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in the hit tv series "flowers" at the beginning of the year, estee lauder's face cream was a "hot item" in the 1990s and became popular in shanghai. however, reality is in stark contrast to the plot. in the first half of this year, imported beauty brands seem to be slow to sell.

once upon a time, riding on the "east wind" of reform and opening up, international beauty and daily chemical giants such as procter & gamble, l'oreal, estee lauder, and shiseido all rushed into the chinese market. at that time, maybelline's crystal lipstick almost became the makeup enlightenment of girls born in the 1980s. in just a few years, international brands conquered china and once occupied 80% of the market share.

image source: photo taken by reporter zhang jian of meijing (file photo)

by 2024, when international beauty giants are celebrating their 30th or even 40th anniversary of entering china, they are obviously not as glorious as they were in the past. in the past half-year earnings season, international beauty giants collectively "complained about their performance in the chinese market". in the first half of this year, l'oreal's sales in north asia fell 1.7% year-on-year, and shiseido's sales in china fell 7% year-on-year; in the 2024 fiscal year ending june 30, 2024, estee lauder's net sales in the asia-pacific region fell 6% year-on-year, and procter & gamble's organic sales in china fell 9% year-on-year.

in the past year, international beauty giants have faced a more difficult situation in the chinese market: chinese competitors are stronger, consumers are more cautious and difficult to please, and the competition for traffic is more intense. on the one hand, the growth of performance in china has slowed down or declined, and on the other hand, they are "tightening their belts" and cutting business lines, laying off employees, and closing stores.

why are international beauty brands failing in china? why do chinese people no longer like to buy high-end imported goods? how can international giants take the "next step" in the chinese market? the reporter of "daily economic news" combed through the financial reports to find the answers.

l'oréal's global sales exceed 170 billion yuan

the average growth rate is only in single digits

in this semi-annual earnings season, there are some who are happy and some who are sad in the international beauty industry.

from the industry ranking, among the 18 international listed beauty companies counted by the reporter, based on sales in the first half of the year (only beauty-related categories are counted, and the currency unit is rmb unless otherwise specified below), l'oreal firmly sits on the first throne, with sales exceeding 170 billion yuan, and is leading by a large margin. the other four companies in the top five, namely colgate, estee lauder, procter & gamble, and unilever, are all in the 50 billion yuan level, and each company is less than one-third of l'oreal.

performance and ranking of listed international beauty companies in the first half of the year data source: company financial reports, compiled by reporters

(note: in addition to beauty products, some comprehensive consumer goods giants also have other daily necessities or luxury goods businesses. only the beauty-related sub-businesses of these companies are counted here; the financial report caliber of procter & gamble, estee lauder, and coty is the 2024 fiscal year, and this time only their performance in the first half of the natural year 2024 is counted)

there is one company with a market value of 40 billion yuan, which is henkel; there are two companies with a market value of 30 billion yuan, which are beiersdorf and lvmh; shiseido has a market value of 20 billion yuan; coty, puig, natura&co, kao, cove, and lg household & health care have market values ​​of over 10 billion yuan; and amorepacific, kose, and eterne have market values ​​below 10 billion yuan.

in this list, if chinese beauty companies were to be given a position, then proya, the chinese beauty "sales champion" (sales of 5 billion yuan in the first half of the year), would only be ranked 18th, only higher than yte perfume.

from the perspective of growth, the sales of two companies declined significantly in the first half of the year, with cosmos and amorepacific falling by 4.5% and 2.3% year-on-year respectively. it is worth mentioning that this semi-annual report is the first report card submitted by cosmos after "going solo" from johnson & johnson, but the performance is not ideal. in the first half of this year, cosmos' overall sales (including beauty and other businesses) were basically the same as the previous year, but its net profit fell by more than 60% year-on-year.

companies whose beauty businesses remained stable included lg household & health care, natura&co, and procter & gamble, with year-on-year sales changes of -0.6%, 0.1%, and 0.5%, respectively.

on the other hand, beauty companies with growing performance cannot "rest easy", as they are still facing the trouble of declining growth. in the first half of this year, only puig and kose had a year-on-year sales growth of about 10%, while other companies had a growth rate of only single digits. looking back, around 2021, international high-end beauty products experienced explosive growth. for example, l'oréal's sales in 2021, 2022, and 2023 increased by 16%, 11%, and 11% year-on-year respectively. the growth rate of 7.3% in the first half of this year was the first time that l'oréal fell back to single-digit growth after three consecutive years of double-digit "surges".

image source: financial report screenshot

take estee lauder as an example. its sales in fiscal year 2021 increased by 13%, but its sales in fiscal year 2024 (the whole year ending at the end of june 2024) fell by 2% year-on-year, and its net profit plummeted by 60%. therefore, the company's ceo called this fiscal year a "difficult year". shiseido also achieved a high sales growth of more than 12% in 2021, but the growth rate in the first half of this year was less than 3%, and its net profit fell by nearly 100%.

overall, in the first half of this year, international beauty companies collectively said goodbye to high growth, with almost no sales growth of more than 10%, and the average growth rate was only in the single digit. the reporter of "daily economic news" noticed that in the challenging market, the perfume category has better resistance to decline. coty, puig, and yite perfume, which mainly deal in perfume, all achieved significant growth in the first half of the year, and other comprehensive beauty companies also cultivated perfume as a high-potential category. in a recent financial report, l'oreal said that "perfume has once again become the most dynamic category in the high-end cosmetics department"; estee lauder's perfume business is the only category that will grow among its four major product lines in fiscal 2024 (growth rate of 2%).

l'oréal north asia declines

nivea sees strong growth

in the global business of beauty giants, the chinese market is an unavoidable topic. in the past few decades, imported cosmetics have been synonymous with "high-end" and "high-quality" in the eyes of chinese people, and have also driven the chinese market to become the growth "engine" of international beauty groups. however, in the past year, their growth in the chinese market has obviously stalled.

according to data released by the national bureau of statistics, from january to july, the total retail sales of cosmetics in china reached 241 billion yuan, a slight increase of 0.3% year-on-year, and the chinese beauty market has entered an era of slow growth. at a time when chinese consumers are more cautious about buying cosmetics, they are "abandoning" imported cosmetics. according to data from the general administration of customs, from january to july this year, the amount of imported beauty cosmetics and toiletries in the country was us$9.659 billion, a year-on-year decrease of 11.1%.

this can also be confirmed in the financial reports of 18 international listed beauty companies. among the companies that mentioned the performance of the chinese market, there were few positive comments, and most of them used words such as "decline", "weakness", "slowdown" and "downturn".

data on the performance of the chinese market mentioned in recent financial reports of listed international beauty companies source: company financial reports, compiled by reporters

among them, l'oréal's sales in north asia in the first half of the year were nearly 5.5 billion euros, a year-on-year decline of 1.7%, the only decline among all regions. the chinese market is an important support for north asia. specifically, in the first half of this year, l'oréal's sales in mainland china only increased by 0.8%, and fell by 26% in hainan's tourism retail channel. l'oréal said: "the high-end beauty department (l'oréal luxe) was affected by the sluggish market in mainland china and tourism retail, but it progressed well in other regions."

p&g executives said in the 2024 fiscal year performance meeting that organic sales in china fell 9% due to market weakness and unfavorable factors for the sk-ii brand. during this year's 618 promotion, p&g's sales in the chinese market fell sharply compared with last year.

in the first half of the year, shiseido's sales in china fell by 7%, and hainan's tourism retail sales fell by more than 30%. shiseido said that its chinese business is shifting from a growth model driven by large-scale promotions to a more sustainable growth model. it also mentioned the impact of japan's nuclear wastewater discharge on chinese consumers' willingness to buy japanese products.

on the one hand, the high-end beauty model is "failed", while on the other hand, mass products maintain strong resilience. for example, l'oréal, which has a multi-level product line, is more stable than estee lauder, which mainly focuses on high-end lines. for another example, the german consumer goods group beiersdorf stated in its financial report that its mass brand nivea (nivea) had a strong global growth of 11.1% in the first half of the year, offsetting the unfavorable factors of high-end beauty, which was particularly evident in china. however, its high-end beauty brand la prairie (la prairie) sales in china fell by 6%, and hainan duty-free channels fell by 15%.

on the other hand, unilever, which owns skincare brands such as vaseline and ahc, as well as cleansing and care brands such as clear and dove, which sell for less than rmb 100, said it was less affected by the weakness of high-end beauty products. the company's executives said at the earnings conference: "our exposure to high-end beauty products in china is very limited."

half of them are laying off employees and 40% are closing stores

the direct manifestation of the beauty giant's poor global performance is layoffs, cost reduction and efficiency improvement, until it exits the regional market.

since 2024, there have been constant reports of layoffs at international beauty brands, including beauty giants such as estee lauder, sephora (lvmh), unilever, henkel, and cove.

the situation of layoffs in international beauty companies this year was sorted out by reporters based on public information

according to the ranking of cosmetics sales, half of the top ten cosmetics companies in the world have been involved in layoffs since the beginning of this year, and 40% of them have closed stores or withdrawn from certain regions. unilever, which has laid off the most employees, is expected to lay off 7,500 people worldwide, the largest scale of layoffs in the past decade.

the estee lauder group also said in february this year that the group would lay off 3% to 5% of its employees. according to its 2023 fiscal year report, estee lauder has about 62,000 employees worldwide. based on this calculation, the number of layoffs is expected to be between 1,800 and 3,000. shiseido, whose net profit fell by nearly 100% in the first half of the year, announced at the beginning of this year that it would provide an "early retirement" plan for 1,500 employees in japan to cut costs.

the chinese market has also not been able to escape the wave of spending cuts by beauty giants. in recent months, there have been some complaints on chinese social platforms about "violent layoffs" by multinational beauty companies, including sephora's "forced signing of violation forms" and shiseido's "mandatory job changes" and "employees' endless wait for jobs."

