With the release of Coty’s performance for the fourth quarter of the fiscal year 2023, all major companies in the global beauty industry have now disclosed their results for the first half of 2023. In terms of revenue, L’Oréal, Unilever, and Estée Lauder remain in the top three.
L’Oréal, Unilever, and Estée Lauder remain in the top three
In the second half of last year, China, as the world’s second-largest cosmetics market, experienced another wave of impact from the pandemic, which had a significant effect on the global beauty industry. In the first half of 2023, the beauty industry saw a recovery, and overall, major beauty giants experienced growth in their performance.
In terms of growth rates, only Estée Lauder and Natura among the top ten companies experienced a decline. Estée Lauder was deeply affected by the travel retail dilemma, but it showed some signs of recovery in the first half of this year. Natura, on the other hand, was burdened by debt issues, and in April of this year, it reached an agreement with L’Oréal to sell Aesop to raise funds to address its debt problem.
Beiersdorf, L’Oréal, and LVMH were the three companies with growth rates exceeding double digits, at 14.9%, 13.3%, and 13% respectively.
From a revenue perspective, the top ten global beauty companies can be divided into four tiers. L’Oréal and Unilever are in the first tier and are the only two beauty companies whose cosmetics business revenue exceeds $10 billion. L’Oréal achieved a revenue of $22.44 billion in the first half of 2023, significantly ahead of Unilever, which ranked second with $14.3 billion.
Estée Lauder and Procter & Gamble (P&G) are in the second tier. Estée Lauder’s net sales for the first half of 2023 (fiscal year Q3-Q4) amounted to $7.36 billion, a 5.71% year-on-year decline. Meanwhile, P&G’s net sales for its cosmetics business in the first half of 2023 (fiscal year Q3-Q4) reached $7.24 billion, a 5.69% year-on-year growth. Despite the contrasting growth rates, P&G has narrowed the gap in net sales with Estée Lauder. Estée Lauder reported a significant decline of 34% in its global travel retail performance for fiscal year 2023, and it noted that the sluggishness in travel retail would continue to impact the company’s performance in the short term. P&G is maintaining its pursuit of Estée Lauder and has the potential to surpass it in net sales.
Apart from the top four, the revenue growth of the remaining six companies is relatively similar, consistent with the overall rankings in the first half of the previous year.
The third tier consists of Beiersdorf and luxury goods giant LVMH, ranking fifth and sixth, respectively. Both companies generated cosmetics business revenues exceeding $4 billion, with $4.48 billion and $4.39 billion, respectively.
The fourth tier includes the last four companies. Ranking seventh and eighth are Japanese beauty giant Shiseido and Brazilian beauty giant Natura, both of which achieved revenues exceeding $3 billion in the first half of 2023, with $3.38 billion and $3.03 billion, respectively.
In ninth and tenth place is Kevnue, spun off from Johnson & Johnson’s consumer health business, and Coty. Kevnue recorded $2.97 billion in cosmetics business revenue for fiscal year 2023. Previously, Johnson & Johnson held over 90% of Kevnue’s shares after the spin-off. However, Johnson & Johnson recently announced a stock exchange offer, and after completion, its ownership of Kevnue will decrease to 9.5%. Coty, ranking tenth, experienced a decline in performance during the pandemic and continued to incur losses. However, under the leadership of CEO Sue Y. Nabi, it successfully reversed the declining trend in revenue in fiscal year 2022, while also turning losses into profits after five consecutive years of losses. In the first half of 2023 (fiscal year Q3-Q4), Coty’s revenue was $2.641 billion.
The growth of the high-end segment has slowed down, and dermatology has become popular
In reviewing the performance of the top ten companies, two main trends can be observed in the product category during the first half of this year.
Firstly, there has been a slowdown in the growth of high-end products.
Taking L’Oréal, the top-ranked company, as an example, in 2022, the luxury products division of L’Oréal achieved a year-on-year growth of 18.6%, ranking second among L’Oréal’s four business divisions, with a revenue of 14.638 billion euros. This accounted for 38.3% of L’Oréal’s total revenue for the year, surpassing the 36.6% of the consumer products division and becoming the largest business segment for L’Oréal.
