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The Cosmetics Industry

By 1993, industry net profit is expected to reach 9 percent (Royce, 1991).

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


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