Estée Lauder builds for growth in China

Warc, 7 February 2013

BEIJING: Estée Lauder, the beauty group, is employing varied strategies, from TV ads to ecommerce initiatives and improved customer relationship management, to drive growth in China.

Having been active in China since the mid-1990s, the company created a local unit ten years ago. It sells 14 brands in the country, and has seen average annual growth of 33% in the last three years.

Since the 2009 fiscal year, the firm has increased the amount of cities where it boasts a bricks and mortar presence from 33 to 66, having entered two further untapped markets in the last quarter alone.

It also started selling lines in 17 new stores in this period. Department stores, as well as via Sephora, a chain run by LVMH, and its own branded outlets have driven this process over the longer term.

"Large numbers of emerging consumers are entering the prestige category in secondary and tertiary cities, while consumers in tier one and mature tier two cities migrate increasingly towards buying online and when they travel," Fabrice Weber, Estée Lauder's president, Asia Pacific, told analysts.

"Growth is clearly expected to come from new consumers in new cities across the country," he added. "The mature cities .... are very close in terms of consumption per capita with what you see in neighbouring countries, like Korea."

Buyers are also "educating themselves" and gaining knowledge "very, very rapidly", meaning a core goal is "working harder" on customer relationship management to build brand loyalty.

"We think that annually, we're looking at 7m to 8m women – and a few men, we hope – buying our products across the country in the domestic context," said Weber. "Remember that we sell probably twice as much to Chinese people outside of China in terms of value, certainly."

During the 2012 fiscal year, Estée Lauder's portfolio held an estimated 26% market share in China, up by 340 basis point from 2009, according to third party data quoted by the firm.

The company has found television advertising a particularly useful way of securing new customers, with a campaign for Clinique's Even Better Clinical range boosting brand sales by 30% in the quarter.

"In China, advertising on TV is helping us to attract thousands of new middle-class Chinese consumers, who come to our counters when they start buying their first prestige beauty products," Fabrizio Freda, Estée Lauder's chief executive officer, said.

Ecommerce is another area of emphasis for the company. In all, six of Estée Lauder's brands have dedicated online stores, and these sites are an increasingly "important asset" now reaching roughly 350 cities. Mobile commerce is also among its next priorities.

"Both this geographic reach and our online sales are expanding rapidly," said Freda. "We believe this has a strong future. We'll continue to grow ... It's the beginning of the journey. It's still a relatively small part of our sales in China at this point."

Data sourced from Seeking Alpha; additional content by Warc staff