Most Popular in:

Marketing

Email This Item! Print This Item!

What Was Behind the Garnier and Revlon Exits from China?

Posted: January 14, 2014

L'Oréal announced in early January that it is pulling its Garnier brand from China—a decision that follows Revlon’s decision to withdraw its entire operations out of the country as 2013 drew to a close. Seeking to find out what is behind these moves, Oru Mohiuddin, senior beauty and personal care research analyst at Euromonitor International, looks to increased competition from local brands in China, as well as the increasingly savvy Chinese consumer.

In a YouTube video on the Euromonitor site, Mohiuddin explains, “China has been a much-discussed topic after L’Oréal’s decision to withdraw Garnier and Revlon’s decision to come out of the market altogether. Given the strong prospects, this has startled the industry. Just to put it in context, to quantify the prospects, in the last five years, between 2007 and 2012, China contributed nearly 30% to the global growth in beauty and is expected to contribute another 20% between 2012 and 2017.

“So why are they withdrawing from China? No doubt it has to do with their bottom lines. The cost of doing business outweighs the benefit in the market. But what’s more interesting is analyzing the factors that prevented them from reaping the benefits of China’s growth prospects.

“One key factor is the development of local manufacturers, who are becoming more and more sophisticated but are offering products at lower price points than brand such as Garnier and Revlon. Chinese consumers are becoming more and more savvy and are not willing to pay a premium just for a Western brand logo. They expect the price points to match the benefits. Therefore, the local manufacturers’ offerings of sophisticated products at lower price points prove to be more appealing than brands such as Garnier and Revlon, which has led to these brands losing market share.

“L’Oréal operates nine different brands in the market. So investing in a wide range of brands is not always very cost effective. On top of that, Garnier is a very small brand. It ranks 25th in China’s overall beauty market. On the other hand, L’Oréal Paris is the leading beauty brand in China and Maybelline ranks No. 1 in China’s color cosmetics. Given the high level of brand recognition for these brands, it make more sense to invest in Maybelline and L’Oréal Paris.

“As for Revlon, the competition is even more steep, because it’s not only having to compete with the local manufacturers, but also leading multinational brands such as Maybelline and L’Oréal Paris. In addition to that, Revlon has a very small presence in China, ranking 57th in the overall beauty market. In the face of such steep competition, it would need to invest more to increase its profile and be more competitive. On the other hand, in the U.S.—its core market, accounting for 50% of its global revenue—competition is getting even more steep. L’Oréal is its key competitor in the U.S., and although Revlon has managed to perform well in its core market, it cannot afford to lose shares. Because a small loss in shares could actually translate to something substantial in absolute terms. Given the opportunity cost, it makes more sense for Revlon to invest in its key market when looking for opportunities in regions where competitive values are relatively lower,” Mohiuddin concludes.