Estee Lauder Cos. Inc. expects China to surpass South Korea as its second-biggest market in Asia by 2010 as aggressive marketing efforts help the cosmetics firm expand faster than its rivals, a company executive said. The U.S. firm is outperforming the growth of the Chinese market for high-end beauty products, which it expects to top 30 percent in 2006, Carol Shen, managing director of Estee Lauder in China, told Reuters in an interview.
"We're growing at 35 to 40 percent in China, and we expect to remain in that range in the next two to three years," Shen said. "Based on our internal projections, by 2010 we should be the No. 2 market, next to Japan and beating Korea."
Estee Lauder, whose brands include Clinique, Aveda and Bobbi Brown, ranks China as its fifth-largest market in the Asia Pacific region, where sales totaled $869.7 million in the 2006 fiscal year -- accounting for 13.5 percent of the whole group. Estee Lauder mainly targets women between 25 and 35 years of age in China, where skin-whitening lotions rank among the most popular products.
Shen declined to provide figures for the Chinese business but said she hoped the Estee Lauder brand would replace L'Oreal's Lancome line as the leader in the country's small but booming market for prestige cosmetics. China's overall cosmetics and toiletries market grew 10.8 percent in 2005 to $10.3 billion, according to Euromonitor data -- just one-third of the Japanese market. Taiwan-born Shen estimated the luxury segment accounted for some 4 percent of the Chinese market and said Estee Lauder had a 20 percent market share within its distribution network of some 60 department stores nationwide.
Procter & Gamble's SK-II skincare products used to be the second best-selling prestige brand before regulators in September raised concerns about its safety, prompting P&G to halt sales, which boosted Estee Lauder, she said. A key challenge for the firm in the fairly young Chinese market is to retain customers, who are not as faithful to specific brands as consumers in other, more mature markets. "We do see a lot of brand switching, because this is the first batch of luxury cosmetics users. They want to try all the new brands," Shen said.
The firm expects an aggressive branding plan to benefit the Clinique and Estee Lauder brands, which were launched in China in 1993 and account for 70 percent of its sales in the country.
"Our brand Clinique is doing a lot of programs with students. We want to make sure that when they get their first paycheck, the brand they go to buy is Clinique," she said. Despite high costs for such campaigns, Estee Lauder is profitable in China, Shen said. The New York-based firm's Asia Pacific business accounted for roughly one-tenth of group operating income in the 2006 fiscal year, which ended June 30.
