French luxury conglomerate LVMH has released its Q3 financial report for 2023, revealing that its beauty business achieved a milestone by surpassing 6 billion euros in revenue for the first nine months of the year. The revenue reached 6.021 billion euros. This marks the second consecutive quarter of revenue growth in the beauty business since Stephane Rinderknech, former CEO of L’Oreal China, took over as Chairman and CEO of LVMH’s beauty business in March this year.
Beauty business revenue exceeded 6 billion euros in the first three quarters
French luxury giant LVMH has released its Q3 2023 financial report, revealing a 14% growth in organic revenue compared to the same period in 2022, reaching €62.205 billion.
LVMH stated that all business groups, except for the Wines & Spirits business, reported sustained organic revenue growth during this period. Considering a negative exchange rate impact of 4%, the group’s revenue increased by 10%. Europe, Japan, and other Asian regions achieved double-digit organic growth. Q3 organic revenue growth reached 9%.
In terms of specific business segments, the Wines & Spirits business experienced a 7% decline in organic revenue, reaching €4.689 billion in the first nine months of 2023. The Fashion & Leather Goods business achieved a 16% organic revenue growth, reaching €30.912 billion in the first nine months of 2023. The Perfumes & Cosmetics business achieved a 12% organic revenue growth, reaching €6.021 billion in the same period. The Watches & Jewelrybusinessachieved a 9% organic revenue growth, amounting to €7.951 billion in the first nine months of 2023. The Selective Retailing business saw a 26% organic revenue growth, reaching €12.431 billion.
LVMH stated that its Perfumes and Cosmetics business achieved a 12% organic revenue growth, reaching €6.021 billion in the first nine months of 2023, driven by strong innovation and a highly selective distribution strategy. This marks the first time LVMH’s beauty business has exceeded €6 billion in revenue in the first three quarters.
Within this segment, the perfume business demonstrated sustained strong growth. Christian Dior delivered impressive performance and expanded its leading position in key markets. The success of women’s fragrances Miss Dior and J’adore drove significant growth in the perfume business. In contrast, the continued success of Francis Kurkdjian’s latest creation, L’Or de J’adore, and Sauvage further enriched the perfume portfolio on a global scale.
In addition to the perfume business, Dior Addict makeup and Prestige skincare also contributed to the brand’s rapid growth. Guerlain continued to grow, driven particularly by the success of its popular Aqua Allegoria fragrances, the high-end fragrance collection l’Art et la Matière, and the positive response to its Terracotta Le Teint makeup. The sustained success of their perfumes inspired Givenchy fragrances. Benefit experienced growth thanks to the successful launch of their new Fan Fest mascara and the popularity of their Pore Care products.
Meanwhile, the selective retailing business, where Sephora operates, saw a 26% organic revenue growth in the first nine months of 2023. Sephora performed exceptionally well and continued to expand its market share, particularly with strong momentum in North America, Europe, and the Middle East. Its distribution network continued to expand, especially in the UK, where the second store is set to open following the tremendous success of the first store’s opening earlier this year. DFS benefited from the gradual recovery of international tourism, especially with the return of tourists to flagship destinations like Hong Kong and Macau.
Continuing to expand the beauty business
Looking at LVMH’s beauty business, although its revenue has been growing in recent years, its growth rate is lower than the overall group level. Furthermore, there has been a decline in the proportion of the beauty business within LVMH’s overall portfolio. In the first half of 2019, the beauty business accounted for 12.9% of the total revenue, which dropped to 9.85% in the first half of 2022 and slightly decreased to 9.54% in the first half of this year.
As L’Oréal and other conglomerates continue to gain market share, LVMH’s competitor, Kering Group, is making a strong comeback in the beauty market. Kering Group hired experienced former Estée Lauder executive Raffaella Cornaggia in early February this year to develop beauty products. Additionally, in late June, they acquired the perfume brand Creed for a high price of up to €3.5 billion. LVMH has also sensed the competition and has started to increase investments in the beauty sector.
In March of this year, LVMH underwent a series of personnel changes in its beauty business.
Firstly, the former leader of Guerlain was appointed as the President and CEO of Dior, while the former leader of Make Up For Ever became the President and CEO of Guerlain.
The most significant personnel change was the appointment of Stéphane Rinderknech, former CEO of L’Oréal China, as the Chairman and CEO of LVMH’s beauty business. He is responsible for overseeing all of LVMH’s Perfumes and Cosmetics operations.
Rinderknech graduated from the ISG Business School in Paris. In 2002, he began his career at L’Oréal in the company’s travel retail division in the United States. In 2011, Rinderknech relocated to China, where he first served as General Manager of L’Oréal’s Luxury Products Division and later became the head of the Consumer Products Division. He eventually rose to the position of CEO of L’Oréal China, overseeing all departments and operations of the company.
