as consumers looked for cheaper lipstick options.

When the economy began to rebound in 2010 and 2011, the Lipstick Manufacturing industry followed suit. Disposable income increased and Americans’ confidence in the economy rose, prompting consumers to expand their spending. Cosmetic sales expanded, especially for higher-end producers like Estee Lauder, as

consumer who had switched to cheaper make up during the recession switched back to previous products.

In addition to rising income, consumers spent more on lipstick in the past two years as lipstick wearing became a rebounding trend in cosmetics. Prior to 2010, lip gloss was extremely popular among consumers. Lip gloss is cheaper and is often a better moisturizer for lips. In 2010 and 2011, however, lipstick wearing became more fashionable. Nude and bold color lipsticks invaded runway beauty looks and consumers quickly began to demand lipsticks once again. This trend of nude and bold colors is expected to continue: as such, major player Estee Lauder introduced nude and neon lip color under their Bobbi Brown brand. New lip colors include atomic orange, neon pink and uber beige.

Along with increasing sales, profit has been expanding. In 2012 IBISWorld expects profit (earnings before interest and taxes) to reach 11.1% of industry revenue, compared to

Current�Performance

The Lipstick Manufacturing industry has been more than resilient in the past five years. Despite volatile disposable income and shifts in consumer sentiment, industry revenue is expected to grow at an average annual rate of 2.8% to $2.1 billion from 2007 to 2012. Consumers indulging in smaller luxuries during the economic downturn and new consumer makeup

trends kept lipstick sales afloat during this time period. However, manufacturers have had to continually introduce new products to keep up with American makeup trends and competition with other facial products, such as lip gloss. In 2012, industry revenue is projected to grow 4.1% as consumers purchase new lipstick to conform to new makeup trends.

� During the recession, consumers opted for cheaper, private-label lipstick varieties



Lipsticks�last�through�the�recessioncontinued

10.0% in 2007. Companies have been consolidating their manufacturing facilities, which have reduced costs

and improved profit margins. Also rising sales have continued to boost total profit.

Consolidation Although industry revenue has been rising, the industry has been consolidating. From 2007 to 2012, company numbers have declined at an average annual rate of 1.4% to 69 firms. Industry players face high competition, and organic growth can be difficult to generate due to a very saturated market. Therefore, firms gain market share and a

larger customer base by acquiring other companies. In 2010, for instance, Estee Lauder acquired Smashbox Cosmetics, which increased the company’s customer base among younger women.

Along with consolidation, the industry’s establishment numbers and employment numbers have been declining. With declining sales during the

Trends�and�innovation

Introducing new products and improving existing products is a key factor in keeping sales constant in the Lipstick Manufacturing industry. Manufacturers need to be aware of beauty looks on fashion runways and overarching consumer trends. Overall consumer preferences have shifted in the past five years, resulting in new kinds of lipsticks. One major consumer trend is that Americans’ schedules are becoming fuller and therefore consumers are looking for convenient and time-efficient products. As a result, this industry continues to focus on producing long-lasting lipstick. In 2009, Revlon introduced Revlon ColorStay Ultimate liquid lipstick, with patented long-wearing technology and food-proof wear for up to 12 hours. Since then, the product has been improved and is advertised to last up to 24 hours. Also with busier schedules, consumers have less time to keep their face primped and healthy, so lipstick producers continue to focus on offering lip color that not only looks great but improves the healthiness of lips. Major player Procter & Gamble recently introduced CoverGirl LipPerfection Lipcolor. The product is said to improve

the moisture levels and smoothness of lips in just seven days.

Another rising trend among consumers is an increased demand for natural and organic products. Americans are becoming more health-conscious and are becoming more aware of the chemicals in their everyday consumer products. Increasingly, Americans are moving away from chemical-based products and toward more natural products. This trend holds true in cosmetics too: Americans are demanding cosmetics with natural ingredients. Smaller niche cosmetic producers have been able to benefit from this trend. Companies such as Bare Escentuals pride themselves on producing 100.0% natural cosmetics. The company offers 100.0% natural lip color under its bareMinerals brand. These products do not have parabens, sulfates, synthetic dyes and petrochemicals.

� Manufacturers are increasingly catering to Americans’ demand for natural products



Consolidationcontinued

recession, companies focused on improving manufacturing efficiencies and closed down underperforming facilities.

As plants closed, employment numbers declined an average 5.0% per year to an estimated 2,092 employees in 2012.

Consumer�preferences�and�new�products

Similar to the previous five years, innovation will remain very important to this industry’s growth potential. With so many choices of lipsticks, industry participants will continue to roll out new lipsticks to attract customers. Long-lasting lipsticks and moisturizing lipsticks will keep being introduced into the marketplace. These improvements cater to the busy American who does not have time to re-apply makeup or improve the health of their lips. The irony of these improvements is they do not come hand and hand. Sheer and stain lipsticks tend to be more moisturizing than other types of lipsticks, but their pigmentation is weaker, which may cause the color to fade faster.

IBISWorld also expects manufacturers to change the packaging of their lipsticks. With so many consumers constantly on the

run, industry participants are expected to produce goods that are easier to apply. For instance, industry player Exude! offers lipsticks in clear tubes that twist to release the gel color formula. The company’s lipstick applicator makes it easier for women to put on lipstick without a mess. Improved applicators will help prompt new revenue for this industry.

Manufacturers are also projected to reevaluate the ingredients they put in their lipsticks. Like the previous five-year period, consumers will demand organic and natural products. In order to stay

Industry�Outlook

The Lipstick Manufacturing industry is not projected to experience much change over the five years to 2017. The industry is mature and lipstick is widely accepted among consumers, so improvements in the products entice customers to continually buy new lipsticks. With these factors taken into account, IBISWorld expects industry revenue to grow at an average annual rate of 3.2% to $2.4 billion. The industry will display other traits that are typical of a mature industry, including greater exports and higher profit margins for industry participants.

The rebounding economy will positively affect the industry, prompting

consumers to continue in their spending on discretionary items. In 2013, revenue is forecast to grow 3.8% as disposable income increases and consumers increase their confidence in the economy. Meanwhile, the number of companies participating in the industry is expected to fluctuate, ultimately displaying an average increase of 0.3% from 2012 to 2017. With a saturated market, new entrants will find it difficult to establish themselves among large players like Procter & Gamble and Estee Lauder; however, some firms may be able to survive by catering to a niche market.

� With so many lipstick choices, producers will roll out new lines to attract customers



Consumer�preferences�and�new�productscontinued

competitive, firms will have to create new goods that attract these customers. In addition, consumers are concerned over having animal by-products in their cosmetics and are expected to steer away from these goods. If large lipstick producers do use animal by-products, IBISWorld expects them to create a lipstick line without these ingredients to attract customers with these concerns.

