The industry is moderately leveraged. The longterm debt to equity ratio in 1990 was .46:1, down from a staggering 1.94:1 in 1988 (Royce, 1991). By 1993, the longterm debt to equity ratio is projected to be only .32:1 (Royce, 1991).

The industry return on total capital (longterm debt and equity) is strong. A 20.5 percent return on total capital was recorded in 1990, up from 16.1 percent in 1987 (Royce, 1991). By 1993, the return on total capital is projected to reach 23 percent (Royce, 1991).

Economic Factors Affecting Industry Performance

Cosmetics are by and large discretionary products. Thus, retail sales are heavily influenced by both advertising and new product introductions (Standard & Poor's, 1990). Product differentiation through advertising is essential in the successful marketing of cosmetics. Cosmetics, however, are relatively recession proof, and demand tends to remain strong during economic downturns (Royce, 1991).

In the contemporary market, skin care products are strongest, while fragrances are weakest (Standard & Poor's, 1990). Demand for other personal care cosmetics and toiletries remains strong.

The prestige segment of the fragrance market has been hurt by inexpensive imitation fragrances called knockoffs (Standard & Poor's, 1990). Additionally, changes in packaging and distribution processes have created some problems for

Expansion in foreign markets is expected to provide for continuing growth for the cosmetics industry, which will be more than enough to overcome the saturation developing in the domestic market (Standard & Poor's, 1990). The Far East. Latin America, Eastern Europe, the Soviet Union, and China are all considered to be markets with a strong potential (Royce, 1991). The strongest foreign market in the near future, however, is expected to be Western Europe (Standard & Poor's, 1990). While many industries dread the further economic unification scheduled for the European Economic Community in 1992, the major firms in the cosmetics industry have bases of operation within the Community, and, therefore, expect to benefit significantly from the greater unification (Standard & Poor's, 1990).

The major focus of marketing research by profit oriented organizations is the measurement of market potentials, the conduct of market share analysis, and the determinations of market characteristics. Additionally, however, internal marketing research departments also conduct research related to the development of new products, and research which is designed to monitor the products of competitors. A specific type of marketing research also measures the effectiveness of advertising and promotional activities.

Significant in the marketing of cosmetics and toiletries are the operations of companies such as Avon and Mark Kay, which market their products directly to the consumer. An appreciation of the marketing approach of these firms may be gained through a consideration of the Mary Kay Company.

Prestigegoods are typically of