Retail sales of cosmetics and fragrances were valued at £1.3bn in 2000, having increased by 3.6 percent since the previous year. UK imports of cosmetics and fragrances reached a value of £737.1m in 2000, with those exported worth £761.6m. While there is still, therefore, a trade surplus, this surplus is declining (although it should be remembered that many of the product movements are intra-company transfers rather than sales).

Cosmetics and fragrances are part of a fiercely competitive global marketplace. Manufacturers have to invest heavily in promoting a constant stream of new products, whilst also striving to maintain brand loyalty for their established lines. In the year to March 2001, £46.8m was spent on main media advertising of fragrances, while £36.9m went on promoting cosmetics.

Expenditure on such non-essentials is discretionary but consumer spending in general is currently rampant. Sales of cosmetics have enjoyed better growth than sales of fragrances, with fine perfumes, in particular, suffering from discounting, accusations of 'rip-off Britain' and the end of duty-free concessions within the EU.

Younger people are the heaviest users of cosmetics and fragrances, so an ageing population is a disadvantage. However, manufacturers have been quick to target the growing number of older women, often with high disposable incomes, with products that appear to promise eternal youth. Consumers seem willing and able to indulge themselves by trading up to innovative, premium-priced products that incorporate anti-ageing enzymes and vitamins. In fact, the divide between medicines and cosmetics is becoming increasingly blurred.

The cosmetics, toiletries and perfumery market is governed by the Cosmetics Directive, and the Seventh Amendment to the Directive is currently being drafted. Its intention is to resolve the issues surrounding the controversial use of animals in testing products. Other future developments that the industry may have to face include the introduction of 'sell by' dates, continuing pressure to avoid the use of PVC (polyvinyl chloride) in packaging, and an obligation to incorporate warnings on labels against possible allergic reactions to fragrances. On a positive note, the so-called banana war has ended, which should see an improvement in trade with the US.

A predicted downturn in the economy does not bode well for the industry, but Key Note anticipates a steady, if modest, growth in the value of the market.