With all these shifts in consumer lifestyles and preferences, research and development (R&D) will remain a key cost for this industry. In 2012, R&D is expected to account for about 14.8% of

industry revenue. Cosmetic laboratories and highly skilled workers make innovation a high cost for the industry. R&D is expected to rise in the next five years, but with revenue increasing, R&P cost margin will remain the same. Meanwhile, profit margins are expected to grow. With improved efficiency in the previous five-year period and growing demand for lipstick, profit margins will strengthen to about 11.5% in 2017. Along with profit, total wages are forecast to increase. From 2012 to 2017, wages are projected to rise at an average annual rate of 2.5% to $144.7 million.

Business�abroad Although innovation boosts revenue for an industry in a saturated market, selling products internationally also gives the industry a push. Over the five years to 2017, exports are expected to increase by an average annual rate of 6.4% to $358.3 million. Growing income in emerging economies is expected to facilitate higher lipstick sales overseas. Some manufacturers have already established operations overseas, and IBISWorld expects this trend to expand in 2016. Manufacturers will have to change some products to appeal to international customers. For instance, many consumers in the Middle East follow a halal diet and therefore cannot use any goods that contain pork by-products or alcohol.

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Revenue Exports

Revenue vs. exports



Industry�PerformanceThis industry is highly competitive, limiting the number of participants

Product segments are well defined, but innovation drives demand for new products

The industry’s value added remains in line with US GDP

Life�Cycle�Stage


30

25

20

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10

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%�Growth�of�establishments

DeclineCrash or Grow?

Potential�Hidden�GemsFuture Industries

Quality�GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time�WastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

Quantity�GrowthMany new companies; minor growth in economic importance; substantial technology change

Key�Features�of�a�Mature�Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Soap�&�Cleaning�Compound�Manufacturing

Pharmacies�&�Drug�Stores

Dye�&�Pigment�Manufacturing

Cosmetic�&�Beauty�Products�Manufacturing

Department�Stores

Lipstick�Manufacturing



Industry�Life�Cycle The Lipstick Manufacturing industry is in the mature phase of its life cycle, most strongly indicated by its stagnant contribution to the US economy. Industry value added (IVA) is forecast to grow at an average annual rate of 2.4% over the 10 years to 2017. Gross domestic product (GDP) is expected to grow 1.9% per year over the same time, so the industry adds only marginal value to the economy.

Additionally, the number of industry players has been declining in the five years to 2012 and is expected to remain stagnant over the next five years. This trend indicates that opportunities are not readily available for new entrants, leaving the existing operators dominant. The

domestic market fully accepts the industry’s products, so little room is left for new products. Manufacturers have increased their exports over the past five years, growing at an average annual rate of 5.9%. In 2012, international markets account for 12.8% of industry revenue.

IBISWorld projects that the market will expand even further to account for 14.9% of revenue by 2017.

Product innovation is a key component of industry growth. Over the five years to 2012, introductions and developments of new varieties of lipstick have boosted consumer demand. Promises of long-lasting color and healthier lips have kept manufacturers viable and profitable.

�This industry is Mature


Products�&�Services

Although many industry operators produce a variety of lip cosmetics, this industry includes only the manufacturing of lipstick, lip stain and some lip liner products that use the same production processes and facilities. The industry does not include the manufacture of lip gloss. Sheer lipsticks account for about 45.6% of total industry revenue, while matte lipsticks currently account for an

estimated 40.4% of industry revenue. Sheer lipsticks generally contain a significant amount of oil, with less wax and pigment than matte lipsticks, making them more translucent. Matte and semi-matte lipsticks contain more waxes, filling agents (such as silica) and pigment. Lip stains are estimated to make up 9.0% of industry revenue. Lip stains are mostly water and gel, though

�Products�&�MarketsSupply�Chain�� |�� Products�&�Services�� |�� Demand�DeterminantsMajor�Markets�� |�� International�Trade�� |�� Business�Locations

KEY�BUYING�INDUSTRIES

44611� Pharmacies�&�Drug�Stores�in�the�US�Pharmacies and drug stores selling an array of cosmetics including lipstick.

44612� Beauty,�Cosmetics�&�Fragrance�Stores�in�the�US�Specialty beauty supply stores sell a range of industry products.

45211� Department�Stores�in�the�US�Department stores sell high-end industry products.

99� Consumers�in�the�US�A number of players and subsidiary brands in the industry sell their products directly to consumers, through websites, catalogs and manufacturer owned stores.

KEY�SELLING�INDUSTRIES

32513� Dye�&�Pigment�Manufacturing�in�the�US�Lipstick manufacturers purchase key product ingredients from this industry.

32519� Organic�Chemical�Manufacturing�in�the�US�Lipstick manufacturers source organic chemicals from companies in this industry.

56191� Packaging�&�Labeling�Services�in�the�US�This industry provides lipstick manufactures with contracted packaging and labeling services.

Supply�Chain

Products and services segmentation (2012)

Total $2.1bn

45.6%Sheer lipstick

40.4%Matte lipstick

9%Lip stain

5%Other (e.g. lip liner)



Products�&�Markets

Major�Markets Mass merchandisers and drugstoresMarkets for the Lipstick Manufacturing industry range from mass merchandisers to direct sellers. In 2012, IBISWorld

estimates that mass merchandisers and drugstores account for nearly half of all sales (46.4%). This segment’s share of the pie has been relatively steady over the

DemandDeterminants

A wide array of discretionary variables sways demand for industry products. For example, fashion trends, new product developments and heavy industry marketing play a strong role in influencing demand.

Industry players spend significant sums on developing and marketing new products to increase demand in an otherwise mature and saturated marketplace. Marketing is aimed at convincing consumers of better quality, multifunctionality and convenience. Furthermore, fashion swings and trends can have a significant impact on industry performance and it is crucial for industry operators to market themselves as fashion forward and in-step with current trends. For example one factor boosting industry sales over the current period is a return to rich and dramatic lip colors in high profile runway shows. This fashion trend has helped boost lipstick sales and decrease external competition from more muted industry substitute lip glosses and balms.

Physiological and environmental attitudes also determine demand for

industry products. Like the broader cosmetics and beauty sector, industry products featuring natural and organic components are increasingly gaining favor on the market. This trend reflects wide concerns about the health and safety of products as well as also growing concern over environmental factors and heightened interest in more sustainable lifestyle choices.

Disposable income and consumer confidence also play a role in determining demand for industry products. While most industry products are viewed as discretionary they are not always cut out when consumers face tough of uncertain economic times. Some consumers do not eliminate their use completely, but switch to lower price point products. At the same time, lipstick is often viewed as a small luxury, in which many consumers indulge when having to cut back or postpone larger luxury purchases. This factor has helped to boost demand for lipstick over the past three years and pushed a strong industry growth despite a sluggish economic recovery.

Products�&�Servicescontinued

some have added oils combined with synthetic or natural dyes. Lip stains can last up to 18 hours, are less viscous than lipsticks prior to application and more smudge-proof after application.

A few trends have been impacting the industry’s product lines over the past five years, including health concerns and increasing demand for organic products. Health concerns about skin cancer have opened consumers’ eyes to

the risk of unprotected sun exposure. As a result, an increasing number of industry products have released products with added sunscreen protection. Additionally, the recent push for organic and environmentally friendly cosmetics has boosted industry players’ new product development and marketing efforts aimed at capitalizing on environmentally conscious consumers.



