TBC Beauty Facts, Figures, and Trends

June 2012

Beauty statistics – can we ever seem to agree?

Fun Facts • 45% of women cut back on skincare

during the recession, but 14% are already spending more

• 20% of Americans have a household income of $100K plus, which represents 70% of total US consumer wealth

• According to NPD, $75K plus households had an increase in beauty spending from 2008 – 2010 ($134 to $186)

Euromonitor, “Latest Research: Beauty and Personal Care 2012 Now Live”, Euromonitor.com, first accessed on 6/12/2012 Phelan, Hayley “Beauty’s Top 100.” WWD.COM. 8.12.11, wwd.com, first accessed on 6/12/2012 Yeomans, Michelle, “US personal care market surpasses pre-recession levels in 2011”, Cosmeticsdesign.com, first accessed on 6/12/2012 PRWeb.com, “The NPD Group presents 2011 Overview of the US & Global Beauty Sales’, prweb.com, first accessed on 6/12/2012 Mintel Beauty Retailing Report, April 2011 WSL Strategic Retail

3

• MAC sells 1 lipstick and 1 eye shadow every 2 seconds

• Walgreens has 25,000 beauty SKUs and 8,000 doors

• Harrod’s stocks 43,000 beauty SKUs

• On average, women aged 18+ spend $144 year on beauty

• By region, the West spends the most on beauty - $154

• 57% of women have purchased skincare at WalMart or Target in the last 6 months

• 10% of your customers are 80% of your revenue

An Industry of Giants • 26% market share of US mass skincare is driven by four flagship global brands:

Neutrogena (which is the largest), Aveeno, Roc and Clean & Clear

Euromonitor, “Latest Research: Beauty and Personal Care 2012 Now Live”, Euromonitor.com, first accessed on 6/12/2012 Phelan, Hayley “Beauty’s Top 100.” WWD.COM. 8.12.11, wwd.com, first accessed on 6/12/2012 Yeomans, Michelle, “US personal care market surpasses pre-recession levels in 2011”, Cosmeticsdesign.com, first accessed on 6/12/2012 PRWeb.com, “The NPD Group presents 2011 Overview of the US & Global Beauty Sales’, prweb.com, first accessed on 6/12/2012 4

Worldwide & US Cosmetics Market

• Total sales in the beauty and personal care industry were roughly $426 billion in 2011.

• Total global beauty sales for January – March 2012 were up 14% to $2,278,000,000 • Total Makeup sales were $932 million, up 10% • Total Skincare sales were $844 million, up 19% • Total Fragrance sales were $501 million, up 11%

• In 2011, the US cosmetics & toiletries market surpassed pre-recession levels in sales with a 4.2% growth to exceed $38 billion

• For the top 100 companies in the cosmetic and personal care sectors, sales increased by 25.1% in 2011.

Euromonitor, “Latest Research: Beauty and Personal Care 2012 Now Live”, Euromonitor.com, first accessed on 6/12/2012 Phelan, Hayley “Beauty’s Top 100.” WWD.COM. 8.12.11, wwd.com, first accessed on 6/12/2012 Yeomans, Michelle, “US personal care market surpasses pre-recession levels in 2011”, Cosmeticsdesign.com, first accessed on 6/12/2012 PRWeb.com, “The NPD Group presents 2011 Overview of the US & Global Beauty Sales’, prweb.com, first accessed on 6/12/2012 5

Cosmetic Product Categories Now that you know where all the money is spent, it’s helpful to know what people are

spending their money on. The cosmetic industry (aka beauty industry or personal care industry) can be broken down into 5 categories with sales distributed as follows:

Perry. “A Cosmetic Industry Overview for Cosmetic Chemists.”, www.chemistscorner.com first accessed on 6/12/2012

Hair Care: 20% Facial Skin Care: 27% Fragrance: 10%

Make-up: 20% Personal Care: 23%

6

Hair Care Shampoos make up the vast majority of this market since almost everyone uses shampoo. Other significant market segments include conditioners, styling products, hair color, and relaxers. Currently, the biggest players in this category are Procter & Gamble (Pantene) and L’Oreal.

