China growth makes market vital contributor to L’Oreal’s fortunes

One item swept through the Chinese cosmetics industry in 2016 and made every girl scream at the sight of it. The YSL Star Clash Edition lipstick.

Even though the lipstick was not officially launched until late 2016, many consumers could not wait to get oneandasked for help from overseas shopping agents. Some customers were willing to pay a 40 percent premium to get one in advance. Local cross-border e-commerce platforms such as ymatou.com realized this golden opportunity and imported the lipstick fromHong Kong.

Many voices claimed that was a very successful marketing campaign launched using the internet, but L’Oreal— the group that owns YSL— denied this, explaining that the product had not been launched inChina until late October 2016 and that there had not been any such marketing activity.

So, was it purely the charm of the product that won the hearts of customers?

Jean-Paul Agon, chairman and chief executive officer of L’Oreal Group, was very happy to see that the lipstick was so popular among Chinese consumers. Thanks to Star Clash Edition, sales of the YSL series increased by 40 percent during the third fiscal quarter of 2016 globally. The group’s sales in emerging markets, including China, was intrigued and increased by 7.1 percent.

This is just one of the success stories thatL’Oreal has realized in the boomingChinese market. But more importantly, it is the embodimentof thegroup’sdream of “putting a lipstick in the hands of every Chinese woman” when it entered the market 20 years ago.

L’Oreal made its first step into China in 1997 with four brands— L’Oreal Paris, Maybelline, Lancome and haircare product L’Oreal Professional. The product portfolio has grown significantly in the past two years. A total of 23 brands now make up the portfolio, which includes well-known brands and local ones such as Yue Sai, Mininurse, and MG.

With continuous investment in China, L’Oreal has grown rapidly. Up until now, it has one headquarters, one research and innovation center, three plants, five distribution centers and one academy in the country. The employee head count has reached 7,800.

And the numbers show that the group’s investment philosophy was correct. The group’s third-quarter fiscal report of 2016 showed that the high-end cosmetics and fragrance sector continued to seize more market share in the Chinese market.

Despite economic ups and downs, L’Oreal has maintained its growth in the past 20 years. China has become the second largest contributor to the group’s total revenue in 2015, only next to the US. Figures provided by global market research firm Euromonitor International shows that L’Oreal’s two leading color cosmetics brands Maybelline and L’Oreal Paris have grabbed the top two positions in China since 2010.

The rapid expansion of the Chinese beauty industry has provided much room of growth for L’Oreal. As Euromonitor calculated, the retail revenue of Chinese cosmetics industry was 293.7 billion yuan ($42.4 billion) in 2014 but is expected to amount to 423 billion yuan by 2019, with the annual growth rate remaining at 8 percent.

The rapid growth of the Chinese cosmetics industry has proved what Stephane Rinderknech, CEO of L’Oreal China, felt about the Chinese market when he first came to the country in 2011.

“I visited Shenyang city. The moment I stepped into this northern city, I was so astonished and amazed by it. There were crowded shops, busy construction going on and the streets were filled with people.

Jean-Paul Agon, chairman and chief executive officer of L’Oreal Group