Major�Marketscontinued

past few years. The recession made these buyers more of an important resource for the industry during the height of the recession as cash-strapped consumers flocked to the low-priced retailers. As the economy recovers from the global financial downturn, however, sales to department stores have been increasing at a faster rate than food, drug and mass-merchandise retailers.

Department storesSales to department stores are estimated to account for about 21.6% of total industry revenue in 2012. Demand from this market segment dipped over 2008 and 2009, when consumers have opted to make similar purchases at drugstores and mass merchandisers to save money. Beginning in 2010, though, demand from department stores has been rising at a faster pace than the overall industry as consumers began spending more on small luxury items while delaying larger purchases in the face of economic uncertainty and the sluggish pace of the recovery. Additionally, retail sales in high-end consumer product markets across the board have fared far better than the general retail sector during the economic recovery, helping to boost this market segment.

Direct-to-consumer salesAvon and Mary-Kay are direct sellers characterized by their door-to-door cosmetic sales. These companies either purchase their products directly from producers or integrate manufacturing capabilities within their own supply chains. This type of business model focuses on cost savings by eliminating storefronts and other associated expenses. Other industry players, such as L’Oreal (The Body Shop) and Estee Lauder (MAC), own and operate their own branded storefronts and sell industry products direct to consumers. Sales through this market segment have declined slightly over the past five years and are estimated to make up about 8.0% of industry revenue in 2012.

ExportsThe US Lipstick Manufacturing industry makes about 12.8% of its revenue internationally. This portion has been steadily increasing over the five years to 2012, growing from about 11.0% in 2007. Because it is in the mature phase of its life cycle, industry players have been seeking out new markets for their products. So far, this move has been successful since overseas retailers depend on the appeal of American-made goods

Major market segmentation (2012)

Total $2.1bn

46.4%Drug, food and

mass merchant retailers

21.6%Department stores

12.8%Export markets

11.2%Other (Wholesalers,

specialty beauty supply and

cosmetic stores)

8%Direct to consumer




International�Trade The Lipstick Manufacturing industry has a moderate level of international trade, with exports only accounting for 12.8% of revenue and imports accounting for 12.1% of domestic demand. Nevertheless, the role of international trade is still an important one within the industry. Over the five years to 2012, exports have grown faster than the industry itself, at an average annual rate of 5.9% to an estimated $262.6 million in 2012. This accelerated growth has increased exports’ share of domestic revenue from 11.0% in 2007. The perception of high-quality makes American products appealing to international consumers. In addition, the weakened US dollar made US products cheaper during 2008 and 2010, boosting exports 8.7% and 15.1%, respectively.

Imports have grown at a five-year annualized rate of 7.1% to an estimated $247.3 million in 2012. The United States mainly sources high-value, high-quality lipstick products from France, Canada and Belgium. Together, these three countries account for nearly half of all import values. China and India supply some lower-end products, which are mostly sold in

drugstores and through mass merchandisers. Imports declined strongly in 2009, though, as a result of the weakened domestic economy and consumers’ unwillingness to buy discretionary beauty products.

Canada and Mexico are both large destinations of trade within this industry. Their proximity to the United States and the advantage of duty-free trade enjoyed under the North American Free Trade Agreement (NAFTA) allow these two nations to engage in high levels of trade.

Major�Marketscontinued

for their perceived high quality. Additionally, the weakness of the US dollar has made domestic products cheaper on the international market, increasing their appeal.

Other market segmentsOther industry markets include wholesalers and specialty cosmetic and beauty supply retailers. Although wholesalers have been losing market share, they still represent about 5.5% of all sales. Over the five years to 2011, the trend of wholesale bypass has increasingly edged out this part of the supply chain. Large retailers, such as

mass merchandiser Walmart, have looked past the middleman and sourced directly from manufacturers to cut purchasing costs. Manufacturers, in turn, have increasingly sold directly to retailers, offering them an agreed-upon price and retaining margins. Specialty cosmetic and beauty supply retailers represent 5.7% of revenue. These specialty boutiques have lost market share because many of the industry products they carry are incorporated into one-stop-shop retailers, like department stores, drugstores, mass merchandisers or online-only shops.

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Exports Imports Balance

Industry trade balance


Level�&�Trend��Exports in the industry are Medium and Increasing

Imports in the industry are �Medium and �Increasing


�Products�&�Markets

Business�Locations�2012

MO1.0

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.2

MA1.9

RI0.1

NJ13.8

DE0.2

NH0.2

CT4.0

MD6.6

DC0.0

1

5

3

7

2

6

4

8 9

Additional�States�(as marked on map)

AZ0.5

CA6.0

NV0.3

OR0.7

WA1.0

MT0.3

NE0.2

MN0.3

IA0.4

OH16.0 VA

0.8

FL2.0

KS0.2

CO0.2

UT0.2

ID0.5

TX2.1

OK0.0

NC15.9

AK0.1

WY0.1

TN1.0

KY0.4

GA0.5

IL2.3

ME0.2

ND0.0

WI0.2 MI

0.6 PA0.4

WV0.0

SD0.1

NM0.0

AR0.2

MS0.1

AL0.2

SC0.2

LA0.2

HI0.6

IN0.5

NY16.5 5

67

8

321

4

9


Mid- Atlantic

Revenue�(%)�

� Less�than�3%� 3%�to�less�than�10%� 10%�to�less�than�20%� 20%�or�more


�Products�&�Markets

Business�Locations The Lipstick Manufacturing industry is highly concentrated in the Mid-Atlantic region of the United States, accounting for about 37.5% industry revenue. New York (accounting for 16.5% of revenue), New Jersey (13.8%) and Maryland (6.6%) are among the top revenue-producing states in the industry and are located within this area. This region is an attractive location for cosmetic and beauty product manufacturers because it is close to upstream suppliers like chemical producers and also close to key downstream markets in metropolitan areas like New York City. Facilities in New York and New Jersey are also close to major shipping ports, which have become increasingly important over the past five years as an increasing number of operators have engaged in importing and exporting products to expand the industry’s market.

For similar reasons, the Southeast region is the second most concentrated area for this industry, accounting for 21.5% of revenue. In the Southeast, North Carolina brings in the most revenue with 15.9% of the industry total. A number of upstream suppliers are located in the region, which cuts down transportation costs for lipstick manufacturing companies. Additionally, Florida – one of the most populous states – is a key market for lipstick brands, so manufacturers that set up shop in the area can get their product to downstream markets quickly.

The Great Lakes region accounts for 19.6% of industry revenue, with Ohio holding the largest portion for the region at 16.0% of the industry’s total.

Upstream manufacturers, including the Inorganic and Organic Chemical Manufacturing industries (IBISWorld reports 32518 and 32519, respectively) are highly concentrated in this region. Being in close proximity to suppliers cuts costs for these facilities and allows for larger profit margins.

