‘We have to double that’: L’Oréal CEO targets China’s lower tier cities to drive future growth
Speaking during the firm’s 2022 annual earnings conference held recently, CEO Nicolas Hieronimus estimated that L’Oréal has around 100 million Chinese customers today.
He emphasised the firm’s ambition to increase that number by expanding its business in tier-three and tier-four cities in China.
“Overall, our drivers are more of the rise of the middle classes, the penetration of our brands in China. Today we have approximately 100 million customers that buy our brands in China and we have to double that. We have potential in tier-three and -four cities where our penetration is half of [the penetration] we have in tier-one and -two.”
Recovery from Q2 onwards
Despite significant headwinds in China with the resurgence of COVID-19, L’Oréal’s sales in China grew by 5.5%, boosted by double-digit growth in e-commerce and a strong performance during the Double 11 mega shopping festival in November.
L’Oréal’s luxury division had a particularly good showing in China.
“In North Asia, the biggest luxury beauty region, we had a strong year ending at plus 8% on a market at minus 2%. The performance was particularly strong in China local markets with highest ever market share, over 30% in China local markets,” said Cyril Chapuy, president of L’Oréal Luxe.
“In 2022, L'Oréal Luxe China grew 11 points above its markets and was the only major player to grow in a difficult context affected by several lockdowns. L'Oréal Luxe is the leader by a long distance in China and I'd like to pay special tributes to our teams there.”
While the business environment has been difficult in China over the past few months, L’Oréal has begun to see recovery in the market.
“It's true that in China for most companies December and the beginning of January was very low consumption because people were sick and staying home, but the early signs we are getting from February, the first weeks of February are pretty positive – very positive in terms of traffic and as well in terms of purchases,” said Hieronimus.
Hieronimus said China would likely bounce back from the second quarter (Q2) of this year, noting that consumer sentiment would likely need some time to recover.
“I think that the Chinese market will rebound from Q2, not from the second half, but it probably will be progressive as consumers need to regain trust.”
He expected the company to recover on all fronts but expected brands with more offline presence to see greater gains.
“I think it will bounce back on all divisions, but clearly the divisions that have stronger brick-and-mortar footprint, like L'Oréal Luxe, will probably benefit even more from this reopening, but I think every division will benefit from it.”
Chapuy added: “L'Oréal Luxe has a dominant position in the Chinese ecosystem, which will bounce back big time after Q2. Six of our brands are in the top 20 of its gigantic market.”