THE REGION'S BEAUTY market has seen unprecedented growth levels of as much as 12% in recent years, with the market for cosmetics, fragrances and other beauty products currently valued at $1.7bn. While Saudi Arabia dominates the regional market, it is the UAE that sees the most impressive growth, reporting a rise of 6.5% on sales of $404m, with a population of over three million people, as opposed to the kingdom's $1.21bn (5.5 % growth). Much of this growth dovetails from the region's runaway tourism and retail development activity, which is seeing dramatic growth. The rapidly increasing indigenous populations are also demanding more beauty care products and retailers.
The GCC currently has around 3.55m sq metres of retail space, an additional 1.24m is under construction and 3.5m is in the planning stages, according to UK-based shopping mall consultant Retail International. Dubai alone will boast two of the world's five largest malls by 2008. Evidence of how seriously the rest of the world takes this retail development comes in the form of big retail names establishing Middle East presences: Harvey Nichols will open an 11,150 sq metre store at the Majid Al Futtaim Investments-owned Mall of the Emirates and Saks Fifth Avenue's only two outlets outside North America are in Riyadh and Dubai, with three more outlets planned in the GCC. Debenhams, likewise, is reportedly planning to expand into the UAE, Qatar and Kuwait.
The UAE alone will have invested approximately $26bn by 2010 in some of the world's biggest retail projects--many of which house stunning beauty centres and spas. Dubai's gross leasing area is poised to grow 250% in the next two to three years.
The growth is driven by the numbers: the Gulf States are among the highest spenders on fashion and beauty products, with average spending amounting to $317 per single purchase. Local distributors suggest that beauty product retailers account for between 25 and 30% of all retail space which makes the Middle East a magnet for beauty and personal care suppliers.
As sales increase, the counterfeit market has also boomed. Multinational manufacturers across the region are increasingly aware of the threat posed by counterfeit cosmetics on brand value and consumer safety; this makes them eager to rally for tighter regulations to inhibit grey market sales in Africa and the Middle East where counterfeiting is endemic. Indeed, counterfeiting appears to be on the increase in global terms with an 800% annual increase in the number of fragrances seized at the EU's external borders. Some of these are exact rip-offs of established brands, but because the names are slightly different, they are legal. The high price of fragrances in Egypt, where the devaluation of the Egyptian pound against the dollar has caused a bottle of Chanel No. 5 to retail at more than the average monthly salary, is driving the contraband/parallel fragrance market forward. Those who can afford to purchase premium products still prefer to buy from retailers that sell cheaper smuggled fragrances.
In Morocco, fragrances is the sector most affected by imitation and contraband, and is hugely lucrative for smugglers--the combined black market and duty-free revenue represents more than 40% of the fragrance market. This has prompted one of the largest importers of fragrances to withdraw from the local market (Cinquieme Sens, importer and distributor of Yves Saint Laurent, Guerlain and Boucheron) as it witnessed a year-on-year decrease in sales.
With 2005 sales of fragrances worth $194m, the sector is extremely important to the Saudi Arabian cosmetics and toiletries market, accounting for 14% of total sales in 2005. In 2005, fragrance manufacturers attempted to exploit increased consumer confidence via a flurry of new product launches from both international and domestic players. Dramatic changes in shares occurred in 2005 as Mahmoud and Abdel Khalel Saeed, owners of the largest production facility in the Middle East, increased their share of sector sales by 1.6% to knock LVMH Moet Hennessy-Louis Vuitton off the top spot. The Body Shop performed well in mass fragrances in 2005 due to its repositioning between the popular and prestige markets, indicating that western trends are being transferred to Saudi Arabia. Indeed, many products are launched in the Gulf before Europe due to high demand by upper-class Saudi consumers.
Mass fragrance sales grew 4.5% in current value terms on 2005. The rise in visitors during the Haj and Omrah seasons contributed greatly to this growth as lower-end fragrances were the gift of choice for family members that had not made the journey. Religious and cultural influences also shape the fragrance sector in Saudi on an ongoing basis--oriental perfumes such as oud, sandalwood and amber account for a high proportion of sales as they are permissible in Islamic tradition.
