P&G and Estée Lauder will outperform Avon in China: report
The report on the China beauty market released this month looks at the size of the market, its growth prospects and how select brands are likely to perform in the future.
According to the report, the China beauty market is worth approximately $12.5bn, which translates to a 7 percent share of the global beauty market. It is expected to grow at a steady rate of 10-12 percent to reach a size roughly 60 percent of that of the US market by 2014, the report revealed.
P&G to outperform Avon: Bernstein
Several cosmetics brands have invested in the China market recently, with Avon opening a R&D facility and Estée Lauder launching its Origins brand in the country, demonstrating the importance and potential of this fast-growing market.
Bernstein Research valued companies in the market sector using a combination of three methods, with price-to-forward earnings as the preferred metric.
P&G, Estée Lauder and Avon were valued at market-perform with target prices of $68, $63 and $31 respectively.
Skin care and prestige products most important
According to the report, skin care is the most important subcategory, with sales in this area contributing approximately 70 percent to the total value of the country’s beauty market.
Fragrance is the smallest category in China, representing 5 per cent of total beauty sales, a figure that, although much less than that of the US (18 percent), is comparable to that of other Asian markets such as Japan.
The report highlights the rise of urban households in China, which take home 3.3 times the disposable income of their rural counterparts and represent 47.5 percent of China’s population.
As a result of the associated rise in disposable income, the report noted, prestige brands such as Clinique, Estée Lauder are growing in popularity.
Currently, prestige beauty products represent approximately 24 per cent of the total beauty market in China, up from 10 per cent in the mid 90’s.
Looking ahead, Bernstein research predicts that such products will represent over 27 percent of the market by 2014.