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Cosmeceuticals put a fresh face on cosmetics

Posted on: October 6, 2009

cosmeceuticalsWhile the $60.37 billion cosmetics industry on track to decline 1.2 percent in 2009, the niche market of cosmeceuticals is expected to increase 7.7 percent, according to industry research firm IBISWorld.  Now accounting for $3.5 billion in revenue, cosmeceuticals have become a prospective growth area for businesses operating in the mature cosmetics industry.

“The development of new product categories like cosmeceuticals and dermocosmetics has grown considerably in the last five years, driven by America’s obsession with anti-aging and wellness,” said Toon van Beeck, senior analyst with IBISWorld.  “Companies are taking the opportunity to manufacture more of these high-margin products which typically generate profits greater than the industry average of 10 percent.”

As a result of the burgeoning growth and demand for cosmeceuticals, retailers from department stores to big box stores have looked to shelve products like anti-wrinkle creams, bleaching agents and medicated lotions.  The existence of these niche products means that small retailers like SkinCeuticals, Her Walk, and Dermelect Cosmeceuticals can enter and successfully operate in an environment that is exhibiting strong growth and observes less competitive pressures.

Additionally, cosmeceuticals command a premium price because consumers perceive the ingredients as being expensive and uniquely manufactured, with research and development (R&D) accounting for the majority of costs.  However, R&D only represents about two percent of the industry’s cost structure, while the selling, general, and administrative costs (mostly marketing) represent a staggering 21 percent.

“Because the profit margins are higher on cosmeceuticals, companies have more money to spend on marketing,” adds van Beeck.  “Businesses must continually convince buyers of the product’s benefits and break through competitive clutter to increase their sales.”

By 2011, IBISWorld predicts the industry will rise beyond $4 billion, and will continue to grow at near double digit rates for quite some time. Growth will continue to revolve around the perceived health advantages of cosmeceuticals in addition to the traditional cosmetic benefits.

“Manufacturers and retailers will continue to fuel demand for cosmeceuticals by developing and marketing a steady stream of new products,” said van Beeck.  “New products in the pipeline present solid opportunities to bolster bottom lines and build customer loyalty, re-inventing the mature cosmetics industry.”

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