Estée Lauder, Shiseido: Beauty growth lies in China’s lower tier cities

What happened After lackluster financial results posted last year, Estée Lauder seems to finally be turning a corner: The US beauty giant’s third quarter 2024 earnings beat both sales and profit forecasts. Net sales in the Q3 increased by 5 percent year-on-year, from $3.75 billion (27 billion RMB) to $3.94 billion (28.3 billion RMB), driven by a 9 percent increase in organic net sales in the skin care category (including fragrance). Net sales in almost all categories of the group increased. The group’s organic net sales increased by 6 percent, driven by double-digit growth in Europe, the Middle East and Africa, as well as strong sales growth in the travel retail channel in Asia. Worth noting is how Estée Lauder’s travel retail sales sector saw a resurgence, marking the end of seven quarters of decline. Additionally, the company successfully reduced inventory levels in the Asian travel retail market. “We have made significant progress in advancing the group’s strategy and innovation, empowering the development of the North American market, achieving market growth in mainland China, and injecting new technologies into mature and emerging markets such as Asia-Pacific, Europe, the Middle East and Africa, and Latin America,” said Fabrizio Freda, President and CEO of Estée Lauder Group, during an earnings call. However, last Wednesday, stocks tumbled by 14.1 percent following the news release, as the beauty products maker projected 2024 sales will decline 2 percent to 3 percent, versus its earlier outlook of a 1 percent drop to a 1 percent gain. What is driving China’s complex beauty market today? The Jing Take On a brand level, La Mer has significantly propelled skincare product sales growth through its marketing efforts, innovative product launches, and engaging in-store strategies. The Estée Lauder brand has also made substantial contributions to skincare product sales growth, thanks to formulas developed by its China Innovation R&D Center, enabling the brand to respond faster to market demands and enhance inventory agility. For instance, the Shanghai-based lab developed Estée Lauder’s Perfectionist Pro series, which met the local market’s demand for high UV protection and earned acclaim for its user-friendly formulation, particularly suitable for sensitive skin and medical and aesthetic patients, potentially bolstering the skincare category. Estée Lauder’s financial report highlighted that investments in the Asia supply chain have led to shorter delivery times in the region and improved resilience against future fluctuations. The continued investment showcases the company’s confidence in the market. Estée Lauder’s Group President and CEO Fabrizio Freda believes that the ongoing rise of the middle class and the propensity of young consumers to spend, presents opportunities particularly in China’s third and fourth tier markets. In the second fiscal quarter, the number of independent stores under Estée Lauder Group’s brands in mainland China grew by double digits, with significant market share gains in physical retail channels. Japanese beauty conglomerate Shiseido also said it will strengthen its focus on high-end luxury brands and expand the brand to third-to-fifth-tier cities to target middle class consumers, in its financial report Win in China. “It is expected that by 2030, China will have more than 80 million new middle class consumers, mainly located in three-to-five-tier cities, who will eventually become potential shoppers for high-end skin care products. This will bring a lot of room for growth to Shiseido,” wrote Shiseido’s China CEO Toshinobu Umetsu. Global beauty players are exuding confidence in the Chinese market. The country’s large population base and growing middle class in lower tier cities present growth opportunities for businesses. But how are brands reaching China’s emerging beauty shoppers? The Japanese group states that it will further strengthen its network in lower-tier cities, including expanding through cosmetics stores and department store counters, as well as Douyin. 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.

Estée Lauder, Shiseido: Beauty growth lies in China’s lower tier cities

On this page

Published May 07, 2024

Sectors

Insights

Company

Estée Lauder, Shiseido: Beauty growth lies in China’s lower tier cities