The West only contributes 8.7% of industry revenue, and a typical establishment in the West does not bring in a large amount of revenue. While a large market for the industry’s products exists in the state’s large cities, upstream suppliers are not plentiful in the region, creating high transportation costs. The rest of the regions make up the remainder of revenue for the industry (12.7% of the industry total). No other region accounts for more than 10.0% of revenue.

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Cost�Structure�Benchmarks

Costs and returns vary by firm and depend on its size, location, supply contracts and mix of products manufactured. The following figures are industry averages.

Profit Profit (earnings before interest and tax) for lipstick manufacturers is relatively high, accounting for an estimated 11.1% of revenue, up from 10.0% in 2006. Consolidation within the industry and of production operations have helped industry operators improve profit performance over the past five years, despite the economic downturn.

Additionally, the low price point of the industry’s luxury products makes them less vulnerable to decreases in disposable income levels. In fact, sales of lipstick, particularly at the higher end, have risen substantially over the past three years, while the economic recovery has been sluggish. This has occurred as consumers have increased consumption of smaller luxuries, while having to postpone larger purchases during times of economic hardship or uncertainly.

PurchasesPurchases are the largest cost for the average operator within this industry,

Key�Success�Factors Having contacts within key marketsHigh brand visibility is important in increasing sales and market share in the industry.

Access to niche marketsIf not a major player, niche and ultra-niche positioning is important for success in this industry.

Ability to control stock on handIf not a niche player, significant market strength is required for success.

Having marketing expertiseIn this highly competitive industry,

marketing and brand awareness are very important in gaining market share.

Development of new productsLipstick manufacturers rely on product innovation to stimulate growth.

Production of goods currently favored by the marketLipstick manufacturers must be aware and be able to adapt to fashion and lifestyle trends in order to remain competitive, although some of the larger manufacturers may set trends rather than follow them.

Market�Share�Concentration

Industry concentration measures the extent to which large companies dominate the industry. IBISWorld estimates that, in 2012, the top four industry participants will hold a combined share of about 73.8% of total industry revenue. This suggests a high level of concentration since the majority of market power is spread over a small number of operators.

The level of industry concentration in

the industry has been gradually increasing over the past decade. While there are a number of small players in the industry specializing in product lines to serve niche markets, major players in the industry will continue to expand and gain greater market control. Major player L’Oreal, for example, has well-recognized brands in a variety of price points, including Maybelline, Lancome and Yves Saint Laurent.

Competitive�LandscapeMarket�Share�Concentration�� |�� Key�Success�Factors�� |�� Cost�Structure�BenchmarksBasis�of�Competition�� |�� Barriers�to�Entry�� |�� Industry�Globalization

Level��Concentration in this industry is High

�IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive�Landscape

Cost�Structure�Benchmarkscontinued

accounting for 30.4% of revenue. Manufacturers must buy inputs such as wax, dyes, essential oils and lotions. Any changes in raw material prices affect the overall costs and the bottom line. Also, the purchase of packaging materials represents a substantial cost within this category; a significant amount of product sales depend on product presentation and appearance. For instance, operators that manufacture luxury lipsticks for the high-end market spend more on attractive packaging than their mass-market counterparts. Over the past five years, this cost category has remained relatively steady.

WagesWages account for 6.2% of total revenue, and human capital is important within this industry. Employees must perform inspection and quality control to ensure the highest-quality products are delivered

to downstream buyers. Additionally, experienced and highly educated employees are essential to the corporate, marketing and research and development (R&D) activities in this highly competitive industry. Over the past five years, wages have declined as a portion of revenue as the combined effects of cost cutting during the economic recession and the general trend toward consolidation and automation have taken hold.

R&D and marketingR&D is a significant cost for operators, at about 14.8% of revenue. New product development is a key competitive factor in this mature and saturated industry. R&D costs have increased over the past few years as companies have vied to set themselves apart by offering new and differentiated lip color products to stay

Sector�vs.�Industry�Costs

■�Profi�t■�Wages■�Purchases■�Depreciation■�Utilities■�Rent■�Other

Average�Costs�of�all�Industries�in�sector�(2012)�

Industry�Costs�(2012)�

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Basis�of�Competition Companies within the Lipstick Manufacturing industry are highly competitive among each other. In a mature industry with relatively low barriers to entry, operators aim to stand out from the crowd in several ways. Price is particularly important for industry products targeted towards the drugstore and mass-merchant retail outlets. Because products within this subsegment are highly undifferentiated, their price can push downstream buyers to choose one brand over another. In high-quality markets, price is less of a competitive factor because consumers purchase the product based on its promised performance, brand appeal and level of fashion.

Marketing and brand awareness are very important bases of competition within the industry. The industry’s largest players have extensive marketing departments that oversee far-reaching and often high-profile campaigns; however, this factor is somewhat less important in the niche and ultra-niche markets.

Quality is another important basis of competition for industry participants. High-end lipsticks (or those perceived as such) carry a price premium, which

boosts company revenue and profit. Premium packaging is an indicator of product quality, so over the past five years, midtier product manufacturers have invested money in appearance to attract consumers on the basis of perceived high quality.

Research and development of new products is growing in importance as a basis of competition. In a saturated industry, companies look for new opportunities in untapped markets or through satisfying unmet needs for existing consumers. Along these lines, the ingredients in cosmetic products increasingly sway consumers. Over the past five years, the focus on naturally made or organic lip color products has intensified. A company’s ability to respond to ingredient changes is important to its survival.

External competitionUS lipstick manufacturers compete against substitute products such as lip gloss and lip balm as well as imported lipsticks. Competition from substitute products is currently on the decline as a result of fashion trends toward bold lip colors. Such trends are expected to continue to influence consumer

Cost�Structure�Benchmarkscontinued

relevant. In addition, the growing demand for restorative and protective products (adding components like moisturizers and sunscreen) and the development of environmentally sound products have also contributed to the need for increased research.

Marketing and sales costs are also a significant industry expense, resting at about 23.8% in 2012. The industry’s largest companies have traditionally spent a significant amount of revenue on prime advertising outlets, including national network television commercials and major fashion

magazines. Competitors are also known for investing in marketing campaigns that include significant expenses for celebrity endorsements.

Other costsDepreciation accounts for an estimated 3.1% of revenue, which is slightly lower than the sector average of about 5.0%. This expense has decreased slightly over the five-year period due to the consolidation of manufacturing facilities and equipment within the industry. Other industry expenditures include distribution and administrative costs.

Level�&�Trend��Competition in this industry is High and the trend is Steady



Barriers�to�Entry Barriers to entry into the Lipstick Manufacturing industry are not high, but they are moderate. Established manufacturers, which benefit from economies of scale and scope, can pose a barrier for potential entrants. These operators have cost-minimizing measures, established relationships with downstream markets and extensive resources for marketing. These factors ensure an advantage in competing for the shelf space necessary to market products in the largest downstream markets. Their established and sometimes well-known brand names are also a deterrent for new entrants.