Israeli fragrance sales reached a staggering $130m in 2005. Economic recovery through 2004-2005 stimulated growth, especially in the premium category. In 2005, the share of premium fragrances accounted for a weighty 88% of total sales, illustrating the fact that Israeli consumers perceive the high-end products as necessary symbols of status. With a current value growth rate of about 5.9% in 2005, men's premium fragrance was the most dynamic subsector. Israel's position as the third largest market for fragrances in Africa and the Middle East (South Africa in first place, Saudi Arabia in second) is likely to be sustained to 2010 as economic recovery fuels fragrance development. Growth rates are expected to be stimulated by two additional factors. First, retailers will continue to implement large-scale discounts on premium fragrances, especially during holiday periods, in order to increase footfall into their stores. This strategy is most likely to be adopted by the supermarket/ hypermarket channel, many of which have started to invest heavily in developing in-store pharmacies over the past year to stave off competition from the pharmacy/ drugstore channel. The global trend for discounting is extending to the Middle East. The second factor is that major players in the fragrance environment will continue to introduce new brands at a rapid rate to take advantage of consumers' high awareness of new product development and western fashion trends.
What's more, governments in the region are not slow to realise tourism's vast potential: last year, Kuwait announced visas on entry for as many as 34 nationalities, while Saudi Arabia is set to finally unveil a tourist visa. This impacts directly on the region's beauty sales as perfumes and cosmetics account for 22.2% of the total duty free spending at Middle East airports--at $200m, according to a recent annual survey by Swedish research house, Generation Databank. Of that, Dubai alone accounts for an estimated $75m.
While fragrance is still the dominant market in much of the region, the popularity of skincare and make-up is growing. Sector-wise, perfume sales are up 41% and cosmetics 70% in Dubai, 72% and 114% in Qatar, while combined figures for Bahrain show an increase of 48% (number one category at Bahrain Duty Free), Kuwait 28%, Abu Dhabi 19.27% and Oman 13.9%, according to the report.
The Middle East has long been regarded a demographic 'sweet spot', with some 60% of the GCC population under 25 years old, ensuring high demand for beauty and fashion products for the foreseeable future. According to a report, pre-teen girls in the region, like tweenies everywhere, are increasingly using cosmetics and perfumes.
In addition, affluence has brought freedom of choice and ignited a fire-storm of shopping fanned by the local desire to have to wear the very latest. Designer labels, cosmetics or fragrances, all are part of an everyday repertoire of style accessories that transcend gender, nationality and culture.
Projects like the Jebel Ali Free Zone Authority's new Beauty and Fragrance Park are also boosting the market, in an effort to provide a way for existing industry manufacturers to consolidate their activities, as well as help new players enter the market. The Park will feature a full range of facilities such as the latest test labs, wholesale outlets, cooling stores and warehouses. The UAE will see the highest total value growth, with forecast value sales of fragrance alone exceeding $89m by 2009, with its advanced economic climate a significant draw to multinational fragrance manufacturers.
Access to the market, then, comes by way of tie-ups with local agents, as long established companies have done. For those starting out and for those asserting control over their brands, however, focused beauty events such as May's Beauty World/Wellness and Spas Middle East create a network of industry professionals that helps manufacturers access the local market while allowing regional operators access to international quality products.
From a supplier's point of view, the vital statistics of the Gulf couldn't look more appealing.
WOMEN ALL over the world have down the centuries pursued the ideal of beauty. In recent years, however, the high-rollers of the Gulf have taken consumerism in fragrance to a new level
FRAGRANCES 04/05 05/10 2005 US$ 2005 size US$ growth rate growth rate per cap Saudi Arabia 194,453,333 5.86 32.25 8.02 Israel 134,650,113 5.40 32.52 19.10 Egypt 50,617,496 10.09 26.60 0.73 Morocco 1,962,534 7.51 39.41 0.82…