Science trumps sex appeal in selling skincare, Beiersdorf AG (BEI) has found.
The maker of Nivea moisturizers has exited makeup to focus on lines including wrinkle treatments and anti-acne products sold in pharmacies, in contrast to competitors such as L’Oreal SA. (OR) Revenue at the Eucerin dermatological brand is rising faster than total sales, while Beiersdorf’s premium brand La Prairie, which makes face cream with caviar extracts that retails for 345.90 euros ($450), saw sales decline.
Germans spent 3.43 billion euros on skincare in 2011, according to Euromonitor International. They’re increasingly likely to shop for beauty and personal care products in drugstores and pharmacies, which gained market share from 2006 to 2011, while sales in supermarkets and department stores fell. Brands like Eucerin may appeal to health-conscious Europeans as the population ages and consumers cut expenses amid the region’s budget crises and rising unemployment.
“People are skeptical and if you promise them something they want to know why they should believe it and how it can be proven,” Karin Hannig, the global head of the Eucerin brand, said in an interview at Beiersdorf’s Hamburg headquarters. “Women are less willing nowadays to spend on luxury. They are more looking for product efficacy, not anything chi-chi.”
Makeup companies often rely on celebrities to promote their wares, including Coty Inc.’s Astor, which hired model Heidi Klum to sell its Volume Diva Curve Me Sexy mascara and Soft Sensation Vitamin & Collagen lipstick. Eucerin’s Anti-Wrinkle Sensitive Skin Lotion and Redness Relief Soothing Night Crème, meantime, are advertised under the motto “medical skin science that shows.” Dermatologists recommend the products for conditions such as psoriasis and allergy-stressed skin.
Beiersdorf shares have risen 26 percent since Nov. 29, the day before the company announced plans to cut as many as 1,000 jobs as part of its focus on skincare. The stock is currently trading at 47 times reported earnings, the highest since 2001, and more than twice as much as L’Oreal, owner of Maybelline.
L’Oreal gets almost a quarter of its revenue from its luxury division, which groups 13 brands including Kiehl’s, Giorgio Armani and YSL Beaute. The unit was L’Oreal’s best performer in the first quarter with sales surging 18 percent, compared to 9.4 percent overall. Revenue from so-called active cosmetics, which includes pharmacy brands such as Vichy and Skinceuticals, grew 5.3 percent in the period.
“Decorative cosmetics belongs to more glamorous brands,” said Klaus Kraenzle, an analyst at Silvia Quandt & Cie., in a phone interview. Beiersdorf has “the cash to restructure the company but I am still cautious on the stock until they’re done with the restructuring at the end of the year.”
Wrinkle in Time
An older European population also helps dermatological brands. More than 30 percent of people in Germany and a quarter in France will be over 65 in 2050, according to the Boston Consulting Group. In 2010, 21 percent of Germany’s population was over 65.
“Anti-aging products will continue to boom because in former times women at a certain age accepted there is not so much that they can do and nowadays they don’t stop fighting,” Hannig said. “We also have the baby-boomers generation aging.”
The price is right, too. Eucerin’s Hyaluron-Filler day cream for dry skin varies from about 25 euros to 30 euros while 10 percent Urea Repair Lotion that relieves itching ranges from 14 euros to 17 euros. La Prairie, the company’s premium brand, sells a serum containing platinum for 578.50 euros, according to French retailer Sephora’s website.
“The over-the-counter business in Germany is pretty restrictive, so it gives Eucerin some aura of exclusivity,” said Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt. “Consumers trust pharmacists.”
Beiersdorf opened a Eucerin skin institute in Hamburg in February offering skin consultations starting at 16.50 euros and treatments such as facials.
“Ideally, I would like to have Eucerin skin institutes in other cities around the world as well, but we do not yet have any concrete plans,” Hannig said in the April 26 interview. “I am certain that dermo-cosmetics in pharmacies will continue to grow. We can see an increasing number of consumers switching from selective brands to pharmacy brands.”
Eucerin revenue rose 7.8 percent in the first quarter, outpacing total sales growth, Beiersdorf said May 3. La Prairie had a 1.2 percent sales decline in the period. Nivea, Beiersdorf’s biggest brand, posted revenue growth of 10 percent in the first quarter.
The top 10 beauty players, which include Procter & Gamble Co., L’Oreal and Beiersdorf, had a growth rate of almost 7 percent last year, including acquisitions, Euromonitor said last month. It was the first time since 2007 the growth rate was above 6 percent.
Eucerin has “huge growth potential in the U.S. because we are only present in hand and body care and in so many other markets like face or sun we are not there yet,” Beiersdorf’s Hannig said. She also identified Latin America and eastern Europe as regions with “tremendous” prospects for expansion.
“Emerging markets are very attractive for Eucerin because in those countries people are used to paying from their pocket for health care,” Metzler’s Frericks said. “They don’t expect insurers to cover the costs.”
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