The world has made quite a turn in this decade. Masses in Asia are hungry for luxury products and hundreds of millions can afford them. Only one-third of L’Oréal’s sales came from this region 10 years ago, now the French luxury brand makes more money on the Asian market than in Western Europe.
The end of Q1 2019 brought very informative numbers about how much French fashion and luxury companies like L’Oréal became dependent on the Asian market to maintain growth. Many economies of the traditional hunting ground (Europe) stagnate or shrink while China has implemented policies that encourage the consumption of products that are available on the mainland. The ratio of luxury consumption on the home market has increased to 27% in three years, which is 4% raise.
This new consumption-driven approach seems to have helped China to recover growth (6,4% in Q1), but it can’t be applied broadly. Certain sectors are blooming; well-to-do people of Asia want expensive name-brand products, YSL fragrances, Kiehl’s makeup, Laroche Posay skincare, Armani suits, etc.
Shoppers in China spent 14% more quarterly on products in the L’Oreal Group’s portfolio. It’s estimated that Chinese consumers are responsible for one-third of the global sales of luxury products.
The average age of luxury consumers is lower than in other parts of the world. L’Oréal and other luxury brands are targeting the millennial consumers who belong to this new middle-class of Asia. According to Bain & Company, two-third of the households in China will belong to the middle class in 10 years.
Chief Executive Officer Jean-Paul Agon of L’Oréal explained this trend in an interview to Global Hair Research Center with these words: ’It’s a real appetite of the young generation in China to go directly to these luxury brands. It’s really positive for us…Western Europe showed some signs of improvement… but nothing that would compete with what we see in Asia.’
The global sales of luxury products rose 20% in 2018. The revenues of the world’s largest cosmetics company rose 7,7% to $8,53 billion in Q1 2019. L’Oreal shares were sold as 244,70 euros each this week, which is 21% more than last year. With this performance L’Oreal overtook the fossil-fuel company Total SA by market value, with only LMVH upfront.