The mature and somewhat saturated nature of the market tends to act as a further barrier, limiting the scope for new entrants with new products. However, niche and developing markets (e.g. organics, vegan and halal makeup) as

well as product innovation can offer an opportunity for aspiring lipstick manufacturers. Capital investments can also act as a barrier for new entrants. Lipstick and lipstain manufacturing requires production equipment and industrial space, which can add up to a substantial cost. Securing financial means is a hurdle new operators must overcome to enter the industry.

Basis�of�Competitioncontinued

preferences in the future, which will most likely add some volatility to industry revenue. Imports have increased substantially over the past three years, following the recession. This growth is

expected to decelerate over the next five years and imports are expected to increase only slightly as a share of total industry demand to 13.6% by 2017, from 12.1% in 2012.

Barriers�to�Entry�checklist� LevelCompetition HighConcentration HighLife Cycle Stage MatureCapital Intensity HighTechnology Change MediumRegulation & Policy MediumIndustry Assistance Low


Level�&�Trend��Barriers to Entry in this industry are Medium and Steady



Industry�Globalization

The Lipstick Manufacturing industry has a medium level of globalization. While most of the industry’s largest players are located in the United States, operators are subject to an increasing level of exposure to the international market. Each of the largest companies operates on a global scale, reflecting the industry’s worldwide reach. In addition, one of the top four companies in the industry, L’Oreal, is foreign-owned and accounts for nearly 15.0% of industry revenue.

The industry is also subject to moderate levels of imports and exports, which have strengthened their grasp on the domestic industry over the past five years. Imports have increased their share of domestic demand from 9.9% in 2007

to an estimated 12.1% in 2012. Unlike other consumer product industries where rising import levels signal rising demand for lower cost import products, this growth reflects an increase in high-end lipstick brands over the past three years. High end lipsticks are more likely to be manufactured overseas (mainly Belgium, France and Canada), while lower price point brands are more often manufactured within the US. Over the same period US exports are expected to grow to represent 12.8% of revenue (up from 11.0% in 2007). This level of globalization exposes the industry to global conditions, including fluctuations in exchange rates, supply levels and socio-political factors.

Level�&�Trend��Globalization in this industry is Medium and the trend is Steady


Trade�Globalization Going�Global:�Lipstick�Manufacturing�2000-2012

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Imports/Domestic�Demand Imports/Domestic�Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Lipstick�Manufacturing 2000

2012


Player�Performance The Procter & Gamble Company (P&G), a consumer goods company that brings in nearly $20.0 billion in annual sales, was first incorporated in 1905. It operates globally, with a physical presence in about 80 countries. The company’s sales primarily come from drug stores, grocery stores and mass merchandisers, of which Walmart and its affiliates bring in 16.0%. P&G divides its operations into three reportable segments: beauty and grooming, health and well-being and household care. It operates within the Lipstick Manufacturing industry through its beauty and grooming division.

Within its beauty and grooming operations, P&G owns several brands, including Olay (facial skin care); Dolce & Gabbana, Gucci and Hugo Boss (all fragrances); and CoverGirl, its makeup line that includes lipstick products. This reporting segment accounts for about one-quarter of total net sales for the company, and IBISWorld estimates about 2.5% of the beauty reporting segment is derived from lipstick sales.

P&G has a threefold growth strategy. The first tier is product innovation, which focuses on introducing new, better and more consumer-responsive beauty items. The second part is centered on building business with underserved customers whose needs are not met through the company’s current products. The final component is the company’s global development and expansion. Because P&G is operating in a mature industry with little opportunity for product innovation and a saturated domestic

market, the company is looking outside the United States to expand its customer base.

Financial performanceOver the five years to 2012, P&G’s beauty segment revenue has expanded at an average annual rate of 3.0% to $20.8 billion in global sales. IBISWorld estimates that the company’s US industry-specific operations have grown at an average annual rate of 3.0% to $529.7 million during the same period. With consumer confidence returning, the beauty segment has benefited from higher volumes through 2012; however, the price of inputs is volatile and unpredictable. With higher-than-average commodity prices over much of 2010, profit suffered through fiscal 2011. In the mean time, the company continued to

�Major�CompaniesThe�Procter�&�Gamble�Company�� |�� The�Estee�Lauder�Companies�Inc.Revlon�� |�� L’Oreal�SA�� |�� Other�Companies

26.2%Other

The�Procter�&�Gamble�Company�25.7%

The�Estee�Lauder�Companies�Inc.�17.4%

Revlon�16.5%

L’Oreal�SA�14.2%


Major�players(Market share)

The�Procter�&�Gamble�Company�(US�industry-specifi�c�segment)��–�fi�nancial�performance

Year*Revenue�

($ million) (% change)

2006-07 457.2 N/C

2007-08 497.9 8.9

2008-09 483.1 -3.0

2009-10 497.3 2.9

2010-11 513.9 3.3

2011-12** 529.7 3.1

*Year-end�June,�**EstimateSOURCE: IBISWORLD

The�Procter�&�Gamble�Company��Market share: 25.7%


Major�Companies

Player�Performance Founded in 1946, The Estee Lauder Companies is a major producer of skin-care, makeup, fragrance and hair-care products. Estee Lauder sells its goods in more than 150 countries under a number of brand names, including Estee Lauder, Clinique, Origins, MAC and Bobbi Brown. Products are distributed through many different outlets, such as department stores, specialty retailers, upscale perfumeries and pharmacies and prestige salons and spas. As of June 2011, the company employed 32,300 people, with about 550 of those workers engaged in research and development.

About 11,900 people are employed in the United States and Canada.

Of interest to this report is the company’s makeup manufacturing segment. The company sells a full array of makeup products, including lipstick, lip glosses, mascaras, foundations, eye shadows, nail polishes and powders. IBISWorld estimates about 20.0% of makeup sales are derived from lipstick, and 50.0% of those lipsticks are made in the United States. For instance, lipsticks under brand names MAC and Clinique are primarily manufactured in Belgium and Canada, while Bobbi Brown is made in the United States.

Player�Performancecontinued

introduce new products, such as the CoverGirl Queen Collection Lipcolor line.

P&G’s expansion strategy has helped the company tap new international markets and introduce new products to new consumers. In the wake of the US recession, the company was able to sustain much of its revenue because its position in various global markets mitigated any isolated effects. The company is now focused globally on creating products for the “$2-a-day” consumer or the very low-income bracket.

In 2010, the company turned its focus to sustainable products, which are in line with the industry trend of natural products. This new long-term plan will change the way P&G conducts business, from the power in its plants to limiting consumer manufacturing waste. The sustainability commitment includes 10-year goals; by 2020, P&G aims to reduce consumer packaging 20.0% and increase renewable energy use to 30.0% of total plant power.

