A look at why cosmetic brands are pulling out of China...

By Michelle Yeomans

- Last updated on GMT

A look at why cosmetic brands are pulling out of China...

Related tags Sales Retailing

After two major brands announced they were pulling out of the China to reduce costs this month, Cosmetics Design looks at what's happening in this once ‘lucrative’ market and if it’s likely to have a knock-on effect for the rest of the cosmetics industry to come. 

Revlon was first up earlier in the month to announce it was exiting China in an effort to restructure struggling departments that it hopes to reduce costs by about $11 million a year in the long run.

China represents 2% of Revlon's net sales and the brand’s revenue in Asia dropped from 3.5% to $166.8 for the brand in 2012.

It was then L’Oréal’s turn to reveal its decision to pull its Garnier brand out of the country, stating that it was looking to concentrate on other brands that are performing stronger in the region.

Vice president of L’Oréal China, Lan Zhenzhen, insisted at the time that the move was not a major challenge to L’Oréal or its brands, simply a reallocation of resources. Simply put, sales growth did not meet expectations, and the company are attempting to be proactive.

So what's happened on the market that has seen these brands running for cover to balance the books?

Market analysts weigh in..

Well, according to consulting firm Bain & Company, the Chinese e-commerce market is on a 32% growth trajectory, with total sales doubling to reach RMB 3.3 trillion (~$545 billion) by 2015. 

These figures represent an 8.3% erosion in value over a span of two years, and analysts say that, combined with the fact that Chinese retail cosmetics sales witnessed explosive growth and tripled in value during the 2000-2010 period, the market could begin to see a steady decline in product sales in the coming years.

Amongst the reasons supporting this view the firm notes a shift as to where Chinese consumers are now choosing to invest their money. They note that they have adopted to online shopping and e-commerce over the past two years and that traditional outlets are suffering as a result.

"Digital penetration, which represents online sales as percentage of total sales, has reached 9% in Tier 1/Tier 2 cities in China and stands at 6% across all cities in China," ​they reveal.

In terms of cosmetics product sales specifically, they say; "this penetration rate is 3-4 times higher in the Chinese market ​, indicating the shift in the customer buying pattern from traditional brick-and-mortar retail outlets to the seller’s online platform."​ 

Related topics Business & Financial East Asia China

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