Slowing economic growth in China is doing little to dampen beauty companies’ enthusiasm about the market, said a recent report by BW Confidential. In March, the Chinese government revised downward the economy’s growth for this year to 7.5% compared to decades of average annual growth of 10%. In addition, analysts are worried about how China will make the transition from an economy based on external growth to one centered on domestic consumption and the possible downturns the country may see along the way.
Despite weakening growth, Estée Lauder Companies CEO, Fabrizio Freda, recently told analysts that he didn’t see any big risks in consumption. “We see China remaining robust. [There is a] softening in some same-door [sales] in developed markets like Shanghai, Beijing and other big cities, but that slowdown means that doors that were growing at 12% or 15% are now growing at 8 or 9%; it is not worrying,” he explained. Fabrizio added that expansion of distribution and the move into new cities combined with more affluent consumers entering the category ensures strong growth.
This echoes comments from L’Oréal CEO Jean Paul Agon, who said at the beginning of this year that he was “very confident” that the wave of Chinese growth will continue. Like Freda, he noted that consumption in China is deepening, especially given the development of tier-four and tier-five cities. Indeed, L’Oréal said its consumer products division saw 18.9% growth in third-, fourth- and fifth-tier cities in 2011.
BW Confidential said overall market figures support the majors’ optimism over China. Sales of beauty and personal-care products were up 10.5% in 2011 to $26 billion, according to Euromonitor.
The multinationals argue that while there may be periods of slower growth, the long-termopportunities and volumes to be had far outweigh any risks. In addition, they say that investment in building their brands in China has a huge influence on the ubiquitous Chinese traveler and is paying dividends in travel retail or in other countries where these consumers are buying.
To read BW Confidential’s full report on the beauty market in China go to: www.bwconfidential.com