China’s biggest e-commerce players did not want to talk about Singles Day results this year.
Sales, according to analysts, were generally lackluster as the country’s Zero Covid policy kept many under lockdown, sparking some of the biggest protests in years. Beauty and personal care sales fared better than many other categories, but grew 3 percent year-over-year on Tmall, said Adam Knight, co-founder of Chinese consultancy Tong Global, which works with brands including Clinique, Charlotte Tilbury and Huda Beauty.
Still, big beauty companies are tempering their expectations. In its quarterly results released in November, The Estée Lauder Companies said it sees full-year net sales falling between 6 and 8 percent compared to last year.
In November, after nearly three years of draconian zero-covid restrictions, frustration after a deadly fire in a shuttered apartment building sparked nationwide protests. On Monday, Beijing announced it would loosen some guidelines in several cities, including Shenzhen and Shanghai. China’s economy is widely expected to grow by less than 3 percent this year, the slowest pace in decades.
Amid the uncertainty, brands are showing business as usual, with exclusive products, activations and packages timed to the end of the year, and upcoming celebrations such as Lunar New Year and 5.20 Day (a local version of Valentine’s Day). But they are largely sticking to their long-term China strategies in the hope that this year’s turbulence will soon subside.
“China remains the biggest opportunity for growth anywhere in the world, but it has become much more difficult [to win]”, Knight said. “It’s much more expensive as a source of growth, but show me another market that has the same potential.”
Brands are hoping for stronger holiday sales, even as protests and rising Covid cases continue.
To tempt buyers, they push for exclusivity and rush with special Christmas gift boxes and products. Labels such as Helena Rubenstein, YSL, Dior Beauty, Christian Louboutin Beauty, for example, push out hero products in popular advent calendar formats. Companies are also zooming in on popular gift categories such as fragrance.
“Most brands give consumers every reason to [gift]. Brands want to capitalize on the end-of-year bonus season, where consumers will have extra cash to spend, Adrian Peh, general manager of fashion and beauty for Asian marketing and brand experience firm Gusto Collective, said in an email to BoF. Gusto Collective has worked with brands including Rituals, Harrod’s and Stella McCartney.
Meanwhile, Estée Lauder said on its latest earnings call that it would put a renewed holiday focus on fragrance, which rose 18 percent in all regions through the first quarter of 2023. The conglomerate said it would shift its strategy toward “the luxury of seasonal fragrances.” by highlighting its strongest perfume brands such as Jo Malone London.
Alongside news and seasonal promotions, companies also reduce their immediate risk.
After noting a 70 percent drop in October in China’s duty-free trade hub Hainan – which has been marked by rolling closures since the outbreak of the pandemic – Estée Lauder said it would lower inventory levels in travel trade and Asia (although it also opened a flagship store for the Estée Lauder brand in Hainan in November). The conglomerate, which is heavily dependent on travel trade for sales, expects organic sales to fall around 10 percent for the quarter ending in December.
“This almost temporary pause does not diminish our deep conviction in Hainain in the long term, as it is among the best branding destinations for acquiring new customers,” Fabrizio Freda, CEO of Estée Lauder, said on the company’s first quarter 2023 call. .
Knight expects traffic to return to Hainan in the spring. The Hainan region, Knight said, will remain particularly important for international brands trying to recoup losses from overseas Chinese customers, but added that “it will probably never get to where it was years ago.”
Conglomerates are building out their local infrastructure to strengthen supply chains. L’Oréal started construction of another fulfillment center near Shanghai in Suzhou, China, which will open in late 2023, and launched Shanghai Meicfang Investment Co., aiming to invest in new technology, digital innovation, data, supply chain and packaging. Estée Lauder also reduced its supply chain exposure by breaking ground on a new manufacturing facility near Tokyo in 2020. Freda said the company began producing a limited range of skin care products at the facility during the last quarter.
“These investments are our reflection of the new world … you cannot continue to operate with a manufacturing map or supply chain map that does not have facilities in the region,” said Audrey Depraeter-Montacel, Accenture’s beauty leader.
The pandemic is not the source of all Western beauty brands’ challenges in China. As broader nationalistic sentiment has risen, along with the successes of homegrown Chinese beauty brands such as Florsasis and Perfect Diary, international companies are finding it harder to connect with consumers and compete with local challengers.
“It used to be that they competed on price, now it’s on quality, it’s on [being] closer to the consumer,” Knight said. “For big beauty brands, this is a big concern.”
To compete, conglomerates launch new business units to understand local preferences. Estée Lauder opened a research and development center to understand the needs of Chinese and Asian skin last year, and Shiseido launched a Chinese beauty investment fund to boost its portfolio in the region.
Such investments are necessary since missteps in the region can be costly. Last month, L’Oréal launched ‘Shihyo’, its new K-Beauty brand aimed at Chinese, Japanese and Korean consumers across East Asia.
Chinese netizens were quick to criticize the conglomerate for disrespecting traditional Chinese culture by calling the 24 solar terms of the traditional Chinese calendar “Asian” wisdom in its marketing, rather than acknowledging its Chinese origins.
But brands can be successful with focused, localized strategies.
Coty relaunched the Lancaster sunscreen brand in China with an Asian-specific product line and a number of retail concepts in Hainan. On its latest earnings call, Coty CEO Sue Nabi highlighted the brand’s 20 percent sales growth in the quarter, even with closures in Hainan.
“Most of these beauty companies are cautiously optimistic,” Driscoll said. “It’s still a big market, and it’s going to be a big market for beauty and luxury going forward.”
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