The�Procter�&�Gamble�Company�(beauty�segment)��–�fi�nancial�performance

Year*Revenue�

($ million) (% change)Net�Income�


2006-07 17,889 7.2 2,611 8.3

2007-08 19,515 9.1 2,730 4.6

2008-09 18,924 -3.0 2,664 -2.4

2009-10 19,491 3.0 2,712 1.8

2010-11 20,157 3.4 2,686 -1.0

2011-12** 20,788 3.1 2,740 2

*Year-end�June,�**EstimateSOURCE: ANNUAL REPORT

The�Estee�Lauder�Companies�Inc.��Market share: 17.4% Industry�Brand�NamesClinique Estee Lauder MAC Cosmetics Bobbi Brown


Major�Companies

Player�Performance Revlon entered the industry about 75 years ago. Today, it is a principal force, with brands that include Revlon, Almay and Ultima II. The company is also involved in the manufacture and marketing of various personal-care products (including Mitchum

deodorant and Revlon Colorsilk hair products), skin care (Ultima II and Gatineau) and fragrances (Charlie and Jean Nate brands). Its color cosmetics account for about 60.0% of total company sales; its beauty care and fragrance products account for the


In recent years Estee Lauder has made acquisitions to increase its makeup market share. In 2010, the company acquired Smashbox Beauty Cosmetics, a small privately held company that was created for the needs of makeup artists working on photo shoots.

Financial performanceOver the five years to 2012, industry specific revenue has grown at an average annual rate of 5.2% per year. During fiscal 2011 and 2010 (year-end June), the company’s makeup segment sales have expanded. The acquisition of Smashbox boosted sales, along with the introduction of new products including Pure Color Long Lasting Lipstick from Estee Lauder and Vitamin C Lip Smoothie Antioxidant Lip Colour from Clinique. This growth was slightly offset by the decline in other products, however, such as Clinique’s High Impact

Lip Color SPF 15. During the recession, this segment’s revenue declined as consumers reduced their spending, but new product launches during that period brought in some revenue.

The�Estee�Lauder�Companies�(makeup�segment)��–�fi�nancial�performance

Year*Revenue�

($ million) (% change)Operating�Income�


2006-07 2,712.7 N/C 339.3 N/C

2007-08 3,000.4 10.6 359.4 5.9

2008-09 2,830.9 -5.6 279.8 -22.1

2009-10 2,978.2 5.2 416.8 49.0

2010-11 3,370.8 13.2 493.8 18.5

2011-12* 3,480.1 3.2 494.2 0.1

*Year-end�June,�**EstimateSOURCE: ANNUAL REPORT

The�Estee�Lauder�Companies�(US�industry-specifi�c�segment)��–�fi�nancial�performance

YearRevenue�


2006-07 278.3 N/C

2007-08 310.0 11.4

2008-09 293.1 -5.5

2009-10 307.8 5.0

2010-11 347.1 12.8

2011-12** 358.0 3.1

*Year-end�June,�**EstimateSOURCE: IBISWORLD

Revlon��Market share: 16.5%


Major�Companies


remainder. The company’s main customers are large-volume retailers and chain drug stores and food stores. It also sells beauty products to US military exchanges and commissaries. As of December 31, 2010, the company employed 4,900 people, with 140 dedicated to research and development.

Revlon markets several different lines of Revlon lip makeup, including lipstick, lip gloss and lip liner. An example of lip products is the Revlon ColorStay Overtime which is a two-step long-wear lip color that lasts up to 24 hours. Revlon Super Lustrous is the company’s main wax-based lip color, which is made to moisturize the consumer’s lips. The company continues to introduce new products improving on factors such as longevity, moisture and weight. Revlon’s Almay brand also offers lipstick. All of Almay’s products are hypoallergenic, dermatologist-tested and fragrance-free cosmetics.

Financial performanceOver the five years to 2012, Revlon’s US industry-specific revenue decreased at an estimated average annual rate of 1.2%; however, the company’s revenue growth as a whole increased an estimated average of 0.4% per year. In 2011, company revenue expanded due to higher sales of cosmetic products specifically in

the United States, which enabled profit to increase. In 2011, the company acquired Mirage, maker of Sinful Colors nail products. During 2010, revenue declined primarily due to lower sales of Almay cosmetics; however, higher sales of Revlon makeup products boosted some sales. During the recession, sales of Revlon and Almay makeup products dropped, but this decline was partially offset by higher sales of Revlon ColorSilk hair products. Lower consumer spending caused many Americans to reduce purchases of discretionary products. Along with lower sales, unfavorable foreign currency fluctuations hurt profit margins. The changes in currency

Revlon�Inc.�–�fi�nancial�performance

YearRevenue�



2007 1,367.1 N/C 118.4 N/C

2008 1,346.8 -1.5 155.0 30.9

2009 1,295.9 -3.8 165.0 6.5

2010 1,321.4 2.0 190.1 15.2

2011 1,348.8 2.1 179.2 -5.7

2012* 1,392.5 3.2 181.0 1.0

*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

Revlon�Inc.�(US�industry-specifi�c�segment)��–�fi�nancial�performance

YearRevenue�


2007 361.9 N/C

2008 352.2 -2.7

2009 336.6 -4.4

2010 328.1 -2.5

2011 332.5 1.3

2012* 340.2 2.3

*EstimateSOURCE: IBISWORLD


Major�Companies

Player�Performance Beauty and cosmetics company L’Oreal SA was first incorporated in 1907. It distributes mass-market products, such as Maybelline, through mass merchandisers, drug stores and grocery stores. Its luxury cosmetics, like Lancome, are distributed through department stores and niche retailers. L’Oreal divides its operations into four segments: professional products, consumer products, luxury products and active cosmetics. It operates within the Lipstick Manufacturing industry through its luxury products and consumer products divisions. Primary lipstick brands include: Maybelline, L’Oreal, Lancome and Yves Saint Laurent.

Over the past few years, L’Oreal has focused on emerging markets since they are less saturated than current markets. Two markets the company has invested in include men, who have shown a growing interest in skin care and cosmetics, and an older population, which has an interest in anti-aging products.

Financial performanceFrom 2007 to 2012, L’Oreal’s total company revenue is expected to grow at an average annual rate of 4.6% to $29.2 billion (estimated in US dollars). In the consumer products segment, Maybelline has been driving growth with the introduction of new products, such as the Instant Age Rewind Eraser Treatment Makeup. The luxury products segment


exchanges resulted in higher costs of goods in most international markets on goods purchased from the company’s

facility in Oxford, NC. The company did, however, increase its manufacturing efficiencies and lower freight costs.

L’Oreal�SA�–�fi�nancial�performance

YearRevenue�



2006 23,383.1 N/C 3,874.1 N/C

2007 25,802.5 10.3 4,008.2 3.5

2008 24,360.9 -5.6 3,594.2 -10.3

2010 25,880.9 6.2 4,058.2 12.9

2011 28,264.6 9.2 4,565.7 12.5

2012* 29,253.9 3.5 4,615.8 1.1

*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

L’Oreal�SA�(US�industry-specifi�c�segment)��–�fi�nancial�performance

YearRevenue�


2007 233.9 N/C

2008 258.2 10.4

2009 243.8 -5.6

2010 258.9 6.2

2011 282.8 9.2

2012* 292.7 3.5

*EstimateSOURCE: IBISWORLD

L’Oreal�SA��Market share: 14.2%


Major�Companies


has also been expanding, with strong growth from the company’s Lancome line and Yves Saint Laurent fragrances.

