In China’s Slowing Beauty Market, Big Brand Discounts Won’t Cut It

As the economic landscape in China experiences a slowdown, a notable shift in consumer priorities is reshaping the beauty market. Large multinational brands, including L’Oreal, Estee Lauder, and LVMH, are grappling with changing consumer behavior and a growing preference for locally relevant brands. The shift is marked by discerning consumers opting for essential skincare products over extravagant beauty hauls, posing challenges for global giants who have long relied on China's $52 billion beauty market for expansion.

Evelyn Zhu, a branding professional from Hangzhou, reflects the emerging trend by emphasizing a move away from excessive product purchases. This restraint, coupled with economic challenges, raises concerns for global firms that have historically banked on China's thriving beauty industry.

Analysts highlight the crucial need for adaptation to evolving consumer priorities. Consumers in China are increasingly favoring high-efficacy products, prompting a shift away from lifestyle-driven luxury and premium brands. Local brands like Botanee Biotech's Winona, focused on sensitive skin care, are gaining traction as they cater to specific needs, such as combating redness, resonating with the discerning Chinese consumer.

While the economic slowdown has impacted sales, the struggle for global beauty giants lies in their slowness to adjust to these changing dynamics. Deep discounts and promotional strategies, common tactics to boost sales, have shown limited effectiveness. Even during peak shopping events like the annual Singles Day festival, discounts of up to 40% have failed to stimulate the desired sales growth.

For instance, LVMH's beauty division witnessed an 8% decline in China sales during the first half of the year. Similarly, Estée Lauder Companies, heavily reliant on China for one-third of its business, experienced a 12% drop in sales during the same period. Shiseido, a brand that once dominated the Chinese market, lowered its full-year profit forecast due to slower demand.

Despite these challenges, local brands like Botanee Biotech's Winona are thriving, with estimated revenue growth of almost 18% this year. The company's commitment to sustainable sourcing and alignment with consumer preferences positions it favorably in the evolving beauty landscape.

As the market adjusts to new norms, industry experts emphasize the need for global brands to adapt and prioritize consumer needs over chasing historic growth patterns. A more rational approach, understanding the significance of single-digit growth, could be the key to sustained success in China's evolving beauty market.

Expensive beauty hauls are a thing of the past for Evelyn Zhu. The Chinese branding professional says she now only spends on skin care essentials, joining millions of other consumers who have cut back on cosmetics in the world’s second biggest market.

“In recent years we all bought so many products,” the 32-year-old from the affluent eastern city of Hangzhou said. “My bathroom cupboard is full, it’s hard to say I need much more.” This restraint, which has taken hold amid a slowing economy, spells bad news for global firms such as L’Oreal, Estee Lauder and LVMH who for years banked on China’s $52 billion beauty market for growth. Regional brands such as Japan’s Shiseido, which counted China as its top market for years, are also struggling.

But while the economic woes have certainly weighed on sales, analysts say the main issue facing the multinationals is their slowness to adjust to the shifting priorities of consumers, who have become more discerning about what they buy and are increasingly finding that local brands are more suited to their needs.

“What Chinese consumers are still keen to spend on are high efficacy products,” said William Lau, chief executive of multibrand beauty retailer Bonnie and Clyde, which stocks luxury international brands including Chantecaille and 111skin.

“What you’re seeing is a downgrade in lifestyle-driven luxury and premium brands,” he added. Botanee Biotech’s sensitive skin care brand Winona is one of the beneficiaries of this paring back.

The Chinese brand, which is priced at around the same level as L’Oréal products, is known for combating redness, a concern that marketing firm iResearch reported affects two-fifth of women. Analysts from CMB International estimate Botanee’s revenue will grow almost 18 percent this year to 5.9 billion yuan ($824 million), with Winona responsible for most of these gains. By comparison, sales for the global beauty giants are expected to fall.

An analysis from brokerage Jefferies showed first half China sales down 8 percent at LVMH’s beauty division, while sales at Estée Lauder Companies, which counts on China for one-third of its business, fell 12 percent over the same period.

Shiseido reduced its full-year profit forecast in November on slower China demand, which has also been hit by a boycott by some consumer of Japanese products following the release of treated radioactive wastewater in August.

L’Oréal, Estée Lauder and Shiseido did not respond to a request for comment. These results also come off the lower base of 2022, when the combined colour cosmetics and skin care markets in China lost 9.5 percent of their value, data from Euromonitor shows.

While the market research firm expects growth of around 6 percent this year, it forecast won’t get back to its 2021 market size of $54.4 billion until 2025.

So far, the multinationals have responded to the slowdown by offering deep discounts of up to 40 percent and gifts during peak shopping events such as the annual online Singles Day festival, but analysts say the data shows even that isn’t really helping.

Luxe skin care brand La Mer, which rarely discounts, gave so many gifts-with-purchase over Singles Day that every sale resulted in almost the same amount of product being given away.

Independent data firm Syntun estimated that GMV, or gross merchandising volume, of beauty and personal care fell 6 percent year-on-year across all online shopping platforms. GMV is commonly used proxy for sales among e-commerce operators.

“The biggest global names have seen their Tmall GMV decrease by about 40 percent on average during 11.11,” said Jacques Roizen, the Shanghai-based managing director of consulting at Digital Luxury Group, a digital agency for luxury brands. “Now we see you don’t have discounting as an acceleration lever you can press to go deeper or wider, because they’re already maxed out,” Roizen added.

Gregoire Grandchamp, co-founder of Next Beauty, a brand management partner for niche beauty players looking to grow in the China market, said the discounts offered by the beauty brands online this year have been “insane”.

But while these larger brands are better able to compete online than smaller companies that lack their marketing budgets, they are not immune to the slowdown in demand.

According to Grandchamp, the sooner they adjust to China’s new normal of single-digit growth rather than chasing the growth of yesteryear with brand equity-eroding discounts, the better. “I think the way groups like L’Oréal will react will be to say, Okay, maybe it’s better not to have this euphoric growth, but to be more in a more rational market,” he said.