Estée Lauder tests the limits of frequent price hikes in China

Following the lead of brands such as Van Cleef & Arpels and rivals like L’Oréal Group, luxury powerhouse Estée Lauder is expected to implement a price hike of 10% to 20% on July 1, according to Chinese-language media. This increase, which would reportedly impact more than 500 popular products across portfolio brands like La Mer, MAC, Bobbi Brown, and Jo Malone, follows a similar adjustment earlier this year, raising concerns about its impact on market performance. The rumored price hike follows a muted turnaround in Estée Lauder's financial metrics. For the 2023 fiscal year, Estée Lauder saw a 10% decline in net sales to $15.9 billion, with net profits plummeting by 58% to $1.01 billion. In the first three quarters of the 2024 fiscal year, however, Estée Lauder reported a 5% increase in global net sales and a 3% increase in net sales in the Asia-Pacific region, led by Hong Kong, mainland China, and Japan. However, Estée Lauder’s turnaround could be crimped in the year ahead by frequent price increases, with the company citing increased raw material costs and other operational expenses. This means the beauty giant is testing the limits on how high imported brands – even in the luxury segment – can go in an increasingly price-conscious China market. Jiang Han, a senior researcher at Pangu Think Tank, notes that maintaining a high-end image through price hikes can backfire. While it might reinforce brand prestige, it doesn't guarantee improved sales, particularly when consumers prioritize cost-effectiveness. Jiang emphasizes the need for brands to focus on product innovation, quality control, and targeted marketing to resonate with local consumers. This is particularly true given the increasing demand for domestic cosmetics brands in China. According to Ai Media Consulting, China's cosmetics market grew by 6.4% in 2023 to approximately 516.9 billion RMB ($78.2 billion), with domestic brands gaining significant market share by offering high-quality products at competitive prices. China-market success is also fueling the increasingly global ambitions of home-grown brands like Florasis, which recently opened its first European outpost in Paris. While price increases may help to offset rising material costs or outpace inflation, they threaten to dent consumer loyalty, especially in China. As Jiang explains, "For Chinese consumers, value for money is more important than price alone," adding that they “seek a balance between price and quality." Estée Lauder's approach mirrors recent luxury market price hikes. Van Cleef & Arpels, for example, increased prices on items like its popular Alhambra bracelet by around 11% in China on May 31. The 18K gold and carnelian Alhambra bracelet rose from 36,700 RMB ($5,068) to 40,800 RMB ($5,634), while the 18K rose gold model with diamond and mother-of-pearl jumped to 123,000 RMB ($17,003) from 111,000 RMB ($15,344). Ultimately, Estée Lauder could find that Chinese consumers hit their limit with price hikes when enacted too frequently. According to Chinese-language media, the company implemented two rounds of price increases in 2023, one in January and another in July, with increments ranging from 10% to 30%. This appears to continue along the same lines in 2024, reflecting the company's struggle to balance costs and revenues. However, industry experts argue that regular price changes are no sustainable solution, particularly in China. Jiang points out that international brands must adapt to an increasingly competitive market in which domestic brands are rapidly gaining ground. "High-end beauty brands need a comprehensive strategy that includes product development, quality control, and localized marketing to stand out," Jiang says. "Relying solely on price hikes could alienate price-sensitive consumers who are already exploring alternatives."

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Estée Lauder tests the limits of frequent price hikes in China