Although the beauty and personal care industry is usually well insulated against economic volatility overall, any changes that do occur may lead to a reshaping of the retail landscape, with consumers shifting their spending towards products that suit their budget and mood.
During the last global economic downturn, which was partly triggered by the subprime mortgage crisis in the US, there was a distinct trend in developed markets for mass market consumers to downgrade to less expensive beauty products, whereas there was an uptick at the luxury end of the market. Could history be about to repeat itself?
The outlook appears rosier for emerging markets
The Euromonitor report, titled Global Economies and Consumers in 2017, points to the fact that developed countries are going through particularly uncertain times, with more to come in the future, while in contrast many major developing countries are likely to stabilise and see improved economic growth.
The Euromonitor researchers also point to the Trump administation as adding to global volatility, with an increasingly protective approach to trade likely to impact the global economy and in particular international businesses actively trading with the country.
Then there’s Brexit, which the report also highlights as being another area that could impact international trade, but more specifically it risks ostracizing UK businesses and impacting EU trade as a whole.
“The ramifications of protectionist trade policies and an expansionary fiscal stance are global, with emerging market currencies already suffering from a “Trump tantrum” in late 2016,” the report highlights.
“Brexit is another unknown quantity; outside of Europe, its impact on the global economy is more subdued than a Trump downturn, but it adds another element of unpredictability at a time when political volatility is a key concern.”
Political uncertainty in Europe
The report also points to the political uncertainty in the rest of Europe. Brexit happened after a surge in support for right wing and far right wing political ideals such as anti-immigration and anti-trade, and similar ideals are gathering support in the rest of Europe.
In particular, all eyes will be on the French presidential and general elections, happening in May 2017. Marine Le Pen, leader of the country’s National Front party, is a serious candidate in the elections and known for her hard stance on immigration.
Other far right wing movements are also gaining popularity and support, with countries such as the Netherlands, Italy, Sweden and Germany also facing up to growing support of such political influences that could lead to more isolationist policies and impact economic growth.
“A broader economic stagnation would notably hurt the European outlook,” the report states.
“The spread of political populism could raise trade and immigration restrictions and slow down the implementation of structural reforms, leading to falling private sector confidence with negative spillovers on investment and consumer spending.”
Cities and Urban areas
With 75% of the richest households located in cities, larger urban areas will continue to be the driving force behind consumer patterns and spend, but Euromonitor points out that the fastest urban population growth is expected to be seen in the Middle East and Africa.
The report points to cities such as Abuja, in Nigeria, which is forecast to grow by 4% in one year, while Doha, in Qatar, is set to grow at a rate of 3%, suggesting that consumer opportunities will also develop in tandem.
In major European cities such as London, Paris, Berlin and Madrid are expected to follow suit with other international cities that are seeing a growing gap in income equality, which is being underlined by cities such as San Francisco and New York in the US where the number of households with incomes over $100,000 will continue to grow.
What will define households in 2017
Over all the number of households globally will increase to 2.1 billion in 2017, with growth being driven by urban populations in emerging markets.
In the more developed regions in particular, including throughout Europe, the shift towards more educated households will be emphasised.
However, with the rising costs associated with this higher level of education, more and more millennials are finding that the combination of rising rents and paying off student loans is proving too much.
As a result, Euromonitor researchers point to a continued upswing in younger adults returning to the family home, a phenomenon known in Australia as “boomerang kids”.
It is worth noting that although this phenomenon may impact the housing rental market, it could also lead to a spike in the spending power of such individuals, if individuals are not overburdened with debt or saving up for a deposit on a mortgage.
Trends in income and expenditure
Overall Euromonitor forecasts that global consumer spend will be relatively stagnant in 2017, with growth predicted to hover around 2.3% this year, reflecting a slight fall compared to 2016.
Although growth is likely to pick up in emerging markets, developed markets such as Europe are likely to see more challenging conditions, with Euromonitor predicting that consumer spend in the developed world will fall from 2.0% in 2016 to reach 1.5% this year.
This fall in consumer spend is also expected to be characterised by a marked declined in income equality, with a squeezed middle class and lower class, compared to rising incomes at the upper end of the spectrum - repeating the pattern that was seen during the 2008 economic downturn.
“As income inequality is expected to worsen in 2017, across 66 out of 85 major economies which Euromonitor International tracks, companies need to strategise for the increasing polarisation of consumer markets. However, it is vital not to overlook the middle class so as to retain this important consumer base,” the report states.