Pushing Le Labo into China, Estee Lauder will rely on perfume to 'come back'?

Recently, Estee Lauder's high-end fragrance brand Le Labo announced that it will enter the Chinese market and will open its first store in Xintiandi, Shanghai.

Founded in 2006, Le Labo became popular with handmade fragrance and personalized service, and was acquired by Estee Lauder Group in 2014. Le Labo, which is out of the circle with its niche route, operates more than 200 stores in New York, Los Angeles, Paris and other cities, and continues to screen social media at home and abroad, bringing considerable income and traffic attention to Estée Lauder.

The high-end perfume brand represented by Le Labo has become an important growth point of Estee Lauder's performance. According to the latest financial report released by Estee Lauder, in the three months ended December 31, 2022, the net sales of perfume products of Estee Lauder were 775 million U.S. dollars, and the comparable revenue increased by 12%, mainly due to Le Labo, Estee Lauder and Tom Growth in the Ford Beauty fragrance line, led by strong double-digit net sales growth in Le Labo. The skin care and color cosmetics businesses both declined, while hair care fell into weak growth.

On the whole, Estee Lauder’s total revenue in the quarter fell 17% year-on-year to US$4.62 billion, and net profit fell 64% year-on-year to US$390 million. Among them, net sales in the Asia-Pacific region fell by 17% year-on-year. Looking at the entire group, the perfume business, which is currently the fastest growing, seems to be a great hope for boosting performance.

Le Labo focuses on gender-neutral fragrances. It uses handmade perfumes and has developed many niche and novel fragrances, which are favored by many young people. Le Labo's products cover perfumes, scented candles, body care and cleaning products, among which the ace products are 19 classic perfumes, named after the main fragrance and the number of raw materials, including SANTAL 33, ANOTHER 13, THÉ NOIR 29, etc. payment.

Focusing on the innovation of perfume categories, Le Labo launched more than 10 city-limited series in different regions of the world on the basis of best-selling models, such as Paris-limited Vanille 44, Tokyo-limited Gaiac 10, etc. In addition, Le Labo also customizes scents for well-known hotels such as the Edition Hotel and Gramercy Park Hotel.

In terms of store design, unlike the luxury style of big-name perfumes, Le Labo adopts a minimalist industrial style design, turning the store into a laboratory scene, attracting a large number of consumers to check in. Le Labo provides customers with personalized services, manually blending perfumes on the spot according to the order, and printing the formula date and place on the label according to customer needs. Le Labo also offers a "bottle refill service" where users can enjoy a 20% discount on empty bottles.

Le Labo, which became popular in a unique way, quickly increased the brand premium and positioned itself in the high-end perfume market. In terms of pricing, the price of Le Labo ranges from a low of $7 to a high of $1,055. Among them, the price of the 50ml perfume that is mainly promoted is 220 US dollars (about 1513 yuan), which is higher than that of big-name perfumes such as Dior and Bulgari.

In the past two years, Estee Lauder has paid more and more attention to the development of the perfume business, and has continuously acquired new brands to expand the perfume business. Recently, Estee Lauder acquired a minority stake in the British salon perfume brand Vyrao, further increasing the high-end perfume track.

Today, Estee Lauder promotes its Le Labo to enter the Chinese market, competing with beauty giants such as L'Oreal and LVMH. In the Chinese market where there are many international brands and the rise of local fragrances, can Estee Lauder reverse the situation as it wishes?

As a new player on the perfume track, Le Labo has broken through many big-name perfumes with its niche and personalized labels. Before entering the Chinese market, Le Labo had already become an Internet celebrity in the perfume industry.

Le Labo was co-founded by perfumers Eddie Roschi and Fabrice Penot, both of whom worked at the Armani fragrance house. In 2006, Le Labo opened its first offline store in New York, making it famous with its unique product design and personalized service.

Not just Estee Lauder, the perfume business has become an important growth engine for major beauty giants. In 2022, the revenue of L'Oreal's high-end cosmetics department will reach 14.64 billion euros, becoming the department with the highest proportion of revenue, and perfume is the fastest growing category. LVMH's perfume and beauty business will grow by 10% year-on-year to 7.72 billion euros in 2022, thanks to the strong growth of brands such as Dior and Guerlain in the perfume field.

With the rapid growth of perfume sales, beauty giants are scrambling to deploy high-end perfume market. In October last year, L'Oreal established a new luxury fragrance brand department, and moved six brands of Mason Margiela, Olon, Vigorov, Asaro, Diesel and Cachar to this department. In addition, L'Oreal also invested in Wenxian DOCUMENTS, a local high-end perfume and fragrance brand in China.

Beauty giants are collectively eyeing the Chinese market. Euromonitor data shows that China's perfume market will grow by 33% in 2021, the highest growth rate in the past five years. It is estimated that by 2026, the sales volume of China's perfume market will reach 37.13 billion yuan. High-end unisex fragrances have become the subcategory with the highest compound growth rate and are increasingly sought after by consumers.

Including Estee Lauder, major beauty groups have introduced new brands to China. In 2020, By Kilian and Formar Perfume Publishing House under Estee Lauder entered the Chinese market. Both brands opened their first domestic boutiques in Shanghai IFC International Finance Center.

In 2021, Shiseido Group's Lu Dan's will enter China; L'Oreal will promote the two major brands of Mugler and Vigorov to enter China, and its PRADA Prada perfume beauty will also open its first store in China in Shanghai; in 2022, LVMH Fanshi Kexiang, a high-end fragrance brand under the group, entered China.

Now China has become a battleground for perfume brands. Faced with the multiple attacks of first-tier big names and niche perfume brands, Estee Lauder needs to continue to create explosive products and invest in product innovation to strive for more chances of winning.