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Markets

(1) Excluding soap, toothpaste and razors, 2008 provisional estimates. Source: LOreal estimates, manufacturer selling prices.

(2) Source: Mass-market retailer panel, Nielsen/IRI Europe 12.

(3) Source: Euromonitor International.

E110bn(1)

In 2008, the worldwide cosmetics markettotalled `110.3 billion(1)

Balance between the five main business segments

The cosmetics market is divided into fivemain business segments: skincare, haircare,

make-up, fragrances and toiletries.These segments are complementary andthus able to meet consumers needs in alltheir diversity.

In the different categories, a good many ofthe products are intended for everydayhygiene, comfort and beauty purposes.

E31(3)

Average monthly cosmetics spending ofa French household

Make-up: wheninnovation teams up

with seduction

As the number three business segment invalue terms, make-up is advancing strongly,particularly in Western Europe where themass-market grew by +7.9% (2) in 2008.Around a quarter of European women useat least two make-up products every day.The European market is driven by constantinnovations. Foundation make-up is record-

ing the highest growth in the category, par-ticularly thanks to the success of mineralmake-up, which originated in North Amer-ica and is proving extremely successful withChinese women who prefer fine and aer-ated texture.

Shampoos, cleansing lotions and moisturis-ing creams are products which meet every-

day needs: 92% of French people, for exam-ple, use a shampoo three times a week onaverage.

Other products, such as hair colourants,anti-dandruff shampoos, sun protectionproducts and anti-ageing skincare lines arealso features of everyday life.

At the meeting point between body andmind, cosmetic products furthermore playa part in the fundamental need for beauty,enabling all individuals to express their per-sonalities to the full, gain self-confidence,open up to others and achieve self-fulfil-ment.

+8%(2)

Growth in mass-market make-up sales(Western Europe, 2008)

A resilient cosmetics market

WEIGHT OF MARKETBY PRODUCT CATEGORY(1)

32%Skincare

12%Toiletries

27%Haircare

17%Make-up

12%Fragrances

Over the last 15 years, the cosmetics market has grown on average by+4.5% a year excluding currency fluctuations, with annual growth rates

ranging from around +3% to +5.5%. It is a market which has demonstrated

both its ability to achieve sustainable growth and its capacity for resilience

in unfavourable economic conditions.

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Skincare is the number 1 category in themarket, and also the fastest-growing.

Four main factors are underpinningthis growth:

The ageing of the populationin developed countriesIn these countries, the ageing of the popu-lation is accelerating as the baby boom

Of products and men

The mens cosmetics market remains one ofthe most dynamic.

Behind this trend lies a great diversity inpurchasing behaviour.

In Europe, men are gradually starting toconsume facial skincare products.

Large numbers of young urban Asian menhave already been won over. Their con-

sumption should continue to increase overthe coming years.

Skincare: number 1 category in the marketgeneration reaches maturity. Attachingimportance to quality and advice, seniorsare an extremely demanding customergroup, who favour skincare products withhigh technological added value.

European women over 60 represent alone34% of the facial skincare market. On aver-age they buy twice as many products aswomen under 25.

Problems linked to sun exposureThe dangers of sun exposure are takenincreasingly seriously, driving demand for

photo-protection products. Furthermore,anti-blemish products, used for skin disor-ders, which are frequent in Asia and LatinAmerica, are also growing.

Young adults skin problemsProblems of this type affect young adultsin general across all markets: 60% of youngmen in Thailand say they are concernedabout acne or oily skin. More than 70% ofyoung men in Thailand aged between 15and 24 years use a cleansing lotion. InEurope, 90% of young women use acleanser each morning.

Beauty routine diversificationThe globalisation of the cosmetics marketis bringing to light specific and sometimeshighly elaborate beauty routines which canenrich the global market. Women in SouthKorea for example attach particular impor-tance to skin purity, and use more than sixproducts on average in the evening andmorning. Brazilian women apply around fiveproducts to wash, style and embellish theirhair.

FACIAL SKINCARE FOR MEN:DIVERSITY INPURCHASING BEHAVIOUR

Mens skincare penetration rate

Number of products used in skincare routine

by men who are facial skincare users

Source: 2005 Asia Study by LOral, on a group of

middle and upper class men aged 15 to 49.

Annualnumber ofunitspurchased

3.3 4.7 4.9

25-39years:E40.3

60 yearsand over:E87.3

40-59years:E73.0

2.3

Under25 years:E25.1

FACIAL SKINCARE: AVERAGESPENDING BY AGE BRACKET

Source: TNS Worldpanel France.

Innovation: continually improving performanceWhere beauty is concerned, innovation is essential. Step by step, major technological breakthroughs are pushing back the limits

of what is possible, and are in turn inspiring new desires for beauty. In colourants, technologies ensure increasing respect for thehair fibre. They also offer colours of unequalled intensity, with application times reduced to new record levels. Anti-ageing skincareproducts are increasingly and measurably effective in reducing wrinkles and enhancing facial firmness. In make-up, innovation isteaming up with seduction for lipsticks which combine comfort and shine while remaining impeccable for hours. Mineral foundationsare innovating too, offering a perfection which is increasingly natural.

