China presents a double-digit growth opportunity, according to Fabrizio Freda, chief executive officer of The Estée Lauder Cos. Inc.
“China is a long-term opportunity,” he said. “In the absence of social political disruptions around the world, this will remain probably the biggest opportunity in the long term. We believe this opportunity is a double-digit growth power for a long time.”
The drivers for beauty in China include the consumer’s enthusiasm for the category, socioeconomic shifts — including the emergence of China’s first middle class, and the shopper’s penchant for prestige beauty, in particular, Freda said during a talk with Bank of America analyst Olivia Tong on Wednesday at the Bank of America Merrill Lynch 2018 Consumer and Retail Technology Conference. Lauder’s growth in Asia is one of the driving factor’s behind the company’s sales — for its second fiscal quarter, the business posted a 17 percent year-over-year net sales jump.
Freda also noted that the Chinese market is no longer just skin-care centric, and that shoppers are starting to buy more makeup and fragrance. “Last quarter, our makeup business in China simply doubled,” Freda said, adding that the Jo Malone business “is on fire” in China.
Lauder is also working to ramp up its distribution in the region. Right now, the Estée Lauder brand is sold in 117 cities, Freda said, but the MAC brand is in less than 30, and overall, Lauder brands have ample runway for added retail distribution in the region.
“Most importantly, the online business in China is explosive,” Freda said. “We doubled it and because while the physical distribution is only in the…high-traffic cities, there are 600 cities where there is not yet luxury physical distribution, but customers buy online on Tmall or [with our brands].”
“There are many brands in our portfolio [that] are not yet in China, but also importantly, where many brands we’ve added in China are not yet on Tmall, which is the biggest driver of acceleration of the China business,” Freda said.
The ceo spoke at the Bank of America conference with Lauder chief financial officer, Tracey Travis, who talked about Lauder’s Leading Beauty Forward initiative and M&A activity.
“Would we consider a larger acquisition? Yes,” Travis said. “We’ve got the flexibility to do that, as long as it has the right return characteristics.”