Foundations of a winning industry

Worth billions of euros, the EU cosmetics industry remains a world leader, but it will have to fight to keep its position. Lorraine Mallinder reports.

The EU cosmetics industry is a world leader, with strong sales in key western markets contributing to year-on-year growth. Currently worth a rosy €62.7 billion, the sector shows little sign of slowing down.

A considerable proportion of growth in the industry is driven by innovation, with thousands of new or improved products placed on the market each year. Major cosmetics companies renew around 25% of their products each year, a trend which generates knock-on growth in areas such as advertising and retail.

Growing demand for male grooming products has boosted the market significantly. Skin and hair care are the new interesting markets for men.

Around 150,000 Europeans are employed directly by the cosmetics sector. A further 350,000 are employed indirectly in retail, distribution and transport. The industry is unlike other markets in the sense that a lot of production is still EU-based.

"That is something that makes this industry very special. We still have big production sites for big companies like L’Oreal. There is still a lot of production in the EU," says Sebastian Marx, of the industry lobby Colipa.

The sector is governed by the 1976 cosmetics directive, considered the gold standard for industry legislation in many parts of the world. The rules placed tough requirements on the industry, making it obligatory for manufacturers to make public information on products causing allergic reactions, such as swelling or itching.

"The legislation is challenging," Marx concedes. "There are also costs involved when you implement changes in labelling requirements and so on. But to have standards is good for us even if there are costs. Other regions will look to the European system because its [products] are considered as safe."

Requirements on animal testing have been taken on board fairly smoothly. Bans on products tested on animals will be introduced in two phases. An initial prohibition on tests for problems such as skin and eye irritation comes into effect next year. A second ban on more complex testing for internal effects will be imposed in 2013.

Cosmetics companies have been rushing to find alternative ways of testing products, mainly using in vitro methods. Wealthy multinationals with the funds to plough into expensive research find themselves at a distinct advantage.

The industry may have withstood the effects of the new legislation, but the future is not blemish-free. Burgeoning trade in counterfeit cosmetics could threaten future growth. EU customs officials seized 1.5 million fake products in 2006, an increase of 128% from 2005. According to European Commission figures released this year, nearly 40% of fakes came from China. The rest came mainly from Indonesia, Ukraine, the United Arab Emirates, Turkey, Hong Kong, Belarus and Hungary.

Worth billions of euros, the EU cosmetics industry remains a world leader, but it will have to fight to keep its position. Lorraine Mallinder reports.