Retrenchment in China for Global Cosmetics Brands

The challenges for businesses outside China gaining a profitable share of fast-growing markets in China have been illustrated by two recent announcements by leading multinational cosmetics firms - L'Oreal and Revlon.

L'Oreal has announced that it is to halt sales of its Garnier beauty and hair products in China.

A few days earlier, Revlon announced that it will cease operations in China and eliminate about 1,100 positions, including 940 beauty advisers.

These two decisions highlight the growing hurdles faced in China by Western cosmetic giants due to fierce competition and a crowded market. The rapid adoption of online shopping in China has also contributed to the problems faced by global cosmetic brands that have traditionally relied on personal selling via retail stores as the core method of distribution.

China has been a major source of growth for the global personal care and the cosmetic industry. But leading brands have faced major competition from fast-growing and cheaper domestic brands who have taken advantage of online selling to gain greater access to China's 1.34 billion consumers.

L’Oréal is the world's largest cosmetics business and one of the leading foreign cosmetics companies in China. It has said it will now focus on its two other mass market brands in China: Maybelline, which is mainly make-up and L’Oréal Paris, covering skincare, make-up and haircare.

L'Oreal reported sales in China of approximately £1.4bn in 2012 of which the Garnier product range accounted for just 1%. Like many multinational consumer brands, L'Oreal does not report how profitable its operations and sales in China are. The Garnier brand was launched into China by L'Oreal in 2006.

It looks like the problem for L'Oreal's Garnier brand in China is how it is positioned.

The FT reports one industry analyst's view:

“Garnier is not cheap enough and it’s not luxury enough. Chinese consumers are no longer willing to pay a premium for a western brand unless it is demonstrably better,” said Mr Rein. “This demonstrates that it is not that easy to grow in China.”

China’s $25.9bn cosmetics market is the third largest in the world and is expected to grow 63 per cent for the five years to 2015, according to consumer research firm Euromonitor.

However, a challenge faced by all firms in the market is the need for constant product innovation. According to one analyst:

"Companies have consistently had to roll out new products for the Chinese market because shoppers there are worried that using any one product too long is bad for their skin. That means that there are more brands being launched, giving shoppers more choice and creating more competition".

The issues raised by the L'Oreal and Revlon decisions in China are discussed in this excellent FT Lex discussion: