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Retail Intelligence ReportSeptember 2019

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Table of contents

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Global industry trend

Breakdown by Geographic zone

Profit & Loss report

Net income & revenue of beauty brands

Research findings

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BEAUTY & PERSONAL CARE

Global beauty & personal care industry trends

Source: https://www.reuters.com/brandfeatures/venture-capital/article?id=61274; https://www.statista.com/statistics/664356/global-sales-growth-of-beauty-products-by-region/; https://blog.euromonitor.com/reimagining-growth-in-the-global-beauty-industry/

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39%

21%

19%

11%

10%

Product category breakdown

Skincare Haircare Makeup Fragrances Hygiene products

477 €

774 €

2017 2024

Value of cosmetic product market in billion Euro’s

CAGR +7%

Fastest growing market: Middle East & Africa Fastest growing product : Hair colour North America conquers in per capita expenditure in premium

beauty, which is expected to top €81.5 by 2021 Euromonitor forecasts Asia Pacific Premium category products

to generate €5.92 bn in absolute gains over 2016-21Global online sales is expected to grow at a CAGR of 18.6%

from 2018 Europe is the largest sales region of Online Beauty & Personal

Care Products in the world over the past few yearsGlobal skin care/sun care segment is expected to register the

highest CAGR of 6.2% by 2025 The global Men grooming products market is projected to grow

at the rate of 5.23% during the forecast period 2018 to 2023

0.4

1.4

2.4

2.4

2.5

8.6

13.4

0.4

0.4

5.1

0.9

2.5

0.9

7.7

Australasia

Eastern Europe

North Americas

Middle East & Africa

Western Europe

Latin America

Asis-Pacific

Sales growth of premium and mass beauty products between 2016 to 2021 by region (billion Euro’s)

Premium

Mass

Breakdown of the beauty & personal care market by Geographic Zone

Source: https://blog.euromonitor.com/five-key-highlights-euromonitor-internationals-beauty-personal-care-2018/; https://blog.euromonitor.com/the-story-behind-the-data-euromonitors-latest-beauty-and-personal-care-data-2019/;

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Key takeaways:

Asia-Pacific and Latin America drive industry forward: The robust results largely reflect Latin America’s sustained resurgence following an economic crisis, as well as Asia Pacific’s continued strong growth. Asia Pacific accounted for one-third of global industry value in 2018 and is anticipated to generate over half of the total EUR61.59 bn in absolute growth over 2018-2023.

Japan offsets South Korea’s relapse: Japan benefited from more healthy domestic consumption, growth in Chinese tourists, following limits imposed on travel to Korea by the Chinese government, and mounting anticipation in the run up to the Olympics in 2020.

India and Indonesia flourish as the next frontiers: With a steady pace of strong year-on-year expansion, the markets of India and Indonesia will be among the top 10 absolute growth contributors in the years to 2022. India is set to topple Germany, UK and France to become the fifth largest beauty market by 2022, while Indonesia will be among the top three contributors to actual revenues in skin care in the next five years, only surpassed by US and China

Brand names

Maybelline, Essie, Matrix, Vichy, Garnier, Lancome, Giorgio Armani, Diesel, Kiehl’s

Anew, Avon Naturals, Solutions, Feeling Fresh, Foot works, Skin so Soft

Elezabeth Arden, Almay, American Crew, CNDC, Mitchum, SinfulColors, Britney Spears Fragrances

Burberry, Wella, Covergirl, Calvin Klein, Biocolor, Lancaster, James Bond, Mexx, Risque

Schick, Wilkinson Sword, Edge, Personna, Banana Boat, Stayfree, Playtex, Bull Dog, Jack Black, Skintimate

Aerin Beauty, Bobbi Brown, Clinique, Flirt!, M.A.C., Prescriptives, Smashbox, Tom Ford and Tory Burch

Market Cap (€) €114.77 bn - €1.7 bn €0.86 bn €6.9 bn

€9 bn(Includes Apparel, beauty &

Fragrance)

€1.5 bn €58.09 bn

Headquarter Clichy, France Paris, France London, UK NY,US NY,US Paris, France Chesterfield, US NY,US

