Russian cosmetics retail market grew by more than 7% in 2016

More information on this topic is presented in the PMR report:

The Russian cosmetics market increased by 7.4% in 2016 as compared to the previous year, according to a new  report from PMR „Cosmetics retail market in Russia 2017. Market analysis and development forecasts for 2017-2022”. Though the growth rate was much lower than in the earlier years, it was still high compared to other segments of the Russian retail market and to the cosmetics markets of other CEE countries. This shows that the cosmetics market in Russia is still underdeveloped.

The main reason behind the drop in the growth rate in 2016, however, was the lower price increases. Inflation was the main growth driver during the crisis years (2014-2015) in the case of all FMCG segments. In 2016, price growth in the personal care products category slowed down significantly and this trend has continued also in 2017. In addition, the crisis has affected Russian consumers’ shopping patterns. Although they have not abandoned cosmetics purchases altogether, many have switched to cheaper brands and private label products, or started to take greater advantage of discounts and promotions.

A big part of the cosmetics segment are essential goods, which explains why cosmetics retail has been much more resistant to economic difficulties than most other retail segments. However, the fact that Russian consumers do not forego cosmetics purchases even under considerable financial strain was not the only reason why the market continued to grow despite the still difficult economic situation. The dynamic expansion of cosmetics chains also supported market’s growth, whose share in total sales is rising steadily. Cosmetics chains are currently the second fastest-growing distribution channel for cosmetics in Russia, only behind online sales, which however still account for only a small chunk of the market.

The number of outlets belonging to the five biggest players in terms of sales revenues, i.e. Magnit Kosmetik, L’Etoile, Yves Rocher, Rive Gauche and Ile de Beaute, is rising at a very high rate – in 2016 alone, the top five added more than 1,100 stores between them, and they are expected to add a further 740 or so in 2017. Magnit Kosmetik, owned by grocery giant Magnit, is by far the fastest-growing cosmetics chain in Russia. Since 2014, Magnit Kosmetik has been the largest player on the cosmetics market in terms of store count. In 2016, in turn, it overtook Rive Gauche as Russia’s second largest cosmetics retailer by sales, and it maintained the strong momentum in nine months of 2017, growing its sales by nearly a third. The largest player in terms of revenues remains L’Etoile, which is also second by number of stores.

Penetration of the Russian cosmetics retail market by large international cosmetics chains is rather limited in Russia. Apart from Yves Rocher, which ranks in the top six by sales turnover, the only other foreign player active in the country is L’Occitane. It is worth noting, however, that Ile de Beaute chain now also has a foreign owner in France-based Sephora, which acquired it in November 2016. More foreign companies are found in the direct-selling segment – all the global giants, i.e. Amway, Avon, Oriflame, Mary Kay, are present in Russia.

Growing competition and a substantial number of strong domestic players are factors discouraging international chains from entering the Russian market. Nevertheless, in 2016, the Russian cosmetics market saw two major entries: the Italy-based Kiko Milano and Lillapois, a chain belonging to the France-based grocery retailer Auchan. In 2017, the luxury cosmetics and perfumes retailer Giorgio Armani Beauty opened its first store in Russia, while in 2018, the brand Sephora will appear in the country.

The Russian cosmetics market has good prospects, especially considering the fact that the Russian economy is expected to stabilise soon. Consumer spending on cosmetics will continue to rise in the years to come, creating perfect conditions for cosmetics chains, particularly ones offering good quality products at accessible prices, as well as for smaller, specialised manufacturers and retailers (natural cosmetics for example are gaining in popularity among Russian consumers, mirroring Western trends). Very good prospects also exist for “at home” cosmetics stores offering a wide product range, i.e. including household chemicals and other non-cosmetics goods.

According to PMR’s forecasts, the Russian cosmetics market will continue to grow at a stable rate similar to the one seen in 2016 in the coming years. The growth will be driven mostly by retail chains’ expansion and positive changes in consumer demand since the worst of the crisis years. The market will enter a period of fierce competition, which will result in further consolidation. More distant areas of Russia will be covered by rapidly expanding cosmetics chains, with Magnit Kosmetik contributing to the expansion the most.

More information on this topic is presented in the PMR report:
Cosmetic retail market in Russia 2017. Market analysis and development forecasts for 2017-2022