Skin Care The range of products that are offered for the skin care market are much more diverse than the hair care market. Skin care includes skin moisturizers, cleansers, facial products, anti-acne, and anti-aging products. The biggest companies in this market include Procter & Gamble (Olay) and Unilever (Vaseline).

Make-up The color cosmetic market includes anything from lipstick to nail polish. Included are things like blush, eyeshadow, foundation, etc. The array of products is vast and the number of color variations are practically infinite. The market is highly segmented so there isn’t really one dominant player. Maybelline and Clinique are just a couple of significant brands.

Perry. “A Cosmetic Industry Overview for Cosmetic Chemists.”, www.chemistscorner.com, first accessed on 6/12/2012

Cosmetic Product Categories

7

Fine Fragrance This market segment has really taken a hit in the last few years but it still makes up about 10% of the cosmetic industry. This is the highest profit segment of the cosmetic industry but consumers are fickle. Only a few brands (like Chanel #5) can last for a long time. Fine fragrances come and go like fashion and companies have to continue to reformulate just to compete. Sales of prestige fragrances rose 10% in North America in 2011.

Personal Care The “personal care” category represents 23% of the cosmetic industry and is

made up of things like toothpaste, deodorants, sunscreens, depilatories, and other personal care products not yet mentioned. The dominant companies are many of the same already mentioned, P&G, L’Oreal, and Unilever.

Perry. “A Cosmetic Industry Overview for Cosmetic Chemists.”, chemistscorner.com, first accessed on 6/12/2012 Euromonitor, “Latest Research: Beauty and Personal Care 2012 Now Live”, Euromonitor.com, first accessed on 6/12/2012

Cosmetic Product Categories

8

A Look into Key Distribution Segments

Drug Stores The US drugstores industry includes about 20,000 companies with combined annual revenue of about $220 billion. • Major companies include Walgreens, CVS Caremark, and Rite Aid. • The industry is concentrated: the 50 largest companies generate about 70

percent of revenue.

Spa Services The spa services industry in the US includes about 18,000 facilities with combined annual revenue of more than $13 billion. • Major spa services companies include destination spa chains Canyon Ranch

and Golden Door, massage clinic franchise Massage Envy, as well as day space franchise Woodhouse Spa.

• The industry is highly fragmented: most spa services companies operate a single facility with less than $1 million in annual revenue.

“Cosmetic Industry Overview” Hoovers.com, first accessed on 6/12/2012. 9

A Look into Key Distribution Segments

Department Stores The US department store industry includes about 3,500 stores with combined annual revenue of $70 billion. • Major companies include Sears, JCPenney, Macy's (which owns

Bloomingdale's), and Dillard's. • The industry is highly concentrated: the top 50 companies have

nearly 100 percent of the market.

Cosmetic Retail Market The cosmetic, beauty supply, and specialty store industry includes

about 13,000 stores with combined annual revenue of around $10 billion. • Major companies include ULTA, Sephora, and divisions of Limited

Brands (Bath & Body Works) and L’Oreal (The Body Shop International).

• The industry is concentrated: the top 50 companies have almost 75 percent of industry revenue.

“Cosmetic Industry Overview” Hoovers.com, first accessed on 6/12/2010 10

Key Players

Mmoma, Ejiofor. "World's Best-Selling Makeup." Forbes.com. 2/9/06

Massive multinational corporations dominate the makeup industry, but in recent years they have been creating or acquiring boutique brands in order to crack the market for

premium makeup.

Estée Lauder and rival L'Oréal have realized that, like the spirits industry, the key to success lies in offering a suite of products targeted at a wide range of customers, but

with special emphasis on the growing global luxury sector, in particular China.