Employees 86,0304% increase 25,000 23,000

8% decrease7,300

6% decrease20,000

9% decrease

25,29525%

increase

5,9002% decrease

46,0000% inc/dec

Profit & Loss report – FY18

Source: Company Annual Reports

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Financial

Revenue (est.) €26.9 bn

€6.09bn(Perfumes & Cosmetics)

€5 bn €2.30 bn €8.35 bn € 9.98 bn €2.0 bn €12.2 bn

Cost of goods €7.3 bn - €2.13 bn €1.00 bn €3.23 bn €7.64 bn €1.07 bn €2.55 bn

Gross profit €18.7 bn - €2.89 bn €1.30 bn €5.12 bn €2.33 bn €0.93 bn €9.73 bn

Gross Profit % 71.7% - 57.5% 56.5% 61% 23% 46% 79.7%

Exchange rate 12-Aug-19 : $1 = €0.89

Profit & Loss report – FY18

Source: Company Annual Reports

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FinancialOperating profit/loss €4.92bn €0.67 bn € 0.211 bn (€0.076 bn) €0.144 bn €2.4 bn €0.287 bn €1.83 bn

Operating Profit/loss % 18% 11.1% 4.2% -3% 1.7% 24% 14.4% 15%

Net income €3.8 bn - (€0.017 bn) (€0.26 bn) €0.46 bn €1.95 bn €0.092 bn €0.99 bn

Net income % 15% - 0.34% -11.3% 5.5% 19.54% 4.6% 8.11%

E-commerce revenue €3 bn - - €0.138 bn - - - -

Operating

Own Stores 3.1 k(FY, 2015)

1.8k(FY, 2018) 0 - - 310 0 1.2k

(FY,2016)

Exchange rate 12-Aug-19 : $1 = €0.89

Net income and revenue of beauty brands

Source: Company annual reports

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3.433.67 3.74

4.90

0.90 0.90 1.10 0.99

-0.30 -0.40

0.10

-0.26

-1.00

0.09

-0.02 -0.02

2015 2016 2017 2018

Net Income – Billions in €

L'Oreal Estee Lauder Revlon Avon

25.3 25.8 26.0 26.0

9.6 10.0 10.512.2

1.7 2.0 2.4 2.3

5.5 5.1 5.1 5.0

2015 2016 2017 2018

Revenue – Billions in €

L'Oreal Estee Lauder Revlon Avon

Research Findings

Source: https://www.cms-connected.com/News-Archive/September-2018/Sephora-Leads-Digital-Strategy-in-Beauty-with-Advanced-Technologyhttps://www.loreal-finance.com/_docs/0000000250/LOREAL_2019_Half-Year_report_EN.pdf

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Current

L’OREAL:

Average revenue of L’oreal over the past 4 years is €26.01 bn.

€914 m invested in Research & Innovation.

11% of consolidated sales coming from e-commerce.

Future

L’OREAL:

On 16 March 2018, L’Oréal announced the acquisition of 100% of ModiFace, a Canadian-based global leader in augmented reality and artificial intelligence applied to beauty. This acquisition is part of L’Oréal Group's digital acceleration strategy, one of the pillars of which is to provide its 34 international brands with the most innovative technologies in terms of beauty experience and services.

SEPHORA:

‘Sephora to Go’ app ranks among the top 25 offerings in the App Store’s Shopping category.

SEPHORA:

Sephora’s mobile app gives the technology the opportunity to recognize the most compatible shades for the individual and then AI gives product recommendations.

Sephora also has an exclusive technology called Color iQ, which “scans the surface of your skin and assigns it a Color iQ number, which reveals scientifically precise foundation matches.”

Research Findings

Source: https://www.marketingweek.com/estee-lauder-customer-engagement/; https://coresight.com/core100/estee-lauder-investor-day-2019-share-in-prestige-beauty-growing-online-30-of-business-affirms-three-year-6-8-net-sales-outlook/

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Current

Estee Lauder:

The annual growth rate is 16%.

Estée Lauder’s Consumer Engagement Centre of Excellence set up in 2016, is a centralized consumer learning and insight. Through data collection such as social listening and focus groups, the team has gathered insights into a diverse range of consumers and used the learnings to drive innovation across the company.

Innovations and successful product launches accounted for nearly 30% the company’s net sales in the first half of fiscal year 2019.

