How Much Should Beauty Companies Rely on China to Generate Growth?

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Beauty companies may need to evaluate their reliance on China as a hyper-growth market.

“They set the tone for the idea that China could be as large or larger than the U.S. in a handful of years,” Wissink said. “It went from this nascent, closed-border, inaccessible market, to Tmall Global creating a gateway and the ability to reach billions of consumers really quickly because you didn’t have to go through the decadelong infrastructure build out.

The Estée Lauder brand saw a dip in the most recent quarter in China, due to logistics complications from COVID-19 lockdowns.Lauder’s sales in the Asia Pacific region dipped 4 percent for the quarter ended March 31, due to reduced retail traffic as well as limited distribution capacity at its Shanghai facilities, which were subject to COVID-19 restrictions.

For companies that have relied on beauty sales in China to propel growth, impress Wall Street and drive stock prices, the slowdown could pose a problem and create the need to accelerate growth across other markets.“Europe and the U.S. were floundering, and China was the power source for growth,” Wissink continued. “We used to talk about Estée Lauder almost like a jet plane, with these two enormous engines that were lifting the body up into the sky — it was travel retail and China.

“If you’re spending the same amount of investment in marketing and you’re not willing to spend more, you will probably see a decline in sales,” Reis said.

 

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