However, in the first half of this year, the growth rate of L’Oréal’s luxury products division revenue declined to 6.1%, making it the slowest-growing division among the four business segments. Its revenue share was also surpassed by the consumer products division, dropping to the second position among the four divisions.
In addition, although Beiersdorf’s cosmetics business achieved organic growth of 14.9% in the first half of 2023, its luxury brand La Prairie experienced a 9.9% decline in sales during the first six months. Nominal sales decreased by 10.5% to 294 million euros. Beiersdorf stated that the main reason for the decline was the significant disruption caused by the “daigou” business in the Asian travel retail market.
Similarly, Estée Lauder, which has had unsatisfactory performance in the past two years, also experienced a decline in sales of high-end products. In the 2023 fiscal year, Estée Lauder’s skincare business revenue plummeted by 14%. Estée Lauder attributed the decline to a part of it being due to the decline of its high-end product, La Mer. In terms of makeup, net sales remained relatively flat compared to the same period last year, with M·A·C and Clinique both experiencing growth in net sales. However, overall, due to the poor performance of high-end brands La Mer and Tom Ford, there was no growth in makeup net sales. Although Tom Ford and Le Labo showed revenue growth, their revenue remained relatively flat compared to the same period last year. The performance decline of another high-end fragrance brand, Jo Malone London, was attributed to a decrease in net sales, an increase in sales costs (partly due to increased promotional items), and an increase in selling expenses due to increased personnel costs compared to the previous year.
P&G’s high-end brand SK-II has also been frequently mentioned due to its declining performance in recent quarters. In the first half of this year, P&G stated in its financial report that organic sales growth for skincare and personal care products was in the low single digits, as higher pricing and innovation-based volume growth were partially offset by a decline in SK-II sales through travel retail channels. SK-II, as the core brand of P&G’s beauty business, had previously achieved sales growth of over 20% for multiple quarters. However, its declining performance has now slowed down the upward trend of P&G’s beauty business.
The decline in high-end business, as mentioned by these companies, is mainly attributed to tourism retail.
According to Byredo, the major reason for the 9.9% decline in sales of the previously growing high-end brand La Prairie in the first half of 2023 is the significant disruption caused by the “daigou” business in the Asian tourism retail market. Daigou shoppers act on behalf of domestic customers to purchase goods overseas, providing these customers with more tax and price advantages compared to domestic retailers. Therefore, Byredo welcomes the recent measures taken by the government to reduce daigou business in China, despite the negative impact on the luxury cosmetics business in the second quarter.
Estée Lauder, which has been heavily involved in tourism retail in recent years, once again stated in its latest financial report that the decline in performance is related to the slow recovery of international flights, visa issuance, and group tourism in the Asian market. It is also attributed to the weak performance of high-end brands such as La Mer in the Chinese and Korean markets. Procter & Gamble also mentioned that the sales of SK-II were dragged down by the sluggish tourism retail.
Luxury brands have long been favored by consumers in duty-free shops. On one hand, the prices of duty-free products are relatively lower, leading to significant price differences compared to the regular market. This price discrepancy may cause consumers to hesitate in purchasing products from the regular market. It disrupts the brand’s pricing positioning and market structure. On the other hand, in terms of product lines, some companies have introduced specific series or product lines to cater to the demands of the duty-free market, which may not have a corresponding presence in the regular market. This differentiation in market positioning may confuse consumers and further contribute to the confusion in pricing systems. Over-reliance on discounted prices by consumers leads to confusion in the brand’s pricing system, thereby long-term damaging the most important brand assets of high-end brands.
Estée Lauder, Beiersdorf, and Procter & Gamble are currently facing these issues. It is evident that the high-end segment, which has been a growth driver for these companies, is now experiencing a slowdown due to the impact of tourism retail. These companies must focus on addressing the confusion in pricing between duty-free and regular market products and reshaping the image of their high-end brands.
In addition to the slowdown in the growth of high-end lines, another characteristic of the product segment is a strong focus on dermatology.
In February of this year, Myriam Cohen-Welgryn, the Global President of L’Oréal Active Cosmetics, announced on her LinkedIn account that the division had officially been renamed Dermatological Beauty. This division includes brands such as La Roche-Posay, Vichy, CeraVe, Decléor, SkinCeuticals, and the skincare brand Skinbetter Science, which was acquired in 2022.
