China’s once-booming cosmetics market is undergoing significant shifts as local brands gain traction amid changing consumer behaviors. Over the past decade, the Chinese beauty sector flourished, bolstered by a rapidly expanding economy and increasing disposable incomes, which propelled international giants like L’Oréal, Estée Lauder, and Shiseido to substantial growth. As late as 2019, analysts projected that China would surpass the United States to become the world’s largest makeup marketplace. However, those predictions now seem overly optimistic as the landscape has dramatically altered.
Recent data indicates a downturn for these established brands, particularly L’Oréal, which experienced a notable decline in Mainland China sales. Reports reveal that L’Oréal’s overall revenue in North Asia fell approximately 3% last year, with Chinese sales constituting 17% of the company’s total earnings, down from 23% in the previous year. While L’Oréal maintains its commitment to the Chinese market, it has reportedly begun reducing its retail workforce in response to waning demand among consumers.
Amid this stagnation in China, L’Oréal is redirecting its focus towards growth opportunities in regions like the Middle East and Southeast Asia. According to Vismay Sharma, the head of L’Oréal’s operations in the South Asia Pacific, Middle East, and North Africa (SAPMENA) regions, these markets are poised to “play a much bigger role” in the company’s future. The term SAPMENA encompasses an expansive area from Morocco to New Zealand, comprising 35 markets with a combined population of around 3 billion—approximately 40% of the global populace—yet these regions currently contribute only 10% to international beauty sales.
Sharma notes that this demographic advantage hints at considerable growth potential. “The consumers in this part of the world are about five years younger than the rest of the world,” he remarked, highlighting the aspirational nature of these societies and their rapidly growing economies. This demographic shift is expected to influence beauty consumption patterns, making SAPMENA a focal point for L’Oréal as it navigates the evolving market landscape.
Nevertheless, the shift away from established Western brands in China poses challenges, particularly as new local entrants are rising in popularity. These so-called “C-Beauty” brands are gaining ground among consumers, partially fueled by viral marketing on platforms like Douyin, China’s version of TikTok. This spike in popularity for local brands reflects a broader trend wherein Chinese consumers are gravitating towards products that resonate more closely with their cultural identities. L’Oréal is not blind to this trend and has made investments in local brands to stay competitive.
The economic stagnation experienced in China is also impacting other cosmetic firms. Estee Lauder and Shiseido have reported similar declines, as persistent sluggishness in the Chinese economy, coupled with stagnant consumer spending, complicates their sales strategies. Furthermore, Sharma points to the growing competition posed by domestic brands as a significant contributing factor to the shifting fortunes of established international players.
Despite these challenges, the lessons gleaned from the Chinese market are valuable for L’Oréal as it vies for a stake in the SAPMENA regions. Southeast Asia, in particular, mirrors some of the characteristics seen in China, namely a highly interconnected consumer base accustomed to e-commerce and live-stream shopping experiences. For instance, L’Oréal has reported that over 50% of its business in Vietnam now stems from online sales, indicating a robust digital shopping landscape.
In contrast, the Middle East and North Africa are somewhat lagging when it comes to the digital beauty market. Sharma observes that these regions have not yet fully embraced platforms such as TikTok Shop, which diminishes their online retail capabilities compared to their Southeast Asian counterparts. Nevertheless, similarities exist in consumer preferences across these regions, which presents L’Oréal with substantial growth opportunities. “Expectations for beauty are very similar,” Sharma explains, pointing out common ideals, such as preferences for certain hair and skin features that resonate with the local population.
As L’Oréal navigates this complex global beauty landscape, its ability to create scalable content in the Gulf Cooperation Council (GCC) states could provide a significant competitive advantage. This approach, combined with a keen understanding of regional consumer behavior, positions L’Oréal to adapt and thrive in a fragmented market.
Looking ahead, it is clear that the dynamics shaping the global cosmetics industry are evolving. The rise of local brands in previously dominated markets poses risks for multinationals, serving as a reminder that adaptability is crucial in retaining consumer loyalty. As L’Oréal seeks to stabilize its revenues while expanding into new markets, the company’s strategies will likely continue to be shaped by the ongoing shifts within consumer behaviors across different regions. This recalibration not only reflects broader economic trends but also underscores the ever-changing landscape of beauty consumption in an increasingly interconnected world.