Chinese nationals will be the biggest consumer group for L’Oréal’s luxury cosmetics within two years, according to the Paris-based company, which is planning a big push into smaller cities, new product launches and the use of internet chat forums to extend distribution.
Jean-Paul Agon, chairman and chief executive of L’Oréal – which also sells mass-market products such as Maybelline mascara and Garnier shampoo – said that the logistics of rolling out the luxury business was the main challenge in the huge country, not worries about the economy.
“I’m not concerned about the economic slowdown in China – it’s very limited,” he said in Shanghai. “The penetration of luxury is just beginning – we are building the future of luxury in this country.” The group’s luxury cosmetic brands include Lancôme, Helena Rubenstein, Kiehl’s and Giorgio Armani.
He underlined the scale of opportunity by saying that Lancôme – its best-selling luxury brand in China – was sold in 170 Chinese cities, against 2,000 in the US
There have been concerns about the effect on luxury goods companies – such as handbag and watchmakers – about China’s slowing economy and a crackdown on giving gifts to officials, but Mr Agon said cosmetics were not big ticket items and had not been affected.
China is the world’s second-largest market for luxury cosmetics and is on track to become its largest, said Mr Agon.
Nicolas Hieronimus, head of L’Oréal’s luxury division, said the unit had doubled sales every four years in China for the past decade. “We are bound to continue at the same pace,” he said, forecasting that “in 2014 or 2015, Chinese consumers will be the number one consumer for L’Oréal Luxe in the world”. This includes Chinese tourists making purchases outside the country.
The sales drive in China will be spearheaded by a continued push into so-called tier 3 cities – outside the largest conurbations, a strategy L’Oréal has been pursuing since 2011.
Stephane Rinderknech, general manager of the luxury unit in China, said Lancôme – L’Oréal’s best selling luxury product line in the country – had been launched in 70 cities in the past two years, of which 33 were tier 3.
He declined to say what proportion of luxury China sales were represented by tier 3 cities, but said the spend per head was similar to that in the larger cities.
Luxury products make up one-third of L’Oréal’s sales in China, which is more than the unit’s 27 per cent contribution of €5.57bn, to total group sales.
According to Euromonitor, the market research group, L’Oréal’s premium cosmetics’ business has a 17 per cent share of the Chinese market, compared with 12 per cent for Estée Lauder of the US, the world’s biggest company by luxury cosmetics sales, ahead of L’Oréal.
Estée Lauder, which raised its 2013 sales forecast in February partly because of rising popularity in Asia, has increased its market share in China sixfold over the past decade, while L’Oréal’s share has almost doubled off a higher base, according to Euromonitor.
L’Oréal is also hoping to persuade younger Chinese consumers to buy fragrances and make-up in addition to skincare, which dominates the cosmetics market.
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