Despite the popular brands, the recession did take a toll on the company. In 2009, overall cosmetic sales declined

in the United States as many Americans reduced their purchases of makeup because of less disposable income. In order to attract sales, L’Oreal marketed its products more aggressively and introduced new products.


Capital�Intensity The Lipstick Manufacturing industry has a high level of capital intensity. For every dollar spent on labor, $0.50 is spent on machinery, which indicates that lipstick manufacturing is highly automated. As a result, lipstick products are mass produced. During the recession, the industry came to rely even more heavily on capital since employment was one of the easiest places to cut costs. However, depreciation expenses also decreased slightly over five year period due to industry consolidation of manufacturing facilities and equipment. Over the next five years, IBISWorld forecasts depreciation costs will rise as the overall US manufacturing sector cohesively moves towards greater automation,

increasing the industry’s level of capital intensity.

�Operating�ConditionsCapital�Intensity�� |�� Technology�&�Systems�� |�� Revenue�VolatilityRegulation�&�Policy�� |�� Industry�Assistance

Tools�of�the�Trade:�Growth�Strategies�for�Success


Labo

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Change�in�Share�of�the�Economy

New�Age�Economy

Recreation,�Personal�Services,�Health�and�Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional�Service�Economy

Wholesale�and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old�Economy

Agriculture�and�Manufacturing.�Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment�Economy

Information,�Communications,�Mining,�Finance�and�Real�Estate.�To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Soap�&�Cleaning�Compound�ManufacturingPharmacies�&�Drug�Stores

Dye�&�Pigment�ManufacturingCosmetic�&�Beauty�Products�Manufacturing

Department�Stores


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Lipstick Manufacturing

ManufacturingEconomy

Level��The level of capital intensity is High


Operating�Conditions

Revenue�Volatility Performance in the Lipstick Manufacturing industry is driven by steady consumer demand and

sentiment for its products through numerous distribution channels including department stores, cosmetic

Technology&�Systems

In general, industry production involves mixing and blending readily available ingredients in batch operations. A wide array of chemicals is used in manufacturing lipsticks, including emollients, antioxidants, pigments, oils and waxes to provide protection, color and texture to lips. Recent advances in production techniques include increased automation and mechanization. Liquid products are mixed using batch or continuous blending processes. In batch blending, small amounts of ingredients are added to the subsequent mixture at timed intervals. In continuous blending, the ingredients are continuously mixed together to form a final product.

Product innovations and reformulations define this mature industry. Research and development costs are an increasingly important investment for operators, accounting for an estimated 14.8% of industry revenue in 2012. In addition, with such high industry concentration, major players will continue to aggressively market these

new product lines to capture additional market share. IBISWorld estimates sales and marketing costs will account for 23.8% of industry revenue in 2012.

Growing environmental concerns have caused changes in the production process and in the packaging of industry products over the past few years. Lipstick products and their packaging are increasingly designed to minimize waste and environmental alterations. Many lipstick manufacturers have introduced post-consumer plastic containers. For example, major player Procter & Gamble introduced an eco-friendly initiative in 2010. It spans major aspects of production, including packaging and plant emissions. IBISWorld expects this trend to become even more pronounced over the five years to 2017.

IBISWorld rates the industry as having a medium level of technology change due to significant R&D spending, the steady rate of new product innovations and increasing level of automated manufacturing processes.

Level��The level of Technology Change is Medium


Volatility�vs�Growth

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Hazardous

Stagnant

Rollercoaster

Blue�Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level��The level of Volatility is Low



Regulation�&�Policy The major regulating body overseeing cosmetic products in the United States is the US Food and Drug Administration (FDA). Lipstick manufacturers do not have industry specific regulations they must comply with, but they are subject to regulations covering the larger cosmetic product industry.

The FDA governs the laws and regulations relating to the manufacturing, labeling and marketing of lipsticks. Basically, lipstick manufacturers that distribute products in the United States much comply with basic regulatory requirements outlined in the Federal Food, Drug and Cosmetic (FD&C) Act and the Fair Packaging and Labeling (FP&L) Act.

Adulterated or misbranded cosmeticsThe FD&C prohibits the distribution of lipsticks that are adulterated or misbranded. A cosmetic product is considered adulterated if it contains a substance that may make the product harmful to consumers under customary conditions of use. The FD&C Act also protects consumers against products containing filthy, putrid or decomposed substances. A product is misbranded if its labeling is false or misleading, if it does not bear the required labeling information, or if the container is made or filled in a deceptive manner.

Cosmetic labelingCosmetics distributed in the United

States must comply with the labeling regulations published by the FDA under

the authority of the FD&C and the FP&L. Labeling refers to all labels and other written, printed or graphic matter on or accompanying a product. The label statements required under the authority of the FD&C must appear on the inside and on any outside container or wrapper. FP&L requirements, such as ingredient labeling and statement of the net quantity of contents on the main display panel, only apply to the label of the outer container.

Declaration of ingredientsCosmetics for retail sale to consumers are required to bear an ingredient declaration. Cosmetics not customarily distributed for retail sale (e.g. hair preparations or makeup products used by professionals on customers) are exempt from this requirement provided these products are not also sold to consumers at professional establishments or workplaces for their consumption at home.

The California Safe Cosmetics Act of 2005 requires cosmetic companies selling products within the state of California to disclose details to the Department of Health Services of any ingredients that contain chemicals identified as causing cancer or reproductive toxicity (particularly those chemicals in the phthalate family). The initial bill was opposed by the industry.

Label warningsCosmetics that may be hazardous to

consumers when misused must bear

Revenue�Volatilitycontinued

stores and supermarkets. This helps protect the industry from product-specific spikes and keeps revenue relatively smooth. However, factors that may affect year-to-year industry revenue fluctuations include changes in fashion trends and disposable income levels. Over the five years to 2012,

lipstick manufacturers enjoyed its strongest growth of 6.5% in 2011 while suffering a slight decline of 1.9% in 2009 as the overall economy contracted. Overall, industry revenue averaged a 2.8% annual change over the five-year period, giving the industry a low level of revenue volatility.

Level�&�Trend��The level of Regulation is Medium and the trend is Steady



Industry�Assistance The industry is partially protected from moderate levels of imports and exports with tariffs with limited tariffs. These tariffs vary depending on the ingredients used in individual products. In general, imported makeup preparations (includes lip makeup preparations, eye makeup

preparations, manicure preparations, pressed or loose powders, and rouges) are subject to a 1.0% tariff. Imported cosmetics are also regulated by the food and drug administration as they are subject to the same laws and regulations as cosmetic products produced in the US.

Regulation�&�Policycontinued

appropriate label warnings and adequate directions for safe use. The statements must be prominent and conspicuous. Some cosmetics must bear label warnings or cautions. Cosmetics in self-pressurized containers (aerosol products), feminine deodorant sprays and children’s bubble bath products are examples of products requiring such statements.

The FD&C does not require that cosmetic manufacturers or marketers test their products for safety. However, the FDA strongly urges cosmetic manufacturers to conduct appropriate tests to substantiate the safety of their cosmetics. If the safety of a product is not adequately substantiated, it may be considered misbranded and may be subject to regulatory action.

