L’Oréal outperforms in China: CEO hails strength of e-commerce, digital marketing and brands

L’Oréal recorded sales of EUR13.07bn (USD15.5bn) for the first half of 2020, dropping down 11.7% on a like-for-like basis compared to the previous year while net profit declined 13% to EUR2.14bn (USD2.5bn).

Sales figures in were down in Asia Pacific on a like-for-like basis compared to the previous year to EUR4.46bn (USD5.29bn).

In the first half, sales in China grew by 17.5% in a negative market. The second quarter saw a growth of 30%.

However, it reported that advertising and promotional costs increased by 30 basis points to 30.5% of sales to support the growth of its brands, especially in China.

“We have continued to reinforce our growth drivers to support our brands, especially in China, with agility to maintain the closest possible bond with our consumers,”​ said L’Oréal Group CFO Christophe Babule.

Jean-Paul Agon, L’Oréal Group Chairman and CEO said: “In China especially, the market rebounded very quickly and was back to double-digit growth in Q2, confirming consumer's strong appetite for beauty. Beauty is leading the recovery and growing much faster than total retail sales. Online growth remains very strong and offline traffic is returning to normal progressively.”​

L’Oréal’s outstanding performance can be attributed to the contribution of e-commerce, which accounts for more than 50% of its business in the Chinese market.

Its strong e-commerce business in China grew even stronger in the past few months, with growth of 58% during the first half thanks to a strong showing in the first and second quarters.

Agon highlighted that the various shopping festivals helped to stimulate the rapid recovery of the market.

During the June 18 shopping festival, as known as 6.18, the company managed to gain significant market share, with L’Oréal Paris and Lancôme occupying the top two positions on the Tmall brand rankings.

“What’s important is to be very successful during these festivals. Chinese consumers are waiting for these festivals – they are smart, and they wait because of the special offers to buy these products,”​ said Agon.

He added that its success in China’s online market has helped to inform and shape its strategy globally.

“The learnings that we are taking from our super performance in China are extremely strategic and vital for us, they are shared now with every country in the world. This first half have demonstrated that now every division in every country is maximising this opportunity.”​

Digital expertise

The company’s expertise in digital marketing also helped to boost the company’s performance.

According to Agon, 60% of its media efforts globally was concentrated on digital.

“Our brands are creating more personalised and engaging consumer experiences with amazing digital services like virtual try-ons, diagnostics and live streaming - all this is building relationships between brands and consumers.”​

Agon highlighted that its digital prowess has helped to propel its brands in China.

According to the L2 Digital IQ rankings the five of the top six brands in China are now L'Oreal brands Lancôme, Yves Saint Laurent Beauté, Armani Beauty, L'Oreal Paris and Khiel's.

He added that it also proved the power of its brands and hero products in the market, which has contributed to the firm’s resilience in tough market conditions.

“In times of turmoil, consumers turn to quality, to strong aspirational brands they can trust. Our brands offer exceptional quality, safety, efficacy and a clear sense of purpose. These brands were already winning before the pandemic and continue to outperform during the crisis.”​

Opportunities in domestic travel

The L’Oreal Group would be entering the second half with ‘confidence’, said Agon, noting that the market will be even stronger due to the appetite for beauty, reopening stores and the continued growth of e-commerce.

In China, the firm has observed a ‘fantastic’ new opportunity in travel retail with the rise of domestic travel.

While the lack of overseas travel has impacted the travel retail market negatively, Agon explained that there was a silver lining for the firm.

“There are some negative effects, such as Chinese travellers are buying less in countries like Korea and Japan; but it’s not such a problem for us because when they shop mostly for local brands.”​

Conversely, he added that the firm has a great opportunity to capitalise on domestic travel, given its strong market share in the country.

“China is the country where we have the highest market share in the luxury market – I think we have 27% market share which is the highest in the world. When consumers stay in China, the probability that they will buy one of our brands is higher than when they grow abroad.”​

Additionally, the Chinese government has been encouraging domestic travel.

For instance, it raised the duty-free shopping quote three times in Hainan, a popular vacation spot for locals and duty-free shopping mecca.

“We are very well established in Hainan. This has been a very important relief for the travel retail business. Hainan represented something like 40% of the total travel retail market in the past few months. It’s a fantastic new opportunity.”​