Nikodem Chinowski: In view of the very high inflation and expected recession, many industries are concerned about demand in the coming months and quarters. Is the cosmetics industry also preparing for a significant drop in purchases?

Karol Szmich: After going through several market downturns, we have learned that the beauty industry is less impacted during recessions than the general economy. This is partly due to the “lipstick effect”. When consumers are faced with financial difficulties, they tend to switch from more expensive goods, like a new dress, to more affordable categories, which still provide a sense of luxury, like lipstick. Secondly, many cosmetics are essential products: shampoo, toothpaste, and body wash are just a few examples. Makeup is considered an essential item by many women and positively impacts their well-being.

In addition, we are observing increased demand from our export markets. Consumers are looking for higher quality at a more affordable price, and Polish companies, especially Delia, excel exactly at that.

So you do not feel a reduced demand so far?

We have not observed a decrease in the quantity of cosmetics sold during downturns, only a decrease of value, as consumers are seeking higher value for their money. For example, they would give up dyeing their hair at a professional saloon but instead buy hair color at a retail store and dye their hair at home, saving on the service. This means that while the professional segment is going to decline, the mass-market segment is likely to increase. We are already observing such results, mostly in the sales of our hair coloring products. The behavior of consumers in many countries is very similar in this respect.

You are exporting your cosmetics to over 60 countries. Do Polish consumers - in the area of the cosmetics market - stand out from other nationalities?

Indeed, we export our products to 60 countries on 5 continents, which provides us with vast knowledge and a broad perspective across the spectrum of various consumer groups. The needs of cosmetics consumers differ significantly between various countries. Delia’s strategy and competitive advantage is that we can quickly adapt to each and every market, which sometimes means redesigning the whole product portfolio. Big multinationals are not as willing to do this or are not as agile. What is specific to Polish consumers, and what we haven’t observed to such an extent anywhere else, is a love of novelties. This results in a shorter product lifecycle and the constant need to develop new products. Moreover, our consumers love local Polish products from Polish companies, which encompass 50% of the market.

Except for the ability to quickly adapt to new circumstances that you mentioned, what is your company’s strategy to prepare for the downturn?

We are adjusting our product portfolio and new product development to better match customer needs during the downturn. Additionally, we are decreasing our stock sizes, which were artificially inflated during Covid due to problems with the supply chain. In case of a negative scenario, the most important factor will be sufficient liquidity and cash reserves.

Do you feel supported by the Polish government? Or have any government programs targeted at companies in Poland also extended to your company or the cosmetics industry? 

No, we are not aware of any government programs targeting companies. Current government programs are aimed at subsidizing households, which, in the short term, could positively impact our company by increasing consumer spending power and increasing consumption, but, in the long term, is likely to further increase inflation.

So what are the biggest challenges for the industry in Poland over the next few years?

The biggest challenges are proposed legal changes concerning raw materials, which are currently being discussed at the EU level. According to various polls, up to 95% of all cosmetic formulations in the EU would have to be changed. We are dedicated to protecting the health of consumers, but the tendency to ban raw materials without performing sufficient studies may mean that the alternatives could be much worse. We have to consider: is it better to use a little amount of already proven preservatives or ban current preservatives and risk that the new ones will not be as effective, bearing in mind that bacterial and fungal toxins have already been already proven to be extremely harmful? Those are very difficult questions and decisions shouldn’t be rushed, as they currently often are, due to political reasons and not scientific ones.

How is the significant influx of Ukrainians - almost 2 million people - onto the Polish market influencing prospects for the market? Do large brands such as Delia view such an event as a gamechanger or does it not have a major impact on the overall prospect?

A significant Ukrainian population existed in Poland long before the war, and we will heartily welcome as many of our Ukrainian brothers and sisters as will be necessary. From a business perspective, Ukrainians make up a valuable part of the workforce and help to reduce labor shortages. But as consumers, they are not a gamechanger, as they are more conservative about spending their money, which is completely understandable knowing that many parts of their country will have to be rebuilt. 

You have been present on the Polish market for over 25 years. The Polish economy and Polish customers have changed dramatically over these three decades. Is the Polish market now as mature and professional today as the market of France, the USA, or the Scandinavian countries?

I can only speak about our industry – in terms of cosmetics the market is mature, consumers have a broad knowledge about the products and choose them carefully. Distribution and retail is at the same level or sometimes even at a higher one. Obviously the purchasing power of the average household is not as high as in Western Europe or the US, but it is growing fast. As a result this will translate into an increase in the value of Polish market.  

Karol Szmich, CEO of Delia Cosmetics

The CEO of Delia Cosmetics since 2015, Szmich has been with the company since 2009, and previously served as COO. Delia Cosmetics is one of the leading cosmetics producers in Poland, exporting to 60 foreign markets and employing 370 people in Poland. Szmich has also been a member of the Supervisory Board of the Polish Union of the Cosmetics Industry (PZPK) since 2021.