Warc Blog

Estée Lauder taps small Chinese cities

5 November 2012
BEIJING: Estée Lauder, the beauty group, is attempting to reach consumers in over 100 cities across China, as demand rises for cosmetics products throughout the country.

Currently, China is Estée Lauder's third largest market worldwide, and it delivered sales growth of 32% during the last quarter, aided by an expansion into six new cities, taking the total to 64 nationwide.

"We believe there are at least 100, 120 cities that now will be ready for distribution," Fabrizio Freda, the firm's CEO, said on a conference call. "So our plan is to continue to expand into Tier 2 or 3 cities ... particularly [with] our most successful brands."

One impetus behind these moves is the moderation of growth in metropolitan centres like Beijing, Guangzhou and Shanghai, where buyer habits are maturing and competition is fierce.

"The markets in Tier 1 cities in our industry are growing less aggressively than in the past, in terms of comp growth particularly," he added. "But the potential of ... expanding into new cities and attracting new consumers is enormous."

In the last three months, Estée Lauder opened 78 counters in China, mostly in lower tier markets. It is soon to roll out Osiao, a range developed for Asia, in the country, as part of a wider effort to boost sales.

"Our plan is to continue to advertise and build awareness for our brands in China and basically to continue expansion in this way," said Freda.

Ecommerce also fulfills a dual purpose, allowing the company to serve web users in regions where it does not have a physical presence, and serving as a signifier of hardening shopper interest.

"Today, 70% of our online sales in China come from cities in which we are not distributed, indicating that the consumer demand is already there and we need to continue accelerating the distribution," said Freda.

In further evidence of the potential customers from the Asian nation possess, Estée Lauder hopes to tap "travelling corridors", as more Chinese people visit other countries, and buy products while doing so.

"We know today that there are a lot of consumers that are travelling, and this consumer travelling are coming from these Tier 2 and 3 cities where we are just launched recently or where we are not yet in," Freda said.

"We expect the new consumers to also purchase our products in airport shops in international destinations when they travel."

Data sourced from Seeking Alpha; additional content by Warc staff

 
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