Lower Cosmetics Consumption Despite Growth in Spending
EghtesadOnline: Iranian households’ spending on cosmetics increased in the last Iranian year [ended March 20, 2019] compared with the year before, but consumption shows a decline due to inflation, the Persian economic daily Donya-e-Eqtesad reported, citing the Statistical Center of Iran's data.
In the fiscal 2017-18, Iranian households spent an average of 4.96 million rials on “personal services and cosmetics”, suggesting that each Iranian spent an average of 1.44 million rials on cosmetics, given the 3.43-person size of the households in that year.
According to data provided by the Central Bank of Iran, each dollar was exchanged at 40,450 rials at the market exchange rate in the fiscal 2017-18, which means per capita consumption of cosmetics stood at around $36.6.
Last year (March 2018-19), cosmetics expenditure of each Iranian reached 1.73 million rials, indicating a 20% increase compared with the year before. But such a growth was outpaced by inflation. As a result, Iranians’ consumption of cosmetics saw a decline of 56% to reach $16, given the depreciation of local currency against the US dollar, Financial Tribune reported.
The rial lost about two-thirds of its value against the dollar last year. By August 2019, the rial recovered around 40% of its open market value against the dollar compared to its historical low in September 2018.
In both these years, cosmetics accounted for 1.95% of households’ market basket.
Iran's cosmetics market value last year stood at 147 trillion rials, registering a 20.5% growth from 122 trillion rials of the year before. However, this growth was slower than the inflation rate, suggesting that fewer products were exchanged in this market.
According to SCI, the inflation rate stood at 26.9% last year.
Households in the top 10th decile of the income distribution spectrum (high income earners) spent 15.650 million rials on cosmetics last year whereas those in the bottom 10% of the income distribution (low income earners) spent 1.75 rials (or one-ninths of the richest) on these products. However, cosmetics expenditure accounted for 1.7% of total expenditure of the richest compared with 3.2% of total expenditure of the poorest.
According to Alliance Experts, the Netherlands-based business development group specialized in import and export, Iran is expected to be the fastest growing region in the coming years as the number of potential customers (women above 15 years) is increasing year-on-year.
The Iranian Association of Cosmetics, Toiletries and Perfumery Importers says Iran accounts for $2.1 billion of the Middle East’s $7.2 billion beauty products market—second in the region after Saudi Arabia.
Smuggling reportedly makes up for 63% or two-thirds of the cosmetics market while 90% of the smuggled toiletries are knockoff products made in neighboring countries
According to the Headquarters to Combat Smuggling of Goods and Foreign Exchange, an estimated $1.5 billion worth of cosmetics are smuggled into the country annually.
Contraband accounts for 63% of all cosmetics in the Iranian market, according to the headquarters.
As a high consuming country, Iran is performing poorly in the production sector though. Iran produces only about 20% of the cosmetics and a major part of the cosmetics and skin care products are imported from the UAE, Turkey, France, India, Germany, Switzerland, Italy, Spain, South Korea, China, the UK and Indonesia.
Iranian consumers mostly prefer European products, but because of their lower purchasing power, consumers have moved toward less expensive products with reasonable quality from Asia, such as South Korea and India.