China tariffs on cosmetics: Estée Lauder Cos mindful but confident impact will be minimal

By Amanda Lim

- Last updated on GMT

China tariffs on cosmetics: Estée Lauder Cos mindful but confident impact will be minimal
Estée Lauder Cos will be able to absorb the impact of worsening trade terms between US and China because of the company’s high growth margins and investments in capacity, according to executive vice president and CFO Tracey T. Travis.

Speaking at Barclays Global Consumer Staples Conference, Travis reiterated the financial results of their fourth quarter, which saw tremendous double-digit growth in China, and added that the company anticipates that their business in the country will continue to thrive.

“This year, we expect continued success. It will not be prudent for us to anticipate the same growth we had in fiscal 2018 for fiscal 2019, but still strong double-digit growth. We are not seeing a slowdown in China. We are continuing to see all our brands grow quite nicely in China, in brick-and-mortar as well as online,” ​said Travis.

Tariff impact can be absorbed

Travis noted that the Estée Lauder Cos had been keeping a close eye on the tariff situation and was mindful of the discussed tariffs that could impact their products, but believes that the company is well-prepared to adapt to the situation.

“We have pretty high growth margins so the tariff impact for us, relative to another company, would be a bit less in terms of overall impact and it’s something we believe we can absorb within our P&L structure and not suffer from a margin standpoint,” ​she said.

Additionally, Travis shared that the outstanding growth of Estée Lauder Cos this year will allow the firm to invest more in capacity so that it can source more product closer to areas of fast growth like China and Asia in general.

While tensions continue to rise between Washington and Beijing, Travis does not see any signs of anti-American backlash impacting their brand.

“No, we are still seeing strong sales and support for our brands in China. We’ve been in China for more than 20 years and that has bode well for us. We have more than 5,000 employees in China, it’s a market we have participated in for a long time.”

Online platform perks

Despite all the uncertainty, the Estée Lauder Cos will continue to expand growth and footprint in China especially online on Tmall where it has experienced considerable success.

The Tmall platform, said Travis, allows the company to reach over 600 cities in China as compared to the 119 cities its brick-and-mortar stores give them access to, and helps it identify where demand is building for the brand.

Over a year ago MAC Cosmetics launched on Tmall and the company saw tremendous growth in sales and it even lifted the brick-and-mortar distribution across Asia.

With one-third of their brands already on Tmall, Travis revealed that the company plans for more brands, including Tom Ford Beauty, to launch on the e-commerce platform over the course of the year.

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