Oriflame gets China go ahead

By Simon Pitman

- Last updated on GMT

Related tags: Direct sales, Jiangsu, China

Oriflame has become the third foreign cosmetics company to be
granted a direct sales license in China, putting it on track to
carve out a slice of the country's fast-growing consumer market.

"I am pleased… that the Chinese government has granted Oriflame a licence to commence direct sales activities in China. We are the first European and only the third foreign company to have been granted this licence",​ said Magnus Brännström, CEO of Oriflame.

"We believe this decision reflects Oriflame's status as a cosmetics industry leader as well as our long-term commitment to the Chinese market," he added.

The license was issued by the Chinese Ministry of Commerce for the cities of Nanjing, Wuxi, Suzhou and Kunshan in Jiangsu province where it is hoping to start direct sales in November of this year.

Oriflame has been working hard to expedite issuing of the licence, which follows the license agreements for NuSkin and Avon, granted earlier on in the year.

Avon became the first international cosmetics company to receive a license to make direct sales in China, getting the go ahead in January of last year. It has since launched an aggressive recruitment campaign, which as to date recruited over 188,000 sales staff - figures that are significantly ahead of expectations.

Although significant investments to establish its China direct sales operations ate in to profit margins during the course of 2005, the company is now expecting that the investment it has made in the country will soon start to reap the benefits.

Currently China is seeing some of the largest industry growth in the world, with almost all cosmetic and toiletry categories reporting sales growth well into double figures - figures that are in line with GDP that continues to exceed 10 per cent.

Avon has reported stagnant overall sales of late, and is hoping that the resumption of direct sales will make a significant contribution towards driving renewed sales growth in the coming months.

Likewise, Oriflame is hoping for a similar outcome. At the same time as making the announcement about the China direct sales license, the company indicated that its operating margins for the third quarter are likely to be below expectations.

The company cited timing differences, project costs and sales shortfalls in certain countries as being the main reason for the alert.

However, the company also indicated that sales and operating margins for the 2006 financial years should be in line with expectations, with a sales increase 'well above' financial targets set at the beginning of the year.

Undoubtedly the start of direct sales in China should have a moderate impact on sales in the fourth and final quarter, but the company will expect that it will be during the course of 2007 that the move into the country will start to have a real impact.

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