Rinderknech is regarded as a rising star and a highly anticipated candidate for the CEO position within L’Oréal’s global business. During his tenure as CEO of L’Oréal China, he successfully drove the company’s growth in the Chinese market, achieving a growth rate of 30%. Additionally, he demonstrated exceptional capabilities in the field of digital marketing. By the time he left, e-commerce channels accounted for 40% of L’Oréal’s sales in China. His achievements in digital marketing also became a significant driving force for his role in accelerating L’Oréal’s digital transformation in the United States.
In fact, before Rinderknech, there had been a lack of experienced executives leading LVMH’s Perfumes and Cosmetics business, which is a large and rapidly growing segment. Rinderknech’s successful track record at L’Oréal positioned him as an attractive candidate for LVMH. This appointment reflects LVMH’s emphasis on the beauty business.
In addition to the series of personnel changes, LVMH has also been actively expanding its beauty business.
In early September of this year, L Catterton, the private equity firm under LVMH, announced the acquisition of a minority stake in the Swedish haircare brand, Maria Nila.
Maria Nila offers a range of haircare products, including shampoos, conditioners, hair masks, styling products, and color care products. They cater to various hair types and concerns, such as dryness, damage, and color-treated hair. It was reported that Maria Nila had a revenue of 45 million euros in 2022.
Regarding this acquisition, both L Catterton and Maria Nila expressed that the partnership would help accelerate Maria Nila’s growth by expanding its global brand presence, product portfolio, and sales channels. Additionally, it would also strengthen L Catterton’s position in the beauty industry.
In addition, just half a month later, L Catterton made another acquisition through its early-stage platform, Elevate Beauty, by acquiring a minority stake in the luxury skincare brand, Eventh Day. This marked the brand’s first external funding, and it was founded by dermatologist Dr. Antony Nakhla in 2018. With its proprietary skincare innovation, Peptide Plasma, Eventh Day has garnered attention in the luxury skincare market.
L Catterton has a track record of global investments in the beauty and personal care sector. Some of its current and past investments include Tula, Merit, Oddity (the parent company of Il Makiage), Function of Beauty, The Honest Company, Elemis, Nutrafol, Intercos, and Chinese beauty company Marubi.
It is evident that in the face of L’Oréal’s growing market share in the beauty industry and the strategic moves of its longstanding competitor, Kering Group, LVMH is actively expanding and strengthening its presence in the beauty sector.
First investment in Chinese recombinant collagen company
In the beauty business, LVMH Group has experienced a decline in its revenue share from Asia (excluding Japan). In the first half of 2020, Asia (excluding Japan) accounted for nearly 50% of LVMH’s beauty business revenue, at 49%. However, by 2023, this proportion had dropped to 34%.
As the world’s second-largest cosmetics market, China is crucial for LVMH. With the contraction of the beauty business and the decline in the Asian market, LVMH is in urgent need of the Chinese market to revitalize its beauty business. As the COVID-19 restrictions gradually eased this year, LVMH launched a series of initiatives in China aimed at revitalizing the market.
Following a strong start in the first quarter’s financial report, Jean Jacques Guiony, the Chief Financial Officer of LVMH Group, expressed great optimism for the Chinese market in 2023 and anticipated positive prospects. In the second quarter, Guiony expressed satisfaction with the rebound in the Chinese market, which made a significant contribution to sales in Asia.
LVMH is also aligning itself with the Chinese market in terms of research and development.
In April of this year, LVMH followed in the footsteps of international giants such as L’Oréal and Estée Lauder and established the “Asian Beauty Research and Development Center” in Shanghai. This is the largest research and development center set up by LVMH in Asia, comprising skincare and makeup color development laboratories, as well as product testing rooms and other innovation development laboratories. The primary mission of this center is to conduct a series of research and development innovations for the Chinese market and consumers, aiming to constantly enhance innovation and vitality in the Chinese market.
Simultaneously, L Catterton made its first investment in a recombinant collagen company in China by investing in Trautec. Trautec raised over 200 million RMB in its Series B financing round, with the lead investment coming from L Catterton’s first RMB fund and CITIC Securities’ global USD private equity investment platform, CLSA Capital Partners. This marks L Catterton’s first investment in a Chinese recombinant collagen company, indicating its strategic move to enter the upstream raw materials segment of the beauty industry in China.
According to Trautec’s official website, the company was established in 2015 and is a technology-driven enterprise focused on the research, development, production, and sales of novel biomaterials and innovative protein/nucleic acid drugs. The company has long been committed to research in the field of life and health, such as injury repair and tissue regeneration, and aims to establish a globally leading synthetic biology industrial platform.
In addition, in June of this year, Sephora grandly unveiled its second store in Asia and the first Future Concept Store in China, located in the prime commercial area of Nanjing East Road Pedestrian Street in Shanghai. The store offers consumers a vast selection of exclusive high-quality products, professional in-store services, innovative digital makeup tools, and a fully upgraded beauty shopping experience.
As luxury giants continue to intensify their focus on the beauty industry, the Chinese market has become a battleground for global luxury leaders. Following Kering’s reported €3.5bn acquisition of fragrance brand Creed, the competition for the beauty market among luxury brands has reached a fever pitch, with the Chinese market potentially becoming the main battlefield for these luxury beauty businesses.
