Price increase, high-end, investment in China … We read these keywords in the financial reports of international beauty giants.
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Recently, L ‘Oreal, Estee Lauder, Shiseido, Amore Pacific and other beauty industry giants have released financial reports, from which we can get a glimpse of the future changes in the beauty market.
China market, with its vast territory and rapid development, was once a bright spot in the financial reports of international beauty giants, and even became the second center of the whole group outside the local market. However, in the past year, due to the epidemic, offline retail performance was not satisfactory, consumer confidence decreased, and the overall performance of the beauty market in China was not good.
According to the data released by the National Bureau of Statistics, in 2022, the total domestic retail sales of cosmetics was 393.6 billion yuan, down 4.5% year-on-year. This is also the first time that the total retail sales of cosmetics has experienced negative growth in the past 10 years.
This trend is also directly reflected in the financial report of the beauty group which regards China as its core market.
In the six months to December 31, 2022, Estee Lauder’s total revenue dropped by 14% year-on-year, and its net profit halved. The financial report pointed out that it was mainly due to the obvious impact of the epidemic on the Asia-Pacific tourism retail, especially the mainland market in China.
Coincidentally, in 2022, the net profit of Amore Pacific Construction Group, which is still not out of the shadow of the epidemic, nearly halved, down 48.9% year-on-year, and its revenue also dropped by 15.6%. Under the strong performance of double-digit growth in North America and Europe, 60% of the sales in the Asia-Pacific region came from the China market, and the revenue in the China market, which became a burden, fell by 30%.
Although Shiseido Group maintained net sales and core operating profit growth of 5.7% and 20.6% respectively in 2022, its net profit returned to its mother declined by 27.1%. Among them, the revenue of the two pillar markets in Japan and China decreased by 8.2% and 6% year-on-year. However, China market continues to be the largest market of the Group with a share of 24.2% of the Group’s total revenue.
Under a downward trend, only the L ‘Oré al Group has outstanding performance.
L ‘Oré al Group released its 2022 financial report, which showed that its revenue increased by 18.5% year-on-year, and still increased by 23.4% compared with 2019, and its net profit increased by 24.1%. Among them, North Asia’s revenue increased by 14.8% year-on-year, and China’s online sales increased by double digits despite the epidemic. Especially in the field of high-end beauty, the market share of L ‘Oré al China exceeds 30%.
Although the overall performance of the China market was poor last year, the above-mentioned beauty groups are still optimistic about the future possibilities after the China market recovers, and actively invest more in new development directions.
Shiseido Group predicts that the annual sales in China market will increase by 8% in 2023. At the same time, Shiseido Group stated in its latest medium-term strategy "SHIFT 2025 and Beyond" that it will expand its brand portfolio and develop new fields in China.
In fact, Shiseido has been laid out from these two aspects since last year. In August, 2022, after completing the relevant regulatory filing, Ziyue Fund, which was exclusively funded by Shiseido China, invested nearly 100 million yuan for the first time to lead the investment in Jiangsu Chuangjian Medical Technology Co., Ltd., a collagen biomaterial enterprise. In the same year, INRYU, the law of oral beauty brand flow, and SIDEKICK, a men’s skin care brand, officially entered the China market.
In addition to the main business of skin care products and cosmetics, Amore Pacific is also interested in introducing new brands to find new growth points. In December, 2022, Amore Pacific Construction Group said that she would revive GoutalParis, a French perfume brand acquired eleven years ago, and planned to introduce it into the China market.
Perfume fragrance is undoubtedly a hot track in China beauty market in recent two years. The rise of local brands such as Watching Summer and Wenxian DOCUMENTS, as well as the opening of overseas high-end perfumes such as L’Artisan and Penhaligon’s by Artisan prove that there is still considerable room for growth in this segment.
It is worth mentioning that last year, L ‘Oré al also targeted the development of local fragrance field in China. In September 2022, Shanghai Meicifang Investment Co., Ltd., a subsidiary of L ‘Oré al China, announced a minority investment in Wenxian DOCUMENTS. This is also the first venture capital investment of the American side in China since its establishment in early May 2022.
Like Shiseido’s strategy, in addition to local investment, L ‘Oré al Group also introduced a new French luxury cinema brand Carita CARIDAE in August 2022. At present, the brand has opened one boutique in Beijing, Shanghai, Shenzhen and Nanjing.
L ‘Oré al is also deepening the construction of local upstream supply chain. In October of the same year, L ‘Oré al expanded Suzhou Shangmei factory, its clean workshop was officially opened, and the intelligent operation center also broke ground.
In August, 2022, Estee Lauder introduced the hair care brand Aveda to China, and also strengthened the construction of local teams from the upstream supply chain and domestic tax-free channels.
In December 2022, Estee Lauder China Innovation R&D Center was opened in Shanghai. As early as 2005, Estee Lauder R&D Center was established in Shanghai, and was upgraded to Asia-Pacific R&D Center of the Group in 2011. The upgraded China Innovation R&D Center will become an integral part of the group’s R&D network covering Asia, North America and Europe.
Recently, Estee Lauder also announced the establishment of Estee Lauder Tourism and Retail Services (Hainan) Co., Ltd., and the headquarters of the group’s tourism and retail in China will be located in Hainan Free Trade Port. This may help Estee Lauder coordinate and control the huge price difference between tax-free channels and tax-paid channels. For example, according to Xiaohongshu netizens, Estee Lauder in Hainan recently launched a 40% discount on small brown bottles. In the case that the regular price of 100ml small brown bottles in Tmall flagship store is 1870 yuan, two bottles in Hainan duty-free channel only need 756 yuan.
For these beauty groups that have been rooted in China for a long time, the challenge of the China beauty market after a cold rejuvenation is still not small. In order to make up for the lost profits, price increase has become the most direct strategy for many brands to increase their income in the short term. Many international beauty brands, such as Estee Lauder, Lancome, Chanel, Dior and Guerlain, have raised the prices of their products since February 1st.
To sum up, it is the common strategy of international beauty group in China at this stage that high-end brands continue to pay a premium to improve their profit margins, new brands explore growth opportunities in sub-sectors and build local supply chains.