11

Goudreau, Jenna “Forbes top 10 Global Beauty Brands" Forbes.com., first accessed on 6/12/2012 12

World’s Largest Beauty Brands

13

World’s Largest Beauty Brands

Goudreau, Jenna “Forbes top 10 Global Beauty Brands" Forbes.com., first accessed on 6/12/2012

Growing Beauty Category: Men’s Grooming

Men’s Grooming is Fastest Growing Category According to Euromonitor International, men’s grooming is set to be one of the fastest-growing categories in beauty and personal care, predicted to add approximately $4 billion to its global value size ($27 billion) by 2014. Why? Sales are set to rise thanks to changing attitudes among men globally about grooming and a

shift in key emerging regions away from manual work toward white-collar jobs. Where? The U.S. commands the highest value sales, accounting for an 18% share of the global $27

billion men’s grooming in 2009, but it is showing signs of slowing growth as an after-effect of the recession, and Western Europe remains the largest region for the male-specific category because of strong sales in the French, German and U.K. markets. The region is set to continue to see strong growth, adding more than $800 million to its size by 2014 as men in the region move beyond basic products related to shaving to more sophisticated grooming regimens that incorporate numerous skin care and post-shave products.

Lennard, Carrie. “Masculine Dynamism—Men’s Care Growing Fast”. 12/6/10. GCI Magazine. 14

Consistency is Key Differing from other categories, beauty has

been the most consistent throughout the economic downturn and recovery.

• From holiday 2008 through early 2010, the beauty category displayed search impression levels that were flat to slightly decreased. In addition the number of orders in the luxury beauty category increased only slightly at nine percent and conversion rates increased at a rate of 17%.

• This consistency in the luxury beauty category throughout the recession and upswing perhaps indicates support for the widely known “lipstick effect,” the theory that consumers are more willing to purchase lower cost luxury goods even when their funds are more limited.

“Beauty: Consistency is Key.” Range Online Media. 2010. 15

Prestige Sales Shine in U.S. Department Stores

Sales for prestige beauty are on a positive trend.

According to NPD, the total U.S. prestige beauty industry showed an increase of 11% to $9.5 billion vs. $8.6 billion in 2010

The Top Five Prestige Fragrance Brands

Chanel – Coco Mademoiselle Giogio Armani – Acqua di Gio Pour Homme Chanel – Bleu de Chanel Dolce & Gabbana – Light Blue Gucci – Guilty Homme

The Top Five Prestige Skin Care Products Clinique – Dramatically Different Lotion Pump (4.2 oz) Clinique Even Better Clinical Dark Spot Corrector (1.7oz) Clinique Even Better Clinical Dark Spot Corrector (1.0 oz) Estee Lauder – Advanced Night Repair Eye Synchronized Complex La Mer – Crème De La Mer Moisturizer (2.0 oz)

The Top Five Prestige Lip Products

MAC Lipstick Clinique Almost Lipstick Lancôme L’Asolu Rouge Lancôme Rouge In Love Estee Lauder Pure Color Lipstick

WWD.com, “Beauty, A Rosy View”, www.wwd.com first accessed on 6/12/2012 The NPD Group / BeautyTrends® 16

2011 Winners & Losers

• Fragrances contributed 35% to the growth in premium health & beauty products market in 2011, skincare 30% and makeup 15%

• With gains of +57%, women’s celebrity brands were shining

• Nail polish is still hot. Between 2008 – 2011 (a timeframe characterized by the recession) sales of nail polish soared by 43%

• According to Mintel, in 2011 KAO Brands showed impressive growth in the mass market category

• BB creams are the new darling. In the 12 months ending March 2012, BB creams sold in U.S. department stores generated close to $9 million.

