L’Oréal – Is China worth it?

According to Financial Times, women of different nationalities spend different amounts of time on their daily beauty routine. They also have different habits. For instance, Japanese women generally apply mascara several times more compared to European women. Korean women use the most creams and cosmetics on their face at any one time (a staggering 25 products). Chinese women often incorporate massage techniques into their beauty routine.

How does one come to possess this information? By founding evaluation centers that in short, are bathrooms equipped with cameras. This is what the French beauty giant L’Oréal does to gain information on consumers. Equipped with their data L’Oréal and other cosmetics companies have emerged on to the Chinese market. According to Euromonitor research firm, the Chinese cosmetics and skincare market’s yearly value is approximately 25.9 billion dollars. The Economist points out that it is the third-biggest cosmetics market in the world.

123Yet, according to The Financial Times, L’Oréal announced in January that it would be pulling back its Garnier brand from China and instead focusing on L’Oréal Paris and L’Oréal Maybelline brands. Only a week earlier American competitor Revlon announced its withdrawal from the Chinese market.

Is the Chinese economic growth slowing down or did the cosmetics companies just get trampled by competition?

Both, it seems. While L’Oréal is still the largest foreign cosmetics company in China (it has an 11 % share of the Chinese market), something clearly went wrong with Garnier. Chinese consumers want either cheap products, or high-end products that work. According to an interview of research firm Ipsos’ associate director Bertrand Ternat in the South China Morning Post, Garnier didn’t fit into either category; it was sold at supermarkets which means it didn’t appear high-end enough to justify its somewhat high price.

What about the competition? L’Oréal has had to face domestic competitors as well as South-Korean competitors. Korean brands are gaining momentum in Europe as well as China. Advertising Age points out that in addition to being reasonably priced and innovative, Korean products are cleverly targeted to people who like K-Pop or Korean soap-operas. On top of all this competition, online shopping in general is continuing to undermine cosmetics counters’ sales.

L’Oréal and its Korean competitor Kosé

L’Oréal and its Korean competitor Kosé

There’s also the fact that China’s economic growth has slowed down a little, and it has affected the consumers’ behavior. Consumers are pickier, and will only pay high prices for products that deliver. Plus, there are other hiccups on the way. The Economist states that as China is the only country in the world that requires animal testing of cosmetics products, it will add costs, not to mention the fact they might taint the company’s image elsewhere.

So what’s next for L’Oréal? According to Bloomberg Businessweek, the company is moving forward and attempting to seize a large portion of facial mask sales, which in China is one of the beauty market’s fastest-growing areas. In January L’Oréal went ahead and acquired Hong Kong -listed company Magic Holdings for 840 million dollars. This will surely bring more business back to L’Oréal and further improve their performance. Euromonitor estimates that China’s cosmetics market will grow 8% this year.

So, China is definitely worth it. But it has taken much more effort than L’Oréal predicted, and odds are it will probably continue to do so.

 


 

Sources:

A world-wide approach to beauty rituals. http://www.loreal.com/research-innovation/when-the-diversity-of-types-of-beauty-inspires-science/a-world-wide-approach-to-beauty-rituals.aspx. Read 16.3.2014.

Because it’s no longer worth it. The Economist. http://www.economist.com/news/business/21593466-foreign-cosmetics-makers-are-scaling-back-their-ambitions-china-because-its-no-longer-worth. Read 16.3.2014.

Brands get up close and personal. The Financial Times. http://www.ft.com/intl/cms/s/0/f4a691ee-d6ef-11df-aaab-00144feabdc0.html. Read 16.3.2014.

Chinese Opt For Korean Imports Over Western Beauty Brands. Advertising Age. Http://adage.com/article/global-news/chinese-opt-korean-imports-western-beauty-brands/291486/. Read 17.3.2014.

Financial Times: Länsimaisia kosmetiikkayhtiöitä vetäytyy Kiinasta – kauppa ei käy. Http://yle.fi/uutiset/financial_times_lansimaisia_kosmetiikkayhtioita_vetaytyy_kiinasta__kauppa_ei_kay/7016153. Read 16.3.2014.

Foundations of Marketing. John Fahy & David Jobber, 2012. McGraw-Hill Education.

L’Oréal Acquires Major Chinese Beauty Brand. Bloomberg Businessweek. http://www.businessweek.com/articles/2014-01-16/loreal-acquires-chinese-beauty- brand-magic-holdings-for-840m. Read 17.3.2014.

L’Oreal brand and Revlon call time in China. South China Morning Post. http://www.scmp.com/business/companies/article/1404118/loreal-brand-and-revlon-call-time-china. Read 17.3.2014.

L’Oréal pulls back from China market. The Financial Times. http://www.ft.com/intl/cms/s/0/8f188216-782b-11e3-a148-00144feabdc0.html?siteedition=uk. Read 16.3.2014.

Pictures:

davidthiel. http://www.flickr.com/photos/davidthiel/. (license https://creativecommons.org/licenses/by/2.0/)
Dharbigt Maersk. http://www.flickr.com/photos/ajax/. (license http://creativecommons.org/licenses/by-nc-sa/2.0/.)

 

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One Response to L’Oréal – Is China worth it?

  1. sennikotomaa says:

    Never thought properly the size of the beauty market of China. Interesting….

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