A fly on the wall at recent board meetings of some multinational cosmetic companies might hear board members saying ‘it all used to be so beautiful’ or something along those lines. What are they lamenting? Possibly the huge change in the beauty products market in China. Multinational beauty companies like Estee Lauder, maker of Clinique and Aveda products, and Japan’s Shiseido, long accustomed to relying on China for a substantial share of their sales, have been stung by a significant drop in demand from Chinese consumers. Are Chinese buyers forgoing their quest for smooth skin and pretty makeup? Not entirely, they’re just choosing to spend their money on less expensive, domestically made brands.
While demand for foreign-made beauty products in China declined during the pandemic and then remained relatively low in the months that followed, it had been expected that once China regained its economic footing, demand would return to pre-pandemic levels. Now though, it’s becoming clear that those forecasts were wrong. Not only have Chinese buyers turned to home-grown brands, consumption of cosmetics at airport duty free shops, once a strong segment of the market, have fallen as Chinese tourism has dropped off. Adding to the ugly situation are new regulations requiring foreign companies exporting to China to divulge the exact ingredients used in their products as well as the exact quantities of those ingredients. In fact, many companies, wary of the potential for counterfeit products being produced, have put a temporary pause on their exports. All of this has led to sinking stock prices at global cosmetic companies. Indeed, those in the industry are likely familiar with the old saying that beauty doesn’t last forever, and in this case, that pretty upward trend for cosmetic stocks does seem to be a fleeting thing.
Discussion Questions:
1. Why are Chinese consumers choosing domestically made brands over products produced by global cosmetic powerhouses like Estee Lauder and Shiseido? How should the large multinational companies respond in the short term? Does your answer change if you consider the longer term?
2. Beijing is demanding that global cosmetic companies provide detailed information about the ingredients used in their products prior to exporting them to China. Discuss what this means for global cosmetic companies. Should companies provide the information, or should they abandon, at least temporarily, the market in China? Explain.
Sources| NY Times: https://www.nytimes.com/2023/09/17/business/china-cosmetic-imports.html; WSJ: https://www.wsj.com/livecoverage/stock-market-today-dow-jones-11-13-2023/card/japanese-cosmetics-giant-shiseido-hit-by-uproar-in-china-over-fukushima-wgozxrmu03rAn8MARKez; Finance Yahoo: https://finance.yahoo.com/video/est-e-lauder-stock-suffers-165024699.html; Unsplash: Photo by Kier in Sight Archives on Unsplash