Other regulationsOther regulatory bodies include the Occupational Safety and Health

Administration (OSHA), which is responsible for the OSHA Hazard Communication Standard, Laboratory Safety Regulations, and General Employee Rights. The OSHA Hazard Communication Standard attempts to ensure that the hazards of all chemicals produced or imported are evaluated, and that information concerning their hazards is transmitted to employers and employees. Information is transmitted via comprehensive hazard communication programs, which must include container labeling and other forms of warning, material safety data sheets and employee training.

Also of relevance is the Environmental Protection Agency (EPA), which is responsible for infectious waste laws and hazardous waste laws, and the US Department of Agriculture (USDA), which is responsible for animal welfare compliance laws.

Level�&�Trend��The level of Industry Assistance is Low and the trend is Steady


�Key�StatisticsRevenue�

($m)

Industry�Value�Added�

($m)Establish-

ments Enterprises EmploymentExports�

($m)Imports�

($m)Wages�($m)

Domestic�Demand

Average�Consumer�Expen-diture�on�Personal�Items�

($)2003 1,674.3 355.4 107 77 3,112 174.7 160.4 164.5 1,660 5272004 1,690.8 371.2 107 78 3,138 177.5 168.3 166.6 1,681.6 5812005 1,731.7 390.8 105 77 3,064 184.8 175 167.4 1,721.9 5412006 1,771.1 390.9 100 75 2,875 193 171.7 158.9 1,749.8 5852007 1,795.3 389.2 96 74 2,705 197.5 175.6 152.2 1,773.4 5882008 1,806.4 363.9 92 70 2,523 214.8 179.9 143.5 1,771.5 6162009 1,771.5 346.7 83 65 2,248 197.4 158.8 130.6 1,732.9 5962010 1,856.5 372.5 81 64 2,162 227.2 189.7 127.4 1,819 6262011 1,977.3 399 79 66 2,115 232.6 228.6 126.1 1,973.3 6382012 2,057.9 420.2 78 69 2,092 262.6 247.3 127.9 2,042.6 6522013 2,135.8 435.9 79 70 2,152 284.1 256.6 132.6 2,108.3 N/A2014 2,198.6 448.1 77 68 2,138 299.6 271.5 133.7 2,170.5 N/A2015 2,245.7 459.1 78 70 2,183 328.1 284.1 138 2,201.7 N/A2016 2,331.3 475.8 77 69 2,187 335.9 303.5 140.1 2,298.9 N/A2017 2,408.4 493.9 78 70 2,237 358.3 322.2 144.7 2,372.3 N/A

IVA/Revenue�(%)

Imports/Demand�

(%)Exports/Revenue�

(%)

Revenue�per�Employee�

($’000)Wages/Revenue�

(%)Employees�

per�Est.Average�Wage�

($)

Share�of�the�Economy�

(%)2003 21.23 9.66 10.43 538.01 9.83 29.08 52,859.90 0.002004 21.95 10.01 10.50 538.81 9.85 29.33 53,091.14 0.002005 22.57 10.16 10.67 565.18 9.67 29.18 54,634.46 0.002006 22.07 9.81 10.90 616.03 8.97 28.75 55,269.57 0.002007 21.68 9.90 11.00 663.70 8.48 28.18 56,266.17 0.002008 20.15 10.16 11.89 715.97 7.94 27.42 56,876.73 0.002009 19.57 9.16 11.14 788.03 7.37 27.08 58,096.09 0.002010 20.06 10.43 12.24 858.70 6.86 26.69 58,926.92 0.002011 20.18 11.58 11.76 934.89 6.38 26.77 59,621.75 0.002012 20.42 12.11 12.76 983.70 6.22 26.82 61,137.67 0.002013 20.41 12.17 13.30 992.47 6.21 27.24 61,617.10 0.002014 20.38 12.51 13.63 1,028.34 6.08 27.77 62,535.08 0.002015 20.44 12.90 14.61 1,028.72 6.15 27.99 63,215.76 0.002016 20.41 13.20 14.41 1,065.98 6.01 28.40 64,060.36 0.002017 20.51 13.58 14.88 1,076.62 6.01 28.68 64,684.85 N/A

Figures are inflation-adjusted 2012 dollars.

Revenue�(%)

Industry�Value�Added�

(%)

Establish-ments�

(%)Enterprises�

(%)Employment�

(%)Exports�

(%)Imports�

(%)Wages�

(%)

Domestic�Demand�

(%)

Average�consumer�expen-diture�on�personal�items�

(%)2004 1.0 4.4 0.0 1.3 0.8 1.6 4.9 1.3 1.3 10.22005 2.4 5.3 -1.9 -1.3 -2.4 4.1 4.0 0.5 2.4 -6.92006 2.3 0.0 -4.8 -2.6 -6.2 4.4 -1.9 -5.1 1.6 8.12007 1.4 -0.4 -4.0 -1.3 -5.9 2.3 2.3 -4.2 1.3 0.52008 0.6 -6.5 -4.2 -5.4 -6.7 8.8 2.4 -5.7 -0.1 4.82009 -1.9 -4.7 -9.8 -7.1 -10.9 -8.1 -11.7 -9.0 -2.2 -3.22010 4.8 7.4 -2.4 -1.5 -3.8 15.1 19.5 -2.5 5.0 5.02011 6.5 7.1 -2.5 3.1 -2.2 2.4 20.5 -1.0 8.5 1.92012 4.1 5.3 -1.3 4.5 -1.1 12.9 8.2 1.4 3.5 2.22013 3.8 3.7 1.3 1.4 2.9 8.2 3.8 3.7 3.2 N/A2014 2.9 2.8 -2.5 -2.9 -0.7 5.5 5.8 0.8 3.0 N/A2015 2.1 2.5 1.3 2.9 2.1 9.5 4.6 3.2 1.4 N/A2016 3.8 3.6 -1.3 -1.4 0.2 2.4 6.8 1.5 4.4 N/A2017 3.3 3.8 1.3 1.4 2.3 6.7 6.2 3.3 3.2 N/A

Annual�Change

Key�Ratios

Industry�Data



Jargon�&�Glossary

BARRIERS�TO�ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOR�INTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 – $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

CONSTANT�PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2012 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC�DEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports.

EARNINGS�BEFORE�INTEREST�AND�TAX�(EBIT)� IBISWorld uses EBIT as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding tax and interest.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY�CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY�REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY�VALUE�ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL�TRADE The level is determined by: Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; High is over 20%. Imports/Domestic Demand: Low is 0 –5%; Medium is 5 –35%; and High is over 35%.

LIFE�CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING�ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry�Jargon

IBISWorld�Glossary

FOOD�AND�DRUG�ADMINISTRATION�(FDA)� A federal agency that regulates the release, labeling and ingredients of food and health products.

HALAL A term designating any object or an action which is permissible to use or engage in, according to Islamic law.

PARABEN A chemicals used widely in cosmetics as a product preservative. Recent research has linked parabens to cancer.

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