A newly empowered middle class has risen from the rubble of communist Russia with a lust for luxury, according to market research firm Euromonitor.

With the collapse of the Soviet Union, "decades of pent-up demand" have exploded in an orgy of spending, Virginia Lee, senior research analyst at Euromonitor, indicated at a Sept. 9 session of the 2008 HBA Global Expo in New York.

Personal-care sales have been mounting in Russia; in 2006 the market swelled 13 percent to total $9.9 billion in 2007, making it the 9 largest cosmetics and toiletries market in the world, according to Lee.

Tracing the market's growth backward, she noted that in 2002 the market grew 106 percent after ballooning an "incredible" 436 percent in 1998, roughly seven years after the dissolution of the Soviet state.

Under communism the average Russian had little access to Western goods, Lee noted. With the emergence of a middle class with disposable income to spend at a wider variety of stores, "Russians are spending, spending and spending," she said.

Fragrances are leading personal-care sales. Lee suggested that Russians' affinity for fragrance "illustrates their love of luxury."

The "New Russian" or "nouveau riche who has gained wealth in post-Soviet Russian [and] who prefers conspicuous consumption of wealth, including jewelry and luxury cars," is drawn to fragrances, which also are "status goods," she said.

Middle-class consumers are buying fragrances for similar reasons, according to Lee. "Very few people can afford to buy an Armani suit for thousands of dollars, but they can hope that Armani elegance rubs off on them if they buy an Armani fragrance for under $100," she said.

Masstige offerings from Avon and Orlane Paris in particular are popular, thanks partly to the heavy advertising behind them. "Russians believe that foreign-made goods equal quality," Lee noted.

Fragrance accounted for 20 percent of overall personal-care spending in Russia, compared with the global average of 11 percent. Sales of fragrances totaled $2 billion in 2007, up 14 percent from 2006 and 143 percent from 2002, according to Lee.

The high level of spending on fragrance in Russia is "very unusual"; consumers in other countries are investing most heavily in skin-care products, Lee noted.

Globally, skin-care sales constitute 23 percent of the total personal-care market, whereas Russians dedicated 17 percent of their personal-care spending to skin care in 2007, shelling out $1.6 billion overall.

Hair care is another category where "a lot of Russian women - even if they are not well-to-do - are skimping on food and other products in order to buy prestige products," Lee said.

Hair-care sales totaled $1.9 billion in 2007, up 96 percent since 2002. Growth in the category is largely being driven by demand for novelty products such as hair masks and conditioners, Lee said.

Sales Of Depilatories, Sun Care Growing Fast

Meanwhile depilatories and sun care products have accounted for the largest growth since 2002. The arrival of female-specific razors and shaving creams in 2004 helped drive sales up 201 percent between 2002 and 2007, the analyst noted.

Sun-care offerings also have seen significant growth due to increasing education about skin cancer and the importance of UV protection by the media and manufacturers, as well as consumers' increased financial means allowing them to travel to sunny climates in the Middle East, Africa and Asia Pacific, Lee said.

Sun-care sales in Russia have climbed 145 percent from $40 million in 2002 to $99 million in 2007.

Men's grooming products have also experienced a surge in popularity in Russia, with male consumers between the ages of 24 and 40 placing particular emphasis on healthy hair, clear skin and the use of fragrances.

Russian men spent roughly $992 million on personal-care products in 2007, a 109 percent increase from 2002, with sales of premium items outpacing those of their mass counterparts.

Sales of men's personal-care items account for 10 percent of the Russian cosmetics and toiletries market overall, versus the global average of 8 percent.

Much Improved, But "Not Completely Rosy"

Lee said that Russia "has bounced back nicely" from the economic turmoil and food shortages of the years following the disintegration of the USSR.

Thirty-three percent of Russian households reported an annual income of between $10,000 and $25,000 in 2007, versus only 4 percent in 2002.

According to a 2007 report by Forbes magazine, 74 billionaires now live within Moscow limits - more than in any other city. New York, second in that list, is home to 71 billionaires.

Nevertheless, "it's not a completely rosy picture for Russia," Lee said.

Unlike other emerging markets, Russia has a very high mortality rate, the population having decreased by about 700,000 residents annually in the past couple of years, she said.

Russian men face a particularly somber reality, with rampant alcoholism and depression pushing the average male life expectancy down to 59 years in 2007, compared with 75.2 years for men in the U.S.

Birth rates are low as well; the Russian government has begun adopting measures to incentivize couples that have more than one child.

Lee acknowledged that "obviously the strong GDP growth for Russia cannot go on forever."

Euromonitor expects 22 percent growth in personal-care sales in Russia from 2007 to 2012 - "a fairly tepid" projection compared with the levels of growth the market has experienced in recent years.

In contrast, Euromonitor is forecasting 43% growth in Brazil's personal-care market by 2012, and 66 percent growth for China in the same period.

- Louisa Tavlas (l.tavlas@elsevier.com)

With Communism Down, Fragrance Sales Are Up As Russians Gorge On Luxury

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