In the first half of this year, L’Oréal Dermatological Beauty achieved sales of €3.285 billion, representing a year-on-year growth of 29.0% and once again becoming the fastest-growing division in L’Oréal’s sales. In the full year of 2022, the Skin Beauty division achieved sales of €5.125 billion, a year-on-year growth of 30.6%, making it the fastest-growing division once again.
Under the Beiersdorf umbrella, the Derma brands Eucerin and Aquaphor achieved organic sales growth of 26.1% in the first half of this year, reaching €663 million (compared to €526 million in the previous year).
Apart from L’Oréal, Shiseido also sees dermatology as the next growth driver for the group. On February 10th of this year, Shiseido launched its midterm strategy “SHIFT 2025 and Beyond,” with the group identifying “Clean & Dermatology” and “Inner Beauty” (purity, dermatology, and inner beauty) as the next growth drivers.
At the World Congress of Dermatology held this year, L’Oréal, Estée Lauder, Procter & Gamble, and Unilever all showcased their latest discoveries and research in dermatology. L’Oréal shared its new research on ceramides, highlighting their crucial role in maintaining and repairing the skin’s protective barrier. Barrier damage is associated with various skin conditions such as psoriasis, acne, eczema, and atopic dermatitis. Estée Lauder also presented its latest research in anti-aging at the 2023 WCD.
The Chinese market remains the growth engine for beauty industry giants
Returning to the Chinese market, international beauty giants have also experienced a roller coaster ride in recent years. After the complete relaxation of control measures this year, top beauty companies that have been continuously investing in China have reaped the first wave of benefits from the market’s recovery. The Chinese market has once again become an important growth engine for these beauty industry giants. According to the latest data from the National Bureau of Statistics, the retail sales of cosmetics in the first half of 2023 reached 207.1 billion yuan, with a year-on-year growth of 8.6%, outperforming the overall consumer goods market. China continues to be one of the most important markets for major international beauty conglomerates.
In the first half of this year, although overall sales in North Asia only grew by 3.9%, the mainland Chinese beauty market continued to gradually recover driven by strong rebounds in offline and online channels. Against this backdrop, L’Oréal’s performance stood out significantly, with strong growth achieved across all channels and divisions during this period. The launch of new brands such as Valentino, Prada, and Takami contributed to this trend, along with well-established innovative channels and expansion into new cities. During the 6.18 shopping festival, eight brands from the L’Oréal group entered the top 20, with L’Oréal Paris and Lancôme ranking first and second, respectively, across all platforms and categories.
China has once again become Shiseido’s largest market. Sales in the Chinese region accounted for 26.4% of the overall sales in the first half of this year, reaching 130.609 billion yen, surpassing all other markets with a growth rate of 12.8%. The core profit reached 5.498 billion yen.
Shiseido attributed the growth in the Chinese region to initiatives that provided brand experiences through offline channels and the performance growth of the CPB brand in e-commerce channels. Additionally, the group is transitioning from a growth model primarily driven by large-scale promotional activities to a sustainable growth model based on brand value and tailored to consumer needs.
As for Estée Lauder, which has been heavily influenced by Chinese travel retail, the financial report states that net sales in mainland China have increased and are expected to resume strong growth in the second half of the 2023 fiscal year. The lower foot traffic due to COVID-19 restrictions and the increase in COVID-19 cases posed challenges to the business in the first half of the 2023 fiscal year.
Fabrizio Freda, President and CEO of Estée Lauder, stated, “We returned to organic sales growth in the fourth quarter, delivering our outlook. Momentum continued in the markets of EMEA and Latin America, and accelerated strongly in Asia/Pacific led by mainland China and Hong Kong SAR. ”
While tourism retail is indeed one of the reasons for the decline in performance for companies like Estée Lauder in the Chinese market, the rise of domestic Chinese brands is also an important factor that cannot be ignored. International beauty giants cannot solely attribute their challenges to tourism retail but should also reassess Chinese brands and align their supply chains, products, and marketing strategies to better cater to Chinese consumers.
Overall, to achieve stable growth in an uncertain economic environment, the global beauty giants still place great importance on China, the world’s second-largest cosmetics market.