Euromonitor, “Latest Research: Beauty and Personal Care 2012 Now Live”, Euromonitor.com, first accessed on 6/12/2012 The NPD Group / BeautyTrends® Walker, Rob, “State of the Industry”, Euromonitor International, 6/1/2012, www.gcimagazine.comfirst accessed on 6/12/2012 Woitalla, Ina, “Hot off the press, Prestige Beauty Sales Results”, Mintel Beauty & Personal Care , www.mintel.com first accessed on 6/12/2012 17

Succeeding in Beauty

Cavallero, Matt. “Cosmetics Stocks Will Make Your Eyeliner Run”. 10/1/2010. "The eyes have it! Eye makeup sales bolster color cosmetics growth, reports Mintel” 7/2010. Miles, Lynn. “New Products, Facts, and Stats.” 6/607. Research Matters #6757.

Only a very small percentage of new beauty products and brand introduced into the market each year are successful. The experts offer different explanations as to why: • According to Procter & Gamble CEO A.G Lafley, “In our industry, only about 15 to 20 percent of new brands and

products really succeed. Every year from 2000 through 2007—the last completed fiscal year virtually all of our incremental growth has come from innovation. One of the things we try to understand is … what's the real pace of innovation that's right for the consumer, right for the retailer and right for us.”

• According to research agency AcuPoll, “As many as 95 percent of new products introduced each year fail.”

• According to Ernst & Young, “Upwards of 80 percent of new brands fail and the primary reason is a lack of differentiation from competitors.”

• According to Marketing Corporation of America, “Line extensions have a failure rate of 49 percent, while 74 percent of more innovative products fail. Reasons for new product failure include: A value proposition that is not sufficiently compelling and/or awareness and trial is not generated by marketing.”

• According to the Americian Association of Advertising Agencies, “In the highly-competitive consumer goods market, the success of a new product is the hard-earned result of streamlining innovation processes and supporting them with experienced, dedicated people and enabling technologies. About 75 percent of new products fail and that number may be even higher in a recessionary environment.”

18

Daily Makeup Usage • Average woman spends 20 minutes a day applying makeup • 4 out of 5 women wear makeup.

“The eyes have it! Eye makeup sales bolster color cosmetics growth, reports Mintel” 7/2010. "How much will you spend on makeup in your lifetime?”. 3/12/10. Evans, Michael. “NPD Report Shows Decline in Makeup Usage”. 8.18.10.

• 76% use lip gloss and lipstick • 65% of respondents report using mascara • 63% of women report wearing eye shadow • 62% use eye liner • 38% use brow pencils • 22% use lip pencil • 7% use compact lip color • 86% of makeup users have used makeup

with skin care benefits in the past year

• Moisturizing (54 percent) and SPF (51 percent) are the most popular skin care benefits in makeup products. These were followed by “oil-free-won’t clog pores” (32 percent); “reduces wrinkles-fine lines” (30 percent) and items that are natural or mineral-based (27 percent), according to the report

• Only one million women, based on census projections, are wearing only one makeup product a day

19

Make-up Usage, Motivation, & Purchase Behavior

Emotional Connection/Motivations • Nearly half of U.S. women surveyed believe wearing makeup gives them an advantage

at work and makes them feel more in control • 82% of women surveyed believe wearing makeup makes them feel more self-confident • 86% of women believe that wearing makeup improves their self-image Shopping Habits • Average woman spends $15,000 on makeup in her lifetime. • From the ages of 16 to 65, a woman shops for cosmetics about five times a year. • Each time she’ll spend roughly $43, equaling about $216 a year. • That’s about $2,750 on eye shadow, $1,780 on lipstick and $3,770 on mascara in total • The average U.S. consumer spent $616 on personal care in 2008

“L'Oréal Survey Reveals Beauty Habits in the Face of Recession”. 8/31/09. GCI Magazine. "How much will you spend on makeup in your lifetime?”. 3/12/10.

Make-up Usage, Motivation, & Purchase Behavior

20

So How Do You Become

A Beauty Rock Star?

“Making it in the beauty biz!”