The company has been selling 10 of its brands including M.A.C and Tom Ford on Alibaba’s online marketplace T-mall, in a bid to boost its presence in the Asian market.

The efforts helped sales in the Asia-Pacific region grow 18% in the fourth quarter, while sales in the skincare business, its biggest and most profitable, rose 15% to €1.44 bn, boosted by demand for its premium skincare brands such as La Mer and Clinique. Overall net sales reached €3.24bn exceeding a €3.19bn prediction for the quarter ended June 2019.

Future

Estee Lauder:

The company is increasing its presence in countries such as China, Mexico, India, and Russia. In China, it is leveraging digital distribution channels like T-mall and increasing its social media campaigns in the region.

It is also pushing brand awareness and sales by expanding its digital presence through e-commerce and m-commerce (mobile commerce) channels. The company continues to build its Makeup product segment through the introduction of new product offerings, including the launch of Advanced Night Repair Eye Concentrate Matrix, strengthening its market leadership in the eye treatment category.

E-commerce represents approximately 30% of Estée Lauder’s business in its top markets.

Global per capita spending on prestige beauty is increasing. The company projects the global middle class will grow by 600 m people by 2028, expanding overall spending power by 50%, which will increase opportunities for prestige beauty spending.

The company is continuing its focus on travel retail as a growth opportunity.

Research Findings

Source:https://www.prnewswire.com/news-releases/avon-reports-fourth-quarter-and-full-year-2018-results-300795548.htmlhttps://www.prnewswire.com/news-releases/avon-reports-fourth-quarter-and-full-year-2018-results-300795548.html

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Current

AVON:

Avon’s 74% of the profitability is coming from beauty and the remaining from Fashion and Home.

The average revenue over the past 5 years is €5.53 bn. The statistics shows a decreasing trend from the year 2011 to 2018.

Year 2018 loss amounted to €0.017 bn.

Five reasons why Avon’s business faltered in the North America:

1. The rise of affordable quality beauty products; 2. Inadequate computer systems; 3. Entered late into e-commerce; 4. Commission structure; 5. Late to the Hispanic market

Avon has made significant progress in 2018, with 100% of our markets having online ordering capabilities; launching eBrochurein 60 markets, increasing the Representative’s flexibility, and releasing My Avon Store in 23 markets with 18% of our Representatives selling online to anyone, anywhere.

Future

AVON:

The strategy focuses on modernizing and digitalizing Avon, seeking to make the company more competitive by giving consumers everywhere access to its products at any time. Avon will also be aiming to capture share in areas of fast growth and will actively manage its product portfolio, while encouraging innovation through both in-house initiatives and partnerships.

Avon initiated the Open Up Avon strategy to enable us to achieve our goals of low-single-digit constant-dollar revenue growth and low double-digit operating margin by 2021. We plan to reinvest a portion of these cost savings in commercial initiatives, including training for representatives and digital and information technology infrastructure initiatives.

Research Findings

Source:https://investors.revlon.com/node/13191/pdfhttps://investors.revlon.com/news-releases/news-release-details/revlon-reports-fourth-quarter-and-full-year-2018-results

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Current

Revlon:

There is 4.8% decrease due to declines in the Revlon, Fragrances and Portfolio segments, driven in part by approximately €57.4 m in net sales reductions associated with service level disruptions at the Company's Oxford, N.C. manufacturing facility related to the Company's February 2018 implementation of a new SAP enterprise resource planning system, partially offset by strong growth in the Elizabeth Arden segment.

Net loss was €264 m in 2018 compared to a net loss of €164 m in 2017, with the higher net loss driven by the higher operating loss described above and higher interest expense, partially offset by a lower tax provision due to the impact of the U.S. Tax Act.

Future

Revlon:

It is aggressively catching up to the rapid transformation brought in by the rise of e-commerce and specialty beauty stores. It is gaining momentum on its strategy to respond to the accelerating pace of innovation and increasing migration to digitally-focused consumer engagement.

• Company plans to use the net proceeds of the new term loan facility to invest in pursuing the Company's core business strategies and innovation initiatives, as well as for other general corporate purposes.

• Company plans to be focused on executing with excellence its new product launches here in the U.S. and around the world and its optimization program which is on track to deliver significant cost reductions, as well as continuing to grow in its key strategic investment areas such as China and e-commerce expansion