more specifically, international beauty giants have launched a wave of store closures in china. according to incomplete statistics from the daily economic news, nearly 10 brands have closed their chinese e-commerce flagship stores in more than half a year, including kose, benefit, nyx and other brands that once set off a craze in china, including l'oreal, shiseido, lvmh, kose and others.

the closure of international beauty brands this year was sorted out by reporters based on public information

in fact, the store closures started earlier. according to incomplete statistics from reporters, in the past three years, nearly 20 brands under groups such as l'oreal, estee lauder, procter & gamble, and amorepacific have closed some online and offline stores one after another.

behind the store closures, many big-name beauty groups are divesting some of their businesses. after selling aesop and the body shop, brazilian beauty giant natura&co is considering divesting most of avon's international business. in may 2024, johnson & johnson sold the remaining 9.5% stake in kenvue to goldman sachs and jpmorgan chase for us$3.647 billion (approximately rmb 26.3 billion).

unilever announced that it will spin off its ice cream business, and after completion it will focus more on the four major businesses of beauty and health, personal care, home care and nutrition. in february this year, procter & gamble sold its sassoon brand and related hair care business in greater china to henkel.

offline is still important

sinking is a new opportunity

from financial report data to market dynamics, it is clear that international beauty giants are facing unprecedented challenges in the chinese market.

fashion industry analyst tang xiaotang told the daily economic news: "international beauty companies have performed poorly in china. on the one hand, they are affected by the market environment and overall high-end consumption is facing challenges. on the other hand, the penetration rate of skin care products in china is very high and has reached a certain level of saturation, which has led to less stockpiling during the promotion period."

wu zhigang, founder of brand consulting agency oib.china, analyzed to reporters:： "it's not just the environmental impact. many international brands have treated china as a 'harvest land' in the past few years and have not carried out effective construction in terms of products and marketing. chinese consumers are already very mature and need to find newer things, but international brands have not been able to innovate, so they are suffering today."

the reporter noticed that most well-known international beauty brands have their own big single products that leave a deep impression on consumers, such as estee lauder's "little brown bottle", sk-ii's "fairy water", lancome's "little black bottle", shiseido's "red waist", la mer's "lady cream", etc. over the years, these star single products have maintained a high visibility in the chinese market, which can be understood as "evergreen", but they are still controversial for "living off their past achievements".

wu zhigang further analyzed that there are also reasons for the failure of channels. "cosmetics itself is a category that creates charm. the purchase of high-end cosmetics is driven by feelings and dominated by offline experience. but in the past few years, consumers have gone offline and overseas less, so the supply of high-end experience is insufficient. on the other hand, although many brands have increased the proportion of online sales, e-commerce is weak in experience, which will overdraw the premium and charm of high-end brands."

image source: photo by lan suying, reporter of meijing (file photo)

the increase in the e-commerce penetration rate of beauty products has, to a certain extent, narrowed the gap in consumer experience between high-end and mass-market products, diluting the core competitiveness of high-end beauty products. in terms of content marketing, live streaming and other aspects, international brands are almost on the same starting line as domestic cosmetics.

however, even if there are short-term setbacks, the long-term growth potential of high-end beauty products is still promising. tang xiaotang said: "the high-end beauty industry itself does not show very linear growth. sometimes it is affected by the economy and fluctuates greatly. therefore, although it has fallen in the short term, it is still much higher than it was ten years ago."

so, what will be the future of international beauty brands in the chinese market? tang xiaotang believes that in the context of slowing consumption growth, the beauty industry may focus on reducing costs and increasing efficiency, and optimizing the brand portfolio, but this does not mean lowering the brand style, but focusing on core and potential brands and maintaining their market positioning. this also explains why international brands still insist on raising prices even in a difficult environment. since the beginning of this year, armani and ysl under the l'oreal group, estee lauder, la mer, mac under the estee lauder group, and shiseido brands have all announced price increases.

another way to maintain brand positioning is still offline experience. "a logo in an offline store can be seen by everyone who comes to the mall." tang xiaotang mentioned that brand exposure brought by natural customer flow is crucial to brand building.

wu zhigang believes: "in recent years, china's offline channels have been relatively weak, and the input-output ratio is not very high. therefore, for many international companies, whether to strengthen the comprehensive offline experience is an important decision, which depends on whether they have a vision for the future."

he analyzed that today's big-name beauty offline stores are still focused on first- and second-tier cities, but now the awareness of brands in first- to fifth-tier markets has been fully integrated, and the purchasing power of consumers in third- and fourth-tier cities has increased. "in many traditional beauty channels in low-tier cities, the supply of international brands is insufficient. they are unwilling to do such a laborious task and can just release the goods on douyin and tmall. but sinking is an important business opportunity. the best growth of international brands in recent years is in high-end department stores in third-tier cities." he said that it is very necessary and important to allow consumers to touch the products in the nearest place.

wu zhigang finally suggested that international beauty brands should keep up with the demands of chinese consumers and develop high-quality products that meet their high standards; secondly, they should leverage their advantages in design, packaging and brand image building to enhance their brand appeal.