Facing the pains of transformation, foreign cosmetics companies want to update their

Source: China Business Magazine

In the "report card" released by top foreign cosmetics companies as of June 30, 2024, the Chinese market became the only market to decline. Among them, L'Oreal Group's high-end cosmetics division has become the slowest growing business unit, while sales of some brands under Shiseido have declined to varying degrees. Procter&Gamble's flagship SK-II has faced a Waterloo in performance. Can't foreign cosmetics sell anymore?

L'Oreal stalls, Shiseido lays off employees, Procter&Gamble 'fails'

Based on the performance reports of L'Oreal Group, Shiseido Group, and Procter&Gamble, the performance in the Chinese market has all declined to varying degrees. Among them, the sales of Shiseido Group in the Chinese market declined significantly, and the sales of its stores in Chinese Mainland declined by 10% to 15%.

Shiseido Group stated in its financial report that due to the weakness of tourism retail, China, and the Americas markets, sales of some of its major brands have stagnated and even experienced negative growth.

A reporter from China Business Daily noticed that on social media platforms, many self proclaimed "Shiseido employees" claimed that Shiseido Group was "forcing employees to wait for work" in order to reduce salaries and lay off employees. A netizen replied to a private message from a reporter, saying that the group requires employees to transfer to a new subsidiary under the group, but the subsidiary provides lower welfare benefits. If employees do not transfer to a new company, the group will only provide them with the minimum wage and allow them to work from home. Some employees have filed appeals with relevant departments, but they have not been accepted yet.

Regarding this, the reporter asked Shiseido Group for verification, but the other party did not provide a clear answer. According to the public response from Shiseido Group, the new company is a wholly-owned subsidiary of Shiseido China and a wholly foreign-owned enterprise, mainly focusing on offline business. At present, the vast majority of business contracts and employee labor contracts have been transferred and signed, and the new company has been officially put into operation.

Procter&Gamble is also facing tough times. Procter&Gamble revealed at its performance briefing that its sales in the Chinese market have decreased by 9% due to market weakness and unfavorable factors related to the SK-II brand. In addition, in the 2024 fiscal year, Procter&Gamble's sales also significantly decreased compared to the previous fiscal year during the domestic e-commerce festival promotion activities.

Procter&Gamble's "price increase strategy" has also been ineffective. Taking Procter&Gamble's beauty business as an example, according to its financial report, the average price increase of Procter&Gamble's beauty business in the 2024 fiscal year is 4%. However, the business sector where SK-II is located has only grown by 1% year-on-year, and has remained below 2% for three consecutive fiscal years. The reporter asked Procter&Gamble if SK-II's current sales strategy in China would be updated, but did not receive a clear response.

In contrast, L'Oreal Group's situation is better. The revenue of all business departments under L'Oreal Group is growing, but the revenue of high-end cosmetics business is not performing well, and sales in the North Asia region where the Chinese market is located are also declining.

Why did big brands encounter Waterloo?

This year, the operating costs of the domestic e-commerce market have increased, but product sales have not significantly increased, "said a person in charge of MCN company to reporters." Compared with domestic cosmetics brands with higher cost-effectiveness, it is more difficult for foreign cosmetics brands to make money in e-commerce channels

The reporter compiled the sales ranking of e-commerce promotion festivals in the past two years and found that the sales ranking of most foreign cosmetics is declining or being squeezed out of the list.

According to the relevant person in charge of MCN company mentioned above, in addition to the factor of reduced consumer purchasing volume, many foreign cosmetics brands have also reduced their investment in e-commerce channels. They believe that the sales performance of live streaming hosts does not satisfy them.

At the performance communication meeting of a leading foreign cosmetics group at the beginning of this year, the relevant person in charge admitted to reporters: "Low prices may bring benefits to brands in the short term, but in the long run, consumers are tired of the low price strategy of e-commerce channels. With daily promotional activities, the value of products will be greatly reduced

In addition, the pricing strategy of foreign cosmetics brands in the Chinese market may also make consumers feel exhausted. Since the beginning of the year, Estee Lauder has raised prices twice. In February of this year, Est é e Lauder raised the prices of 1500 of its products. In July of this year, less than half a year after the last price adjustment, Est é e Lauder conducted another price adjustment. In addition, according to agents, the prices of L'Oreal Group's brands Lanc ô me, Shu uemura, Kiehl's and other products have been raised multiple times.

The decline in sales of foreign-funded cosmetics may also be related to the chaotic pricing system of their products. Taking SK-II as an example, some consumers claim that both Procter&Gamble and SK-II brands have publicly stated that SK-II products are not discounted and have been increasing in price. However, in channels such as live streaming rooms of top anchors, cross-border e-commerce, and purchasing agents, product prices are almost "broken". A bottle of Shenxian Water, officially priced at 2210 yuan and 330ml, has prices of 622 yuan, 889 yuan, and 941 yuan on different platforms.

The reporter consulted Procter&Gamble about product price management issues, but did not receive a response.

Giant wants to update 'China strategy'

Faced with the declining performance in the Chinese market, cosmetics giants urgently need to update their strategies.

Shiseido Group stated that in the face of current development issues, the group will announce a new business strategy in late November this year.

The relevant person in charge of Shiseido Group said, "The 'price war' is a major challenge that Shiseido Group is facing in China at present, as consumers are looking for channels to purchase products at the lowest price. Although brands do not want to be involved in the competition of price reduction promotions, e-commerce platforms will launch a vigorous promotion model and issue a large number of discount coupons. Even if we want to achieve sales growth, we cannot rely too much on price discounts, but instead focus on creating the next stage of Hero SKUs

NIVEA and La Prairie's parent company Beiersdorf stated that if the impact of the decline in Greater China is excluded, La Prairie achieved a 20% increase in retail sales in the first half of the year. In the downward trend of the market, it is already not easy for Leporini to outperform the average level of the Chinese market. The group still sees great potential for the medium to long term development of the Chinese market, which remains a key opportunity point.

In June of this year, Beiersdorf released a new strategy and mid-term strategic goals called "Win with Care", preparing to strengthen the efficacy skincare advantages of core skincare brands Nivea and EUCERIN, and increase market share in four regions including China.

At present, the "China strategy" of foreign cosmetics groups is still being adjusted, and the effectiveness will continue to be monitored by reporters from China Business Daily. (Reporter Ma Jia)