Nail Polish Industry Analysis
Introduction and Background
The US nail polish industry has a total revenue of $1.1 billion and a profit of $118.4 million in 2012, with an annual growth of 2.3% in 2007-2012 and a projected annual growth of 3.3% from 2012-2017 (Panteva). The nail polish industry is able to survive the recession because they are sold at low prices, starting at a retail price of lower than $5 to $10 for professional grade nail polishes at drugstores (Panteva). Unlike other consumer goods, consumers are not as inclined to limit their purchase of nail polish, due to low prices.
Despite the recession that significantly the economy, the nail polish industry was almost unaffected and has shown a positive trend. Industry revenue grew at an average annual rate of 2.3% since 2007. As the economy continues to recover, industry revenue is projected to increase by 4% (Panteva).
Although the general trend is positive, in 2009 the industry suffered a minor setback when disposable income per capita decreased 3.2% and the industry revenue decreased 0.6% (Walker). This is caused by a shift from visiting nail salons to purchasing cheap nail polish from drugstores, which caused a low-priced purchase of nail polish between $1-$5. As a result of decreasing purchase price, nail polish manufacturers suffered decreasing profit margins. Profit margins for nail polish used to be 10.8%, but decreased to 9.2% during 2009 (Panteva). As the effects of the recession are diminishing, consumers are purchasing higher priced nail polish and profitability increased. However, profit margins are still below pre-recession margins. With disposable income growing at 2.3% annually for the next five years, consumers will be able to visit nail salons; industry revenue will experience an increase (Wendlandt). Regardless of a minor setback, the factors that are driving the industry are strong and with the economy recovering, the outlook of the industry is promising.
Industry Life Cycle
The nail polish industry is in its maturity phase. The industry’s growth rate and contribution to the economy is growing at a constant and steady rate. In addition, the growth rate of the industry is almost consistent with GDP growth rate. There is also minimal change and innovation to the nail polish itself, another characteristic of a mature industry. Most changes were centered on color, range and effect of the nail polish. In the US, nail polish manufacturers are almost at market saturation and demand is expected to decline at an average rate of 1.3% per year (Panteva). Acquisitions are becoming common among key industry players, such as Revlon and Coty. Revlon acquired Sinful Colors in 2011 and Coty acquired Sally Hansen, NYC New York Color and OPI. By acquiring smaller companies, Revlon and Coty are able to reduce competition and increase their market share within the industry (Panteva).
The industry has two main players, including Revlon and Coty with a combined 63.6% share of total industry revenue in 2012. The remaining 36.4% of the industry revenue is attributed to other small nail polish companies that caters to a niche or produce a specialized nail polish (Barbalova). To increase market share and revenue, major players acquire smaller companies. Coty was able to achieve the highest market share in the industry by acquiring Sally Hansen and OPI.
Companies in the nail polish industry are highly competitive with companies attempting to attract consumers with lower prices, style, variety and quality (Walker). Price is one of the most important competitive factors, especially in low-priced nail polish because they offer the same price and quality. While in the premium nail polish market segment price is not as important, firms compete on the basis of style and color. Intense competition remains among large firms in the industry through acquisitions of smaller firms. The...
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