As the COVID-19 pandemic wreaks havoc on the global economy, cosmetics brands do not stand to lose as much in brand value as other sectors, largely due to a strong financial performance in the sector between 2018 – 2019 and sustained demand in lockdown conditions for most segments, according to the latest Brand Finance Cosmetics 50 2020 report – ranking most valuable brands and analysing key trends in the industry. The sector is also reaping benefits of high investment into Research and Development in the past. As an industry dominated by large groups, cosmetics brands are primed to diversify their risks by spanning different sectors, markets, and geographic reach.
Annie Brown, Senior Consultant at Brand Finance, commented:
“While Brand Finance predicts the cosmetics industry to face limited impact to brand value overall due to COVID-19, some categories within the sector – such as colour cosmetics and fragrances – have taken a worse hit. However, the industry will be supported by its essential items, such as skincare, personal care, and home treatment products, which have seen either consistent or significantly increased demand during the lockdown.”
The cosmetics sector is largely boosted by online sales, which performed particularly well in China during the COVID-19 outbreak, with brands strengthening their position in the market by leveraging digital tools to virtually engage with consumers. As Asia has been a key growth market for cosmetics in recent years, COVID-19’s impact on sales is likely to be temporary, allowing the industry to recover with a relatively low amount of damage. Indeed, potential opportunities to cosmetics brands may arise from new consumer behaviours, allowing agile businesses to benefit further from social media influencers, explore channels in both B2C and B2B, and accelerate their digital transformations.
Although the cosmetics industry as a whole is well-primed to face the threat posed by Coronavirus, direct-to-consumer brands with a weak online presence, unstable delivery processes, or focus on specific geographical markets are undoubtedly more likely to lose out in brand value if they cannot catch up with their digital counterparts and adapt flexibly to new consumer shopping habits.
Looking beyond cosmetics, the value of the 500 most valuable brands in the world, ranked in the Brand Finance Global 500 2020 league table, could fall by an estimated US$1 trillion as a result of the Coronavirus outbreak, with sectors such as airlines and retail losing up to 20% of cumulative brand value.
Brand Finance has assessed the impact of COVID-19 on brands based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. The likely impact on brand value was estimated separately for each sector. The industries have been classified into three categories – limited impact (minimal brand value loss or potential brand value growth), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the level of brand value loss observed for each sector in the first quarter of 2020.
Because you’re worth it: L’Oréal most valuable
L’Oréal is the world’s most valuable cosmetics brand, increasing in brand value by 13% to US$11.7 billion, largely boosted by a steady uplift in sales across key markets over the last 10 years, particularly in Asia where over 20% of net sales are concentrated. In North America, the L’Oréal Active Cosmetics Division observed a similar sales uplift of nearly 20%, particularly driven by CeraVe, SkinCeuticals, La Roche-Posay, and Vichy, which are all delivering double-digit growth. In addition to its impressive portfolio of brands, the L’Oréal group has also benefited from its digital transformation strategy, exemplified by its success in Eastern Europe, where e-commerce has grown by a whopping 50%.
Annie Brown, Senior Consultant at Brand Finance, commented:
L’Oréal has spearheaded digital transformation in the cosmetics industry by developing technologies to better analyse and adapt to their customers’ needs. The brand has subsequently been able to personalize their products, most recently developing AI technology for custom-made foundations which consumers can order online. While quality and pricing remain central to ensure brand loyalty, L’Oréal has shown that cosmetics brands which capitalise on digital presence are most likely to outperform competitors, particularly during the COVID-19 crisis.
Similarly to L’Oréal, brands concentrated at the top of the Brand Finance Cosmetics 50 2020 ranking had increased in brand value due to an uplift in sales, particularly Estée Lauder (up 27% to US$6.3 billion) and Clinique (up 15% to US$6.2 billion). While Estée Lauder have reported a net loss of $6m due to the virus outbreak, online sales have skyrocketed, as well as the sales conversion rate for travel retail locations, where consumers are eager to purchase products while they can.
Starr power: SK-II and M.A.C
Japanese skincare brand, SK-II has delivered consistent growth over the last year as the fastest-growing brand on the Brand Finance Cosmetics 50 2020 ranking for the second year running, rising six spots to 21st position with a 33% growth in brand value to US$2.4 billion. Innovation – such as limited-edition facial treatment products – has propelled the brand forward, boosting organic sales in the beauty segment for parent company, Procter & Gamble. With its highly sought-after skincare ranges picking up momentum year on year, SK-II’s brand value is expected to continue growing in the coming year.
In 11th position on the Brand Finance Cosmetics 50 2020 ranking, M.A.C (up 32% to US$4.4 billion) has also expanded global sales through a modern, digital marketing strategy. Since 2018, the brand has formed several global influencer partnerships with high profile ambassadors such as Maine Mendoza and Patrick Starr collaborating with the brand to develop their own collections, all of which have been met with global success. However, M.A.C product focus on colour cosmetics may make the brand more vulnerable to the COVID-19 outbreak and the effect of lockdown on demand in the segment.
Sofina & Make Up For Ever among new entrants
As one of Japan’s top selling beauty brands, Sofina (45th position) enters the Brand Finance Cosmetics 50 2020 ranking for the first time, largely thanks to their new range, Sofina IP which has sold over 3 million units since its launch in 2016, particularly boosted by Sofina IP Face Essence, which is the bestselling beauty serum in Japan. The brand’s success has seen them expand into new Asian markets, such as China and Singapore, which is set to boost the brand’s value further over the coming year.
Another worthwhile mention is Make Up For Ever (50th), which enters at the bottom of the ranking. Backed by LVMH and boasting an impressive collection of high-quality products – including the popular HD long-lasting concealer and Reboot foundation – the brand is positioned for further year-on-year success.
Neutrogena strongest but tarnished by Johnson & Johnson
Aside from calculating overall brand value, Brand Finance also determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. Along with the level of revenues, brand strength is a crucial driver of brand value.
According to these criteria, Neutrogena is the strongest brand in the Brand Finance Cosmetics 50 2020 ranking, for the second year running, with a Brand Strength Index (BSI) score of 89.0 out of 100. Neutrogena’s consistently strong performance is largely attributed to the brand’s loyal customer base, spurred by their ability to position themselves at the forefront of popular culture and adapt to online trends – using beauty influencers, celebrities, and targeted social media advertising in their global marketing campaigns.
Despite this, Neutrogena has marginally decreased in brand strength since last year, losing its elite AAA+ rating due to extensive legal issues that have been plaguing parent company, Johnson & Johnson over the last few years. Ongoing lawsuits surrounding asbestos are continuing to take a reputational toll on the brand, which is subsequently reducing demand for testing - a crucial way for cosmetics brands to generate trust.
Two brands stand out this year for an extraordinary year-on-year improvement in brand strength. In a true brand revival story, L’Oréal’s Elseve/Elvive has gone from 19th to 2nd rank – right behind Neutrogena, driven by higher promotion scores on the back of a successive chain of marketing campaigns in the past two years. Similarly, Chinese brand Rejoice has jumped from 31st to 8th in the brand strength ranking, having improved its BSI score by over 5 points.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 50 most valuable cosmetics brands are included in the Brand Finance Cosmetics 50 2020 report.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Cosmetics 50 2020 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the severity of enterprise value loss observed for the sector in the period between January and March 2020
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.