Beauty industry downturn! Sephora lays off employees, L'Oreal and Estee Lauder performance slumps

The once hot beauty market seems to have hit the pause button this summer, with major players experiencing a sales slump. Is the "lipstick effect" losing its magic? Recently, Sephora, a subsidiary of LVMH, has announced a nearly 3% workforce reduction in response to the sluggish Chinese beauty market in an effort to reverse the loss. The financial report data for the second quarter of the world's largest beauty group, L'Oréal, is also disappointing, with sales growth in China slowing down. Another beauty giant, Estee Lauder, saw a nearly 2% decline in net sales for the 2024 fiscal year. The beauty market is facing multiple challenges, including intensified market competition, changes in the economic environment, and shifts in consumer behavior, all of which are constraining the industry's development. Sephora China cuts jobs, "unable to replicate its success in other regions" On Wednesday, Sephora announced a reduction of approximately 120 employees in China, with a focus on streamlining positions at the headquarters. The company pointed out that with reduced purchases by buyers, the competition in the Chinese region is becoming increasingly fierce, putting immense pressure on the price-sensitive beauty market. In order to cope with the challenging market environment and ensure our future growth in China, Sephora China is currently streamlining the organizational structure at the headquarters to ensure we have the appropriate capabilities for long-term sustainable growth. Sephora is one of the largest brands and profit centers of the French luxury goods group, following Louis Vuitton and Dior. While most of the luxury goods industry is slowing down, Sephora continues to achieve strong growth. Last month, the world's largest luxury goods group, LVMH, announced that organic sales growth in the second quarter slowed to 1%, falling short of expectations. While organic sales grew in Europe, the Americas, and Japan, they declined by 14% in regions outside of China and Japan in Asia, partially offsetting the strong impact of Chinese tourists' overseas consumption. Despite impressive performance in North America, the Middle East, and Europe, Sephora has not been able to replicate its success in the Chinese market. Data released by the National Bureau of Statistics shows that in July, retail sales of cosmetics in China decreased by 6.1%, following a 14.6% decline in June. High-end beauty market cools down, beauty giants' performance under pressure More beauty brands are facing similar issues in the Chinese market. Both Estee Lauder and L'Oréal have stated that demand is weak, especially for more expensive high-end products, which is affecting their business. On Monday, Estee Lauder reported sales performance that was more pessimistic than expected. In the 2024 fiscal year, Estee Lauder achieved net sales of $15.61 billion, a 2% year-on-year decrease. Skincare, makeup, and hair care businesses declined by 3%, 1%, and 4% respectively, with only the fragrance business achieving 2% growth. The main reason is the significant decline in its mainland China and Asia travel retail business. L'Oréal pointed out that in mainland China, the performance of the beauty market in the second quarter was negatively impacted by a high base from the same period last year and exacerbated by continued low consumer confidence. Last month, L'Oréal CEO Hieronimus warned investors at a public event that the global beauty market is expected to grow by 4.5% to 5% this year, lower than L'Oréal's previous expectation of 5%, as the growth engine of L'Oréal's performance - the Chinese market, which saw rapid sales growth in previous years, is expected to perform averagely this year Bad news also comes from the competition in the Chinese market. The rise of e-commerce platforms such as Alibaba and Tmall has provided a stage for local beauty brands with lower prices and quality comparable to big brands, offering consumers more choices. While foreign high-end beauty brands are actively expanding their online channels, they still appear somewhat inadequate in the face of intense price competition