L'Oreal to make up the world with mainland cosmetics

2004-11-22

South China Morning Post

Five years from now, housewives from Minnesota to Munich will not only be wearing Chinese clothes and watching Chinese televisions- they will also be using fine Chinese cosmetics.

That is the ambition of French cosmetics giant L'Oreal, which plans to open a research and develop plans to open a research and development centre in June next year in Shanghai, its fifth worldwide.

The plan is to develop Chinese cosmetics for the domestic market first, then build an export market for beauty products designed and manufactured in China.

In January this year, the firm acquired Yue-Sai, a brand created in 1992 to produce make-up and skincare productions for Chinese women.

"We are pushing the concept of Chinese beauty and Chinese products", said Paolo Gasparrini, president of L'Oreal China, in an interview yesterday.  "We can develop the Yue-Sai brand and take it abroad, first in Asia and later to Europe and North America.  If we sell it up in the right way, it could become a global brand, aimed at everyone, like our Japanese brands."

The new 3,000 square meter laboratory will be in Pudong on the site of the Yue-Sai factory, obtained when L'Oreal bought the company from Coty, a global perfume and cosmetics concern.

"We wanted to add to our portfolio a real Chinese brand, based on Chinese ingredients and aimed at Chinese consumers," Mr. Gasparrini said.

The Yue-Sai brand was founded by Kan Yue-Sai, a native of Guilin, who moved to Hong Kong as a girl and then migrated to Hawaii when she got a job in an advertisement agency.  In 1978, Ms. Kan turned herself into a television celebrity.  She founded the cosmetics firm because, she said, she could not find make-up suitable for her skin as she prepared to go on camera.

Last year, Yue-Sai posted China sales of 38 million ($385.5 million) from 800 department stores in 240 major cities.

L'Oreal is also recasting its western brands for Chinese tastes.  It has contracted Crouching Tiger, Hidden Dragon actress Zhang Ziyi to promote its Maybelline make-up line.

Foreign companies dominate Chinas cosmetics market.

Last year L'Oreal achieved sales in China of 1.5 billion yuan, ranking third and accounting for 5 percent of the market.  In the first nine months of this year, China sales rose 67 percent and Mr. Gasparrini expects to achieve a market share of 8 percent this year.

Direct sellers such as Amway, Avon and Mary Kay have also entered the market, recruiting thousands of people to sell their products door-to-door.  L'Oreal, by contrast, was a late arrival, opening counters in Shanghai, Beijing and Guangzhou in 1990 and a joint venture plant in Suzhou in 1996.

The Suzhou plant produces Maybelline, L'Oreal Paris, Garnier and other brands which account for about 75 percent of its business in China.  Of the output, 60 percent is sold domestically and 40 percent throughout the region.  The remainder of its China sales comprise products that it imports, most of them high-end.

Early on, Mr. Gasparrini knew that his company was absent in a large part of the market, particularly the lower end.

"We looked for local brands to accelerate our entrance and found Mini-Nurse, which was very popular among the young," he recalled.

Established in 1992, Mini-Nurse is one of Chinas three best-known skincare brands, with a factory in Yichang, Hubei province.  Last year, 40 million worth of products were sold through 280,000 outlets.  Mini-Nurse's owners initially did not want to sell.  But Mr.Gasparrini persisted and after four years of courting, finally reached a deal in December last year- the terms of which neither side will disclose.

L'Oreal closed Mini-Nurs's headquarters in Shenzhen, moved a team of managers to its own head office in Shanghai and merged the Mini-Nurse brand with Garnier.

A month later, L'Oreal announced a second acquisition- of mid-market make-up and skincare products maker Yue-Sai.  Established in 1992, Yue-Sai sold 38 million worth of goods last year.  "[Yue-Sai's owners] wanted to sell", Mr. Gasparrini sad, "We completed the deal in less than six months."

L'Oreal took over Yue-Sai's Pudong factory and its office, which it will re-open as a 3,000 square metre research centre in June.  The facility- its fifth research and development cosmetics for both local and export markets.

The two acquisitions have proven a substantial challenge for L'Oreal's management, which must integrate the culture, logistics and human resources of the three firms.  But they have also helped boost L'Oreal China sales by 67 percent in the first nine months of this year.

"Our ambition within five years is to enter the billionaire club of L'Oreal- that is, sales of billion, joining countries like the US, Germany, Italy and the UK," Mr. Gasparrini said."  We could exceed Japan by then- it is larger than China now but our sales are growing faster."

His main rivals are the same companies L'Oreal competes with worldwide.  Amway, Avon and Mary Kay will in particular be helped by passage of China's first direct sales law by the end of the year, easing restrictions on the way they conduct business.

Domestic cosmetic firms are handicapped by a late start, lack of capital to fund research and development and inexperience with the sophisticated marketing that is the hallmark of the global players.  For example, L'Oreal uses two of China's best-known actresses, Gong Li and Zhang Ziyi, to advertise two of its brands. 

L'Oreal most popular lines in China are whitening products.  "Chinese skin has special needs, especially for the eyes, where women are very sensitive about ageing," Mr. Gasparrini said.  "And we need specific products for oily skin, especially in the summer. Chinese do not like skin that shines."

"Before, the bodies of Chinese women were entirely covered," he added.  "But not now.  They now discover that they want to have beautiful bodies.  We have a lot of experience in this."

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