Beauty is more than skin deep in China – it’s big bucks

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Luxury brands are being propped up by consumer spending in China. Photo: iStock

There is nothing quite like the aroma of hard cash, especially if the notes are red with a striking portrait of a young Chairman Mao printed on them.

For L’Oreal, this yuan cascade has helped boost the French blue-chip brand’s bottom line in the first quarter with Chinese shoppers at the vanguard of high-end perfume and cosmetic sales.

“The appetite for beauty products [in China] could be sustainable for a while,” Jean-Paul Agon, the chairman and CEO of L’Oreal, told a conference call with analysts.

Rising demand for the company’s luxury cosmetic brands, such as Lancome, has compensated for static growth in the label’s mass market division. A glance at the numbers showed that first-quarter sales jumped 6.8% compared to the same period last year, fueled by a mini-boom in the world’s second-largest economy.

Significantly, the figure beat market expectations of 5.6%, making it the strongest pace of quarterly growth in eight years.

Still, currency depreciation against the euro in key markets, such as the United States and Brazil, pushed reported revenue down 1%  to 6.78 billion euros ($1.23 billion) from a year earlier.

“The luxury market is really flying right now,” Agon said. “We are pretty confident that the consumer division should be able to accelerate quarter after quarter during the year.”

This, in turn, has produced upbeat assessments from major players such as LVMH, the multinational group with brands such as Louis Vuitton, Christian Dior, and Moet & Chandon

This, in turn, has produced upbeat assessments from major players such as LVMH, the French-based multinational group with brands like Louis Vuitton, Christian Dior, Hennessy and Moet & Chandon.

“The strong end to 2017 has certainly continued on into 2018,” analysts at Berstein, a leading management consultancy, said in a note to Reuters.

Last year, a report by McKinsey & Company, the global consultancy based in New York, painted an upbeat picture of the China market.

It showed that the number of millionaires in the country is expected to “surpass that of any other nation” this year, while by 2021 China is poised “to have the most affluent households in the world.”

“In 2016, we estimate that 7.6 million Chinese households purchased luxury goods – a number larger than the total number of households in Malaysia or in the Netherlands,” the report, entitled Chinese luxury consumers: The 1 trillion renminbi opportunity, stated.

“Each of these 7.6 million households spends on average 71,000 [yuan] in luxury goods per year, which is twice what French or Italian households are spending. Chinese luxury consumers thus account for over 500 billion [yuan] ($7.4 billion) in annual spending, representing almost a third of the global luxury market,” it added.

Earlier this month, a survey compiled by marketing agency Walkthechat, which is part of social media giant WeChat, confirmed that Chinese customers make up 32% of the global luxury sector and that number will grow to 44% by 2025.

Naturally, this type of data plays well with Agon.

“Chinese consumers are driving growth, particularly for the L’Oreal Luxe Division in China and Hong Kong,” he said during L’Oreal’s conference call.

Now, that is what you call the sweet smell of success.

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