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Beauty, Russia's Recession-Proof Industry

Despite the ruble's freefall, a shaky economy and growing international isolation, cosmetics companies and the beauty industry at large can rest easy that Russian women will buy what they're selling.

In Lipetsk, Russia
In Lipetsk, Russia
Anastasia Yakoreva, Nina Vazhdaeva

MOSCOW — Given the economic crisis and the ruble's freefall, managers of major international cosmetic brands are in a panic, fearing that the Russian beauty market will implode. And it would be an enormous loss. Researchers recently reported that the average Russian woman spends as much on cosmetics as the average Italian woman, despite earning only a quarter as much. There are also twice as many Russian women as Italian women.

But if past Russian crises are any indication, cosmetics manufacturers have little reason to worry. According to economics researchers, the cosmetics industry in Russia emerged from the 2008 global economic crisis without any losses.

"Russian women will forgo eating out, vacations and buying other products so that they can spend what money they do have on their own beauty," says Alsu Razokova, editor-in-chief of beauty magazine Les Nouvelles Esthetiques.

A recent report on cosmetic usage in Russia found that 50% of Russian women use masks and special cleansers (up from 25% in the 1990s), 40% use special eye cream (compared to 10% in the 1990s), and the number of women prepared to pay upwards of $100 for cosmetics has increased substantially. "The number of women who go to beauty salons has increased from 4% in 2000 to 40% in 2014," the report said.

Russia's chest

The future looks equally bright for those in the plastic surgery field. The industry has already grown substantially. In 2013, there were 93,000 plastic surgeries in Russia, 16% of which were breast enlargements; nose jobs followed as the second-largest enhancement category.

Counterintuitively, the crisis has actually been good for this industry. Just before the new year, the number of clients doubled at the Platinental Aesthetic Lounge, a plastic surgery clinic. "On the one hand, clients are afraid that prices will increase, so they are rushing to do surgeries that they have already planned," says clinic president Andrei Iskornev. "On the other hand, they are spending the money on themselves that wasn't enough anymore for an apartment or a car."

Iskornev also says that the client base has expanded as a result of the ruble's devaluation. Plastic surgery now costs just half as much in Russia as it does elsewhere in the world, and people fly to Moscow specifically to get these less expensive procedures.

At the Beauty Inn Lounge, management has noticed an uptick in male customers since the beginning of the economic crisis. They are particularly interested in treatment for excessive sweating.

Part of the reason that salons still have a solid client base is that prices haven't gone up, in part because of high competition and also because of the decreasing incomes of clients. Salons are afraid of raising prices despite rampant inflation elsewhere. Among the salons we spoke with, none had raised their prices more than 15%, and many hadn't raised rates at all. Which doesn't mean that all of the salons can afford to eat the difference. The director of Beauty Inn Lounge thinks some salons do risk going out of business.

One way women can stay beautiful without breaking the bank is to go to private aestheticians who work out of their homes and usually charge less. "I try to study the salon prices and charge clients at least 20% to 50% less," explains Elena Stolyarova, who offers waxing services from her home. “Now that I have women coming who used to get their waxing done in salons, I have about 20% to 30% more clients. This crisis is helping me expand my market."

Always enough for makeup

It appears that cosmetics are the very last product that Russian women are willing to give up. But the crisis in Russia is serious enough that cosmetics manufacturers also realize that they can't raise their prices too much without risking their market share.

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Photo: DryHundredFear

"If our competitors raise their prices for imported products 15% or 20%, we can't raise our prices as much as the change in currency values would justify," explains the top manager at one cosmetics distributor. As a result, end-of-year sales were no less than the previous year, and perfume and cosmetics brands in general reached 150% to 250% of annual sales targets. Almost all of the market actors expect those sales figures to hold in 2015.

The crisis could give a boost to both Russian cosmetics brands and Korean brands. "During the crisis in 1998, there was a blossoming of Russian brands," says Anna Duicheva-Smirnova, marketing director for Reed Exhibition, a company that organizes cosmetics exhibitions. "On the other hand, after the crisis was over they had trouble maintaining their appeal."

The Russian brand Excellance Moscow, which is considered a luxury product despite being a domestic brand, is counting on growing its market share. "It was difficult for a Russian luxury cosmetic brand to gain market share — seven out of 10 people would immediately decline offers to test our products," explains Anna Nazarenko, the company's founder. "Now every other person who listens to our sales pitch asks questions and buys."

There are also opportunities for South Korean cosmetics, which appeared on the Russian market about a year ago and are already earning a reputation for high quality.

"Korean cosmetics are also tied to the currency exchange rates, so they have also gotten more expensive, but they started out two times cheaper than European products in the same quality category," explains Dmitri Kim, founder of an online marketplace for Korean cosmetics called SashaLab.

Prices for the products on SashaLab have increased by 15% to 30% on average — also less than the change in currency exchange rates — and Kim says he has given up part of his margins in an effort to lure new customers. He hopes that consumers who can't afford European products anymore will be drawn to his store.

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