Losing Face: Western Beauty Brands Struggle in China
Beauty may be only skin deep, but the profits are not.
Western luxury brands are finding that increasingly sophisticated Chinese consumers are no longer willing to pay a premium just to get a European or American beauty product: it has to deliver better performance to justify the expense.
This is a classic lesson of global marketing. Initial fascination with better quality and variety soon gives way to indigenous competition and a sense, especially acute in China, that the consumer is being ripped off. Given the sorry hundred plus year history of western businesses taking advantage of the Chinese, these sensitivities are particularly powerful. In addition, the anti-corruption campaign of the new Chinese leadership has made gifts of luxury items suspect for the time being - especially for government officials and their spouses, a not-insignificant market segment.
L'Oreal, the prestigious French brand has been the latest to announce retrenchment, but even mass market entries like Revlon are reconsidering their strategy. This is part of a broader realignment based on global economic conditions. The Chinese, too, have suffered as the western economies continue to languish. Even Walmart and KFC have had to face the changing conditions that affect growth prospects. Even Apple has experienced relatively disappointing results as the unfettered demand of the past couple of decades moderates in tune with global cycles.
The harsh reality is that communications technology has given Chinese consumers enough information to become more informed customers. No one can take them for granted anymore. JL
Lina Saigol and Patti Waldmeir report in the Financial Times:
Chinese
consumers are no longer willing to pay a premium for a western brand unless it
is demonstrably better. It is not that
easy to grow in China.
L’Oréal has
decided it is just not worth it to sell its Garnier products in China.
The French cosmetics and skincare group on Tuesday said it would halt sales
of its Garnier beauty and hair products in China.
The announcement comes just a week after US rival Revlon, a much
smaller player in the China beauty products market, said it would withdraw from
the country and cut 1,100 jobs.
L’Oréal, one of
the leading foreign cosmetics companies in China, said it would focus on its two
other mass market brands in China: Maybelline, which is mainly make-up and
L’Oréal Paris, covering skincare, make-up and haircare.
The group, entered the Chinese mainland in 1997, also has a large luxury
portfolio, including Lancôme cream.
Garnier accounted for just 1 per cent of L’Oréal’s total sales of €1.5bn in
China in 2012.
Pablo Zuanic, consumer goods analyst at Liberum Capital saw the move as
China-specific and not a signal that the cosmetics company intended to
concentrate its portfolio in other emerging markets: “This is not a big concern.
Unlike skincare, where they are big, L’Oréal is small in haircare in China.
They’ve recognised that P&G and Unilever are well ahead in haircare.”
Shaun Rein, analyst at China Market Research in Shanghai, said consumers
viewed Garnier as a “cheap L’Oréal”.
“Garnier is not cheap enough and it’s not luxury enough.
Vera Wang of Euromonitor added that “Garnier was targeted at the mass
skincare market in China . . . and was not its flagship brand.”
China’s $25.9bn cosmetics market is the third largest in the world and is
expected to grow 63 per cent for the five years to 2015, according to consumer
research firm Euromonitor.
Skincare is the dominant category and is one in which L’Oréal is a leading
player.
L’Oréal said in its third-quarter earnings statement that the market in China
was “slowing . . . but still dynamic,” and analysts say strong growth is still
predicted in premium sectors of the market.
Competition is growing from domestic and South
Korean brands in the mass market segment of the mainland cosmetics
market. Some foreign beauty brands have also struggled to compete against
discounts offered by online retailers on higher-end cosmetic brands such as Dior
and Estée Lauder.
Procter & Gamble
said in May that it was losing market share in China in its skincare
business, while Avon
Products, which sells cosmetics directly to consumers, said in October that
possible fines related to bribery probes in China and elsewhere might hurt its
profits.
Luxury cosmetic brands have not been hit as hard as other high-end products
by the Chinese government’s austerity programme. Goods such as watches and
costly wines and liquors are traditionally given as gifts to government
officials, or consumed at government banquets, which have been widely scaled
down since the government of Xi Jinping enforced a crackdown on conspicuous
consumption.
You made my day! I am very happy and relaxed too that I find this blog. I was looking for the matter discussed in blog post. If you have some more blogs on the material please share those as well. Thanks a lot and keep sharing such useful information.
Western beauty brands are actually pulling out of China due to consumer complaints in the West that these companies are being forced to practice animal cruelty in the Chinese market: http://eluxemagazine.com/magazine/cruelty-in-china/
As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance. Learn more...
3 comments:
You made my day! I am very happy and relaxed too that I find this blog. I was looking for the matter discussed in blog post. If you have some more blogs on the material please share those as well. Thanks a lot and keep sharing such useful information.
Western beauty brands are actually pulling out of China due to consumer complaints in the West that these companies are being forced to practice animal cruelty in the Chinese market: http://eluxemagazine.com/magazine/cruelty-in-china/
Les suggestions impressionnantes et puissantes de l'auteur de ce blog me sont vraiment utiles. Acheter cialis générique
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