Average annual spending(E)

Japan

49%

SouthKorea

94%

China

40%

1.2

1.9

1.8

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Markets

NorthAmerica

65.0

Rest ofthe World

6.9

Japan

(1) Excluding soap, toothpaste and razors. 2008. Provisional estimates. Source: 2008 LOral estimates, manufacturer selling prices.

Human development index(2)

Cosmeticsconsumption

percapitain`(1)

(1) Excluding soap, toothpaste and razors. 2007. Source: 2007 LOral estimates.(2) Source: UNDPHuman Development Report(2007).

113.8

WesternEurope

88.4

COSMETICS CONSUMPTION(1)

(`per capita)

HDI INDEX AND PER CAPITA COSMETICS MARKET IN ASIA

Japan

Singapore

South Korea

Hong Kong

Taiwan

Philippines

ChinaIndonesia

MalaysiaThailand

Vietnam

India

120

100

80

60

40

20

0

0.6 0.7 0.9 1.00.8

A market of the futureIn 2020, the frontiers of the cosmetics market will be very substantially redrawn as a result of the natural increasein population, international migration and rising levels of income in a very large number of countries. The market

will be vaster and more global. Its centre of gravity will have shifted towards the south and east of the planet,

profoundly changing consumer profiles and leading to an extension and diversification of beauty needs.

BREAKDOWN OF THE WORLDWIDECOSMETICS MARKET

BY GEOGRAPHIC ZONE IN 2008(1)

32%WesternEurope

35%Rest ofthe World

20%North

America

13%

Japan

Consumption growth supported by

rising income

Consumption of cosmetics products in thenew markets remains on average 13 timeslower than in markets in the developed coun-tries. Nevertheless, it is constantly growing,mainly as a result of rising levels of income,particularly in the middle classes.

The new markets becomethe worlds number 1 consumption zone

Brazil and China become the 3rdand 4th largest cosmetics marketsin the world

In the space of 10 years, the worldwide cos-metics market Top 10 has been substantiallychanged by the growth of the emergingmarkets, and particularly the BRIMC(1) coun-tries. China, eighth in 1998, became thefourth largest market in 2008. Brazil is now

in third place. Lastly, Russia is now one ofthe worlds top ten markets.

WORLDWIDE COSMETICS MARKETTOP TEN (2008)

1 UNITED STATES

2 JAPAN

3 BRAZIL4 CHINA

5 GERMANY

6 FRANCE

7 UNITED KINGDOM

9 ITALY8 RUSSIA

10 SPAIN

Source: Euromonitor International.(1) Brazil, Russia, India, Mexico, China.

and the gradual improvement ofliving conditions

Comparative trends in cosmetics consump-tion per capita in Asian markets and in thehuman development index (HDI) in thesecountries suggest that certain factors linkedto living conditions, such as life expectancy,access to education, urbanisation or evenmobility also contribute to cosmetics marketgrowth.

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Chinese women of 20-24

Chinese women of 45-50

Source: 2008 LOral study of skincare and skin cleansing use

by urban women aged 15-50.

USE OF COSMETICS PRODUCTSBY CHINESE WOMEN

Facialtonic lotion

70

60

50

40

30

20

10

0

as %

Complexionunifying cream

FacialUV protection

Over 60 years

45-59 years

30-44 years

20-29 years

Under 20 years

330 millionyoung seniors

20202005

AGE PYRAMID TREND IN CHINA(2005-2020)

Source: Population Division of the Department of

Economic and Social Affairs of the United Nations Secretariat,

World Population Prospects.

60% of city-dwellersAccelerated urbanisation, particularly in theemerging countries, is generating growingpollution. An increase in skin problems is fore-seeable over future years, particularly in themajor urban centres in the south of the planet.Today, 36% of Brazilians and 27% of Indiansare already affected by oily skin problems, but

only 9% of Europeans.

about 50% ofconsumersin hot climatesBy 2020, the centre of gravity of the world-wide cosmetics market will very probablyhave shifted towards the south and east of

the planet. Market trends will develop in hotclimates which generate specific needs.

In Brazil, the humidity of the tropical climateincreases the frequency of shampoostoas much as twice a daycompared withthree times a week in Europe. More than90% of the population use shampoos. 61%of women use a no-rinse conditioner forhair which is made unruly by the humidity.

The continuous process of perfecting hair-care is one of the keys to success in thesemarkets.

UV radiation is considerably stronger in Asia

than in Europe. Solar radiation levels in Sin-gapore are five times higher than in Paris.Once again, devising new solutions for UVprotection and controlling pigmentation,and particularly the appearance of blem-ishes, are major challenges.

is appearing. Cosmetics are amongst thefirst consumer products that the new middleclasses usually want to buy themselves.

Young Chinese women today use moreproducts on average than older women.These young women, who will be 40 in2020, will very probably have kept their con-sumption habits.

1 billionyoung seniors

Today, there are large numbers of seniors inthe developed countries. But ageing is alsoaffecting the emerging markets: in 20 yearstime, the median age of the Chinese popu-lation will have reached 40. A new genera-tion of uninhibited and individualisticyoung seniors, aged between 45 and 59,

In 2020

23%31%

14%

15%

22%

27%

24%

16%

17%11%