Estée Lauder’s sales slump shows why beauty brands aren’t yet benefiting from increased Chinese tourism

What Happened: All signs point to beauty booming. And yet, The Estée Lauder Companies posted lackluster results. The beauty giant, which owns brands like Le Labo, Tom Ford and Clinique, reported sales of $15.9 billion for the 12 months ending June 30, a 10 percent year-on-year decline, with net profit plummeting 58 percent to $1 billion.

The group attributed the sales decline to weaker-than-expected activity in the Chinese market, as tourism in the country has yet to return to pre-pandemic levels. The conglomerate reported that organic net sales fell 6 percent year on year, attributable to poor Asia travel retail performance in Hainan and South Korea.

Estée Lauder isn’t the only one struggling in Asia’s beauty market. With crackdowns on daigou, people who buy goods abroad to resell them in China to avoid taxes, beauty giants will have to be patient to fully reap the benefits of an otherwise vibrant beauty market.

The Jing Take: Estée Lauder attributes its disappointing results partly to a lack of tourists in the popular Hainan province, home to numerous resorts, with tourist consumption not yet fully bouncing back from Covid-19. Estée Lauder’s travel retail sales declined 34 percent year on year in fiscal year 2023.

The beauty industry is dealing with the fallout of the government’s crackdown on daigou, which has resurfaced as Chinese travelers venture abroad once again. Beiersdorf and L’Oréal also reported a dent in sales this month due to government controls on daigou.

However, L’Oréal and Estée Lauder are hopeful sales will turn around.

“Foreign customer numbers in Korean travel retail in January this year were five times greater than in January 2022, yet sales were -30% year-on-year,” Martin Moodie, Moodie Davitt Report, tells Jing Daily.

“The implication of these [daigou] changes are favorable for sustainable long-term growth, but certainly create significant short-term headwinds through the transition,” Estée Lauder CFO Tracey Travis said in an earnings call.

“The implication of these [daigou] changes are favorable for sustainable long-term growth, but certainly create significant short-term headwinds through the transition.”

And with a domestic travel surge on the horizon, luxury beauty brands may well benefit from an increase in tourism-boosted shopping in the near future. As local travelers look to personalize and enrich their travel experiences, Chinese KOLs like Kiki( @房琪kiki) are especially valuable figures for brands to partner with to promote their products or experiences. Chinese beauty brand Florasis recently partnered with Kiki to promote its new powder by highlighting its origins in Hangzhou.

C-beauty brand Florasis partnered with travel KOL @房琪kiki, who has over 23 million followers on Douyin, to promote its waterproof makeup. Photo: Screenshot @房琪kiki

And all was not down for Estée Lauder: The conglomerate reported fragrance sales growth across all regions. The group has been busy in this regard — Le Labo opened a new store in Shanghai this May, its first storefront in mainland China. The group also consolidated its ownership of the Tom Ford brand by purchasing the apparel arm of the brand in late 2022. Estée Lauder already owned the Tom Ford cosmetics line, whose fragrances like Lost Cherry and Bitter Peach have been recent blockbusters.

Le Labo opened a new store in Shanghai in May 2023. Photo: Le Labo’s Xiaohongshu

Estée Lauder and L’Oréal’s support of daigou crackdowns are bad for business in the short-term. But limiting those channels means preserving brand equity and desirability in the long run, as LVMH chairman and CEO Bernard Arnault acknowledged in a recent earnings call. Brand desirability is ultimately more valuable than a quick sales boost.

The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.


Beauty, Earnings Brief, Financial Reporting