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Margin Pressures Continue for Personal Care Companies

November 30, -0001

The top marketers in the personal care industry spend approximately 29% of sales on cost of goods, 53% on marketing and 7% on other expenses including R&D and administration, leaving an operating margin of about 11%, according to new data compiled by research firm Kline & Company. High oil prices into 2008 drove production and distribution costs up significantly for personal care marketers. And while oil prices have decreased, which has helped to expand operating margins somewhat, declining consumer demand stemming from the global recession will likely offset any profitability gains. This, combined with the perpetual need to spend significantly on advertising and promotions in order to drive consumer awareness and demand, will continue to lead to margin pressures for personal care marketers, according to the Little Falls, NJ-based consultancy.

In addition, the recession is leading to greater levels of discounting and special pricing, which hurts gross margins. According to Kline, companies heavily focused on luxury products, such as Estée Lauder, will feel the sting of the recession more than those whose products are lower in price, such as Avon, Johnson & Johnson and Procter & Gamble. Overall, the recession will affect the ability of personal care marketers to increase retail prices, unless they highlight their product or brand’s unique benefits.

“Companies that continue to employ effective marketing, efficient operations, sustained R&D expenditures, and steady innovation are the ones that will remain profitable and hold market leadership positions in uncertain times,” noted Laura Mahecha, industry manager for Kline’s market research division.

Kline’s Personal Care: U.S. Competitor Cost Structures 2008 study presents information on the financial performance of 10 leading suppliers of cosmetics and toiletries in the U.S. Cost breakdowns are provided for each company’s overall personal care business as well as its leading product classes, including fragrances, hair care, makeup, oral care, skin care and other toiletries.

More info: www.KlineGroup.com

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