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Estée Lauder to Launch Osiao Skin Care Line

The beauty company's first Chinese skin care line will debut at two Lane Crawford stores in Hong Kong mid-October.

The Estée Lauder Cos. Inc. will flash its new Mandarin accent in mid-October when it unveils Osiao, its first Chinese skin care line.

The luxury-priced brand was developed by the New York-based company’s Beauty Bank division in partnership with Lauder’s local research and development operation, the Shanghai Asia Innovation Center. Osiao will be launched in two Lane Crawford stores in Hong Kong. Reportedly, Lauder eventually expects to expand the new brand’s distribution into Mainland China.

It is a bold move in a country that has played a key role in the resurgence of Lauder during the three years since the arrival of Fabrizio Freda as president and chief executive officer. But Lauder has not been alone. Shiseido developed and launched its Aupres line for the Chinese market in a pioneering leap in 1994. The Japanese giant now has a distribution of 950 retail doors, reaching beyond the major cities. L’Oréal rides high in the combined mass and class rankings in the skin care market. Procter & Gamble Co. recently planted its flag in Singapore, in a heavily symbolic move. It transferred its skin care, cosmetics and personal care headquarters from Cincinnati to where it saw the future — Asia.

Lauder, which closed its fiscal year on June 30 with a 10.3 percent sales increase — twice the rate of the prestige market — to $9.71 billion, was already established in China. During an earnings call on Aug. 14, Freda told analysts, “China overtook Japan to become our largest Asian affiliate, and our sales there climbed 28 percent in local currency, which enabled us to again expand our leadership position.” He added that Lauder now does business in 58 Chinese cities — 20 more than last year. And through e-commerce, the company’s reach extends to consumers in nearly 350 cities.

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The importance of China is magnified since Lauder tracks travellers when they leave home and shop abroad. “For every dollar of sales we generate in China,” he continued, “we find that we get $2 from Chinese consumers elsewhere in places like Hong Kong, New York or Paris.”

Neither was Freda unnerved by talk of a slowdown in China. “We are cautious that macroeconomic conditions may impact future growth trends,” he said. “But we continue to grow by reaching new consumers as we expand into more cities.”

Nik Modi, a security analyst with UBS AG, agreed during an interview that China is a big driver for Lauder. He said the Chinese market generates 5 percent of Lauder’s global sales. Moreover, the company has experienced strong growth in North America and in the travel retail channel, allowing Lauder to reinvest in China. “It could be one of their biggest markets,” he noted, adding that beauty is more of a staple than a discretionary impulse purchase for Chinese women. “Even if there is a slowdown, we think [Lauder] will put up decent growth.” Stifel Nicolaus analyst Mark Astrachan added that the skin care business in Asia has “higher margins, a better mix, better growth and the Asian consumer doesn’t mind trading up.”

China’s beauty industry has been growing at a healthy clip. According to the country’s National Bureau of Statistics, the business in 2011 was up 18.7 percent year-on-year to 1.1 trillion yuan, or $17.1 billion at average exchange. That compares to a 16.6 percent increase in the segment between 2009 and 2010.

“Currently, foreign brands have gained a firm foothold in the mid- to high-end of the luxury cosmetics market in China,” said Li & Fung Research Centre’s study “China’s Cosmetics Market, 2011.” “On the other hand, domestic companies are mainly competing in the low-end market.”

According to Euromonitor International, the top three players in 2011 in the Chinese skin care market — combining both prestige and mass businesses — were L’Oréal, with 16.4 percent; Procter & Gamble, with 10.2 percent, and Shiseido, with 10.1 percent.

However, Lauder’s dynamic growth allowed it to claim superiority in its channel of prestige by this year. During a Consumer Analyst Group of New York Conference on Feb. 24, Freda said, “Mirroring the industry, our biggest emerging market opportunity is China, where we have made impressive inroads. We are the number-one prestige beauty player in our distribution. Estée Lauder is the leading prestige brand in each distribution and La Mer is the fastest growing luxury skin care brand.” Speaking of the global market in general, he pointed out, “by 2020, emerging markets are expected to grow by about $10 billion and represent more than 20 percent of global prestige beauty sales, with the largest portion coming from China, providing untapped opportunity for our brands.”