Your makeup bag is a battleground.
The U.S. cosmetics industry -- always beset by competition to be the first to offer the latest in lipstick technology -- looks to be especially cutthroat in 1999. Both established and emerging players are lining up to launch an unusually large number of new products this year, analysts say.
analysts Heather Hay and David Kim anticipate at least 15 new major launches over the next year to 18 months and predict double-digit earnings growth for the industry leaders this year.
Among the entrants into the 1999 makeup derby:
Procter & Gamble
, which is rolling out its
Oil of Olay
makeup line in the U.S. after a successful European launch and is introducing
Johnson & Johnson's
line will expand to include color cosmetics.
also is launching new products.
Consumer-products regulars aren't alone. Retailers are also getting into the mix.
recently launched a line of color cosmetics in some stores. The shelves of
feature nail polish and perfume as well as polar fleece. And
continues to build on its
Circle of Beauty
"A pickup in new product development is a result of the competitive nature of this industry," says Sally Schaadt, an analyst with
. "You have to be on top of things just to stay alive."
Most of the competition will focus on the mass market, where lipsticks sell for under $10. And it's there that specialty retailers may be siphoning off demand from drugstores and supermarkets, say Merrill's Hay and Kim, increasing pressure on traditional brands like
, for instance, recently dipped its toe into this market with its purchase of
, owner of the
The prestige (i.e., expensive -- $12 and up for a lipstick) market also has emerging smaller brands like
, but it's dominated by Estee Lauder, which commands 47% of U.S. prestige sales with brands like
, says Carol Wilke, an analyst with
"Estee Lauder's biggest strength has always been its brands," says Wilke, whose firm hasn't performed underwriting services for the company. Estee Lauder has a strong lineup of new products for 1999, including
cosmetics and a new Clinique body treatment. And for those who didn't mind forking more than $125 for an infant-sized cashmere cardigan at
this Christmas, Origins is launching a new line of baby skin-care products.
Though new entrants will make the market more interesting in 1999, competition at both the high and low ends will only highlight the strength of existing powerhouses with a lot to spend on marketing and R&D, wrote Merrill's Hay and Kim. They rate Estee Lauder an intermediate-term accumulate (the brokerage's second-highest rating) and a long-term buy (its highest rating), projecting earnings growth of 13.6% in the December quarter. They also recommend Avon Products, giving it the same ratings, citing improved margins and better product mix in the U.S. (Merrill has performed underwriting for Estee Lauder, but not Avon).
Revlon, which makes Revlon and
makeup, draws more mixed reviews from analysts. The company stumbled in the fall, warning of lower profits because of lower orders from drugstores. Revlon also suffered from the Asian slowdown. To recover, it's got to build on the success of its
brand and grow sales once again.
"It's not a broken franchise, but they need to follow up on what they did," says Wilke, who rates it a hold. (Prudential hasn't done any underwriting for Revlon). Merrill, which has done underwriting for Revlon, rates it an intermediate neutral and long-term accumulate, saying its strong brand name should make it thrive again.
Analysts caution that the Asian economic hangover will continue, and if Latin America takes a downturn, big consumer-products companies will suffer. But even if the U.S. economy makes its predicted slowdown, the cosmetics industry won't suffer too much. When times are bad, a lipstick is an affordable splurge. "It's a category that consumers are willing to spend on," says Wilke.
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