International Beauty Brands Are Losing Out to Local Brands in China

Growth has slowed for global beauty brands in China, as the market slows overall and more Asian brands gain a toehold.
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Eliza Brooke
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Growth has slowed for global beauty brands in China, as the market slows overall and more Asian brands gain a toehold.
Photo: Lintao Zhang / Getty

Photo: Lintao Zhang / Getty

With Revlon exiting China in December and Estée Lauder reporting decreased demand in the country in February, it's clear that expansion into China isn't always a growth story for international beauty brands. According to a new report from digital research firm L2, Chinese sales were harder in 2013 than in years past for multinational beauty giants like L'Oréal and Estée Lauder.

Growth in the Chinese beauty market has slowed overall, rising 13 percent in 2013 versus 17 percent in 2012. Coupled with that is the fact that increasing numbers of local brands are getting into the prestige beauty business, while major Asian companies like Korea's Amore Pacific and Japan's Shiseido are pushing further into China.

Emma Li, L2's research lead on the report, explains that multinational companies have grown the Chinese beauty market by introducing product categories that Chinese companies were not producing yet, either due to lack of demand or manufacturing issues.

"Then once the products were introduced into the market, they grew demand via traditional advertising and promoting these products as part of a sophisticated global lifestyle," Li says.

L2's theory? That Chinese companies let global brands pave the way in the beauty market and then introduce their own products, cutting into sales. After Western companies successfully proved there was a market for prestige beauty brands in China, Shanghai Jahwa was able to launch a luxury line, Shanghai Vive, in 2010, drawing sales away from its Western forerunners.

But there's hope for the L'Oréals of the world, and that's digital -- so long as they get their Chinese sites up to snuff. Online beauty retail is booming in China, with 56 percent of consumers turning to it because of lower and more transparent pricing (time savings, price comparison and overcrowded stores are other common factors).

The majority of multinational beauty brands don't host their sites in China, resulting in load times nearly a second slower than locally hosted sites. Multinational brands also don't invest as much in their China sites: Eighty-one percent of American sites incorporate video, for example, while just 45 percent of Chinese sites do so. That's a loss given that video is immensely popular among Chinese consumers.

Note: This article was update to include Li's explanation of global beauty brands' entrance into the Chinese market.