L'Occitane's Flatiron flagship

HONG KONG Beauty group L’Occitane International SA reported net sales of 727 million euros for the first half of fiscal 2020 ended Sept. 30, a 22.1 percent increase over 2019. Net profit rose 351.6 percent, to 25.2 million euros compared with 5.6 million euros in 2019. At a press conference on Monday, chief financial officer Thomas Levilion attributed the growth in profitability to strong sales across all brands and key geographic areas, targeted investments, and the addition of British skin-care brand Elemis, which it acquired in January.

Sales of core brand L’Occitane en Provence grew 5.7 percent in the first half, boosted by product launches. “We continue to build on the initial success of the Immortelle Reset serum to strengthen our skin-care position, Levilion said. “We sold 500,000 units in the first half, and we’re on track to exceed one million this year.”

Elemis is now the group’s second largest brand, with 84.2 million euros in sales, 11.6 percent of total volume. LimeLife sales returned to growth in the second quarter as a result of launches and the fading out of the impact of its re-branding exercise last year.

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The U.S., Japan, the U.K., China and Hong Kong were the group’s top five markets. Sales in Brazil and Russia posted double-digit growth.

Growth in China accelerated in the second quarter because of a recovering corporate gifting business, plus online campaigns on Tmall and JD.com, the launch of a WeChat program and a new official web site. Vice chairman Andre Hoffmann said Singles’ Day sales grew 80 percent over last year, with L’Occitane sales on the Tmall platform reaching 169 million renminbi. “Traffic was up significantly, higher ATV in our sales, and in the body category, L’Occitane was the number-one brand. In the hand cream category, L’Occitane also achieved, as we did last year, number-one brand status,” he said. “So overall performance on 11/11 was very satisfactory, as it was in our retail stores. We didn’t want to divert all the traffic from our retail business to Tmall, and I think we largely succeeded in making the overall pie much bigger for the L’Occitane business.”

“We do believe that e-commerce with continue to drive the growth of our brand in China, not just with Tmall, but with other platforms that we’ve recently started to work with, including JD.com and the Little Red Book app,” Hoffmann said. The company has about 195 L’Occitane stores in Mainland China. “We’re pretty comfortable with that,” he said. “There could be over the next four or five years maybe five to 10 openings. We’ll only be very strategic, in key cities, we’re not planning to go so deep into tier-three or tier-four cities, beyond what we presently have,” he added.

Globally, e-commerce is growing at a faster rate than the overall company, Hoffmann said. “In many key markets e-commerce as a percent of our total retail sales is in the 20s, globally I believe it’s around 12 to 13 percent of our total retail sales. Obviously, acquiring a brand like Elemis, which has close to 30 percent of its total sales coming from e-commerce, is going to push up the average. But we are very, very committed to growing e-commerce. We do believe that e-commerce will continue to drive the growth of our brand in China.”

Sales in Hong Kong declined as the territory’s social unrest caused periodic store closures, a significant drop in traffic, and reduced tourism to the city. “Some of our stores in touristy areas like Tsim Sha Tsui or Causeway Bay were very much impacted, so [had] significant negative growth,” Hoffmann said. “The business is very challenging right now for all retailers in Hong Kong, and we’re hoping that we’ll see some signs of stability. This should be one of the most important times of the year for shopping, heading into the holiday business and Christmas business.”

Levilion said October for the entire group was very strong, one of the strongest months that they’ve had in a long while. Despite the issues in Hong Kong, he said sales were very strong in most of the other countries.

Hoffmann said it’s very clear that authorities in China would like to bring some of the luxury and beauty shopping that’s done off-shore on-shore, noting the lowering of duties and luxury tax, licensing and downtown duty-free stores. “I think that long-term, the attractiveness of shopping outside of China may be diminished. I think people love to shop when they travel, so that will always be a factor. Some of the business we’re currently losing in Hong Kong we are gaining in Japan and Korea, we are gaining outside of the region. We’re seeing that Hong Kong can easily be replaced. If we’re not careful, China’s tourists will simply bypass Hong Kong and go elsewhere.”

In Hong Kong, the group is taking proactive measures, negotiating with its landlords. “We’re in active negotiations with landlords about current leases. Any decision to close shops will be based on a long-term strategy and not a knee-jerk reaction to the current market situation,” said Hoffmann. “There are many different landlords and they each have their own policy. Some have taken a more proactive and long-term strategy dealing with tenants; some have given outright support temporarily, made a commitment to reduce rents, others have not done anything yet. We continue to engage, to discuss with them. Leases that are coming up for renewal are particularly sensitive right now. I can’t really share too much information, because discussions are ongoing, but our position is if we can run a profitable business in any shopping center, we’d like to stay there. If it’s not profitable, then there is no point for L’Occitane to have a store there.”

Hoffmann stated that the group remains committed to doing business in Hong Kong. “We continue to focus on building our brand in Hong Kong, and I hope Hong Kong will be as resilient as it was in the past. But we have great confidence in the future of Hong Kong. Maybe it won’t be as active as a destination for Mainland Chinese tourists, but there’s still a solid business potential for L’Occitane in Hong Kong.”

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