“With sharply devaluating currencies and challenges of exceptional nature in our two largest markets Russia and Ukraine, there is no doubt the company is facing very tough conditions,” Magnus Brännström, CEO, recently stated.
Indeed these troubles may well continue for some time yet, with the European Bank for Reconstruction and Development (EBRD) now reporting that economic setbacks in both countries looks set to have a grave impact on their respective recession recoveries.
Worsening for the industry
Earlier in the course of the tensions, beauty brands voiced cautious optimism for the market despite the upheaval, with major players like L’Oreal and Beiersdorf telling Cosmetics Design that they had experienced no disruption to operations or exports but that they were "keeping a close eye on matters".
However, as the situation continues, Oriflame have announced that the impact has since then been great, with euro sales having decreased by 14% to €327.2m.
In a comment to CosmeticsDesign-Europe.com on the latest situation, an Oriflame spokesperson said, “as stated in our report for Q1 we are clearly facing a challenging situation in Ukraine and Russia. It is obviously very unfortunate when our two largest markets are in conflict with each other.”
“However,” Johanna Palm, director of investor relations, continued, “we have long term commitments in these markets and hope that there can be a solution to the situation as soon as possible.”
Current market situation
Oriflame’s woes are just a symptom of wider economic fall-out from the crisis, according to the EBRD’s latest economic report.
The bank notes that “crisis in Russia and Ukraine is having a severe impact on the economies of the two countries and is threatening to slow down the recovery in the wider EBRD region – or even bring it to a complete halt.”
Under the EBRD’s most likely scenario, the bank states, Ukraine would return to recession in 2014, with a contraction of 7%, and show no growth in 2015.
The Russian economy would fair only slightly better, stagnating in 2014 and showing only minimal growth next year.