As the much-maligned global credit crunch slows sales in Western regions, the Middle East’s cosmetics and toiletries market, worth US$7.2 billion in 2008 according to Euromonitor International, appears to be surviving the downturn far better than other regions. Not only was its healthy overall growth of 8% for cosmetics and toiletries the highest that the Middle East had produced in the last five years, it was also one of only a handful of regions that did not record lower growth than that of the previous year.
Saudi Arabia led the Middle East in terms of value sales in 2008, at US$2.2 billion, closely followed by Iran (US$2 billion), a country that has the use of cosmetics and toiletries embedded in its history and a large population of young people.
Debt-free consumers represent an attractive opportunity
One of the main reasons behind the Middle East’s resistance to the credit crunch is that consumers there do not have the kind of high levels of personal debt seen among their Western counterparts, and this means that the Middle Eastern love of lavish lifestyles and displaying wealth will not be replaced by the kind of cautious, frugal attitudes seen in many other countries.
This is good news particularly for manufacturers in the fragrances and premium cosmetics segments, which have nose-dived in nearly all other regions, yet remain buoyant in the Middle East. Fragrance sales rose by 10% over 2007/2008, and premium cosmetics by 9%, both in line with growth rates from preceding years.
Fragrances and premium cosmetics are key
In particular, the UAE and Saudi Arabia are driving growth in both fragrances and premium cosmetics, and both sectors account for a large share of the overall cosmetics and toiletries markets in each country – fragrances accounts for a 31% share in Saudi Arabia and 21% in the UAE, while premium cosmetics commands shares of 38% and 26% respectively.
The UAE imposes no VAT and low import tariffs on its cosmetics and fragrances, meaning prices are around 25% cheaper than in Western Europe, thus providing an attractive deal for visitors and locals alike.
It is perhaps unsurprising that sales of premium cosmetics are strong in the Middle East as both countries are among the top in the world for disposable income. For many, price is often not an object, making these countries the ideal environment for premium products to further grow in the next few years as sales dip elsewhere in the world.
Lack of middle-class could hinder future growth
A major obstacle to growth in cosmetics and toiletries in the Middle East is the difference in disposable income between rich and poor, particularly in oil-rich countries like the UAE and Saudi Arabia.
A middle-class here is largely non-existent, meaning that unlike many other regions with strong growth in cosmetics and toiletries, growth is not being generated by a general rise in personal spending capacity among the masses. This could limit development over the medium term, but the Middle East still represents a stable growth prospect for manufacturers.