by Azoya Consulting
Around the world, beauty is big business.
L'Oreal released annual report on their global operation last month, and from their impressive figures, we saw some new trends in China's beauty markets. In this article, we share some findings we observed. In case you haven't read their report, you can find it via this link.
The biggest global beauty empire
In 2017, L'Oreal recorded over 26 billion Euro of revenue globally, with 4.8% of like-for-like sales growth. In L'Oreal's footholds Western Europe and North America, they yielded 8.1 billion Euro and 7.3 billion Euro respectively. The third largest markets is Asia Pacific, which accounts to 23.6% of total revenue.
Asia Pacific is the fastest growing market of L'Oreal, which had 12.3% of YoY growth, compared to 2.6% and 1.7% respectively in Western Europe and North America.
If APAC region continues strong performance of over 10% of growth per year, it will become the biggest market for L'Oreal in the next 2 year.
In the analysis section of L'Oreal Global Advance, L'Oreal highlighted 3 factors that are driving the corporate's success in the competitive market - e-commerce, travel retail, and China focus.
How important are Chinese consumers
China’s cosmetics market continues strong growth in 2018. China’s Bureau of Statistics claims that in January and February of 2018, cosmetics retail sales grew 12.5% on a year-on-year basis. In 2017, total retail sales of cosmetics products in China reached 251 billion RMB, with a 13.5% year-on-year growth. In 2015 and 2016, the growth rate was below 10%.
But for L'Oreal, Chinese potential can not simply be measured by the rising domestic beauty consumption. A lot of sales of L'Oreal was actually coming from Chinese consumers shopping in overseas duty-free stores, high-street shops or department stands. Under this scenario, it is easier to understand that L'Oreal's China strategy is merely just about setting up a China office to handle all the sales in China, but a strategy that focus on the 'Chinese consumers' themselves.
Travel retail is a consistent focus of L'Oreal starting from as early as 40 years ago, and L'Oreal has been optimizing its tactics to offer new technologies and new experiences to customers. Their primary focus is the new customers, and driven by robust Chinese outbound tourism, L'Oreal had now adopted WeChat to target the ever-more affluent Chinese middle-class. Following Chinese tourism footprints, L'Oreal had upgraded bricks & mortar offerings in Western Europe, Hong Kong, and even Bangkok, a city that have millions of Chinese consumers flushing in every year.
E-commerce in China
E-commerce, without doubt, is an important card of L'Oreal. The online revenue growth rate is 33.6% compared to 2016, which account to 8% of group sales. In China, e-commerce sales even account to 26.4%, but we presume this portion to be even higher while a lot of reselling activities and cross-border sales are not included.
In the beginning of year 2018, L'Oreal management team visited Alibaba, JD and VIP, their primary partners in China to exhibit support to the three e-commerce behemoths in China.
The reasons why L'Oreal selected these partners are:
- Deliver service and products cheaply and rapidly
- They can help deepen penetration to lower-tier cities
- Not just selling, but retailtainment
A few years' back, some of the L'Oreal brands were reluctant to sell online via official channel - but now the drastic transformation had certainly showed that e-commerce is not just a sales channel, but a strategy that should be intergated with the offerings to the consumers.
While we didn't see the report to mention cross-border e-commerce, nor observed L'Oreal brands being sold via official cross-border e-commerce channel even though there are booming demands, but interestingly we found that L'Oreal products have entered the Tmall Direct Import's Domestic Section. It seems that the company are trialing with cross-border channels to engage with the cross-border shoppers, although their offerings are still local products. With most of them located in first tier cities with strong purchase power, cross-border shoppers may be an important yet unclear target group for L‘Oreal.
The rise of luxury beauty offering
The explosive of Chinese middle class in recent year also revitalizes L'Oreal luxury offerings. YSL and Lancome have growing awareness and demands in China thanks to successful market education, branding and e-commerce campaigns. We took a look at various Chinese domestic e-commerce platforms, be it cross-border or not, these two brands have always been the platforms' hero products.
The rising of high-end and luxury beauty offerings in China is not just seen by L'Oreal - competitors such as Esteé Lauder, Shiseido, LG Life have also come to notice Chinese consumers favour for their high-end brands such as Tom Ford, Cle de Peau Beauty, Esteé Lauder, IPSA, etc.
The interesting trend in China is the continued consumption upgrade, and the frenzy of Chinese people evolving demands in beauty products is translated by L'Oreal to mass-market brands (Maybelline) continuing to penetrate lower-tier cities, while high-end brands to target the affluent citizens in Shanghai, Beijing, Shenzhen. In each secnario, e-commerce is playing a vital role for L'Oreal to successfully reach the consumers and create a bond.