‘Unicornus Rex’: L’Oréal Combines Scale And Innovation To Defend Pole Position | Jing Daily

‘Unicornus Rex’: L’Oréal Combines Scale And Innovation To Defend Pole Position | Jing Daily

Full-year 2022 financial results are out, but not all companies are rejoicing. With China’s sudden reopening in December, some had to grapple falling store traffic and sick employees because of rising infections, which for Canada Goose meant losing out on tens of millions in revenue. 

Others were able to ride out the tough times, or even soar above the headwinds. French luxury leader Hermès outshone its rivals, posting a 29 percent increase in revenue for the year, supported by its steady rollout of stores in China and the rest of the world. Meanwhile, beauty giant L’Oréal benefited from its luxury division’s five “billionaire brands” and its dominant market position in China.

With brands banking on a rebound in the mainland now that borders are open, which names are poised to maintain growth?

Hermès outshines luxury rivals

In the year ended December 31, Hermès reported an impressive €11.6 billion ($12.4 billion) in revenue, up 29 percent year on year, and net profit of €3.4 billion ($3.6 billion). In the fourth quarter alone, the Birkin bag maker saw sales rise 23 percent year on year to outperform competitors Louis Vuitton, which reported 9 percent year-on-year sales growth in the same period, and Kering, whose sales contracted 7 percent.

Hermès Executive Chairman Axel Dumas credited the brand’s exceptional year to the “good performance of its international markets.” Asia excluding Japan remained “very dynamic,” with sales in the region grewing 22 percent from the previous year, while sales in Greater China were “sustained,” undoubtedly impacted by the recurring lockdowns throughout the year. Despite these difficulties, Hermès continued to invest in brick-and-mortar expansion in the region, opening a new store in Shanghai and a newly renovated location at the Hong Kong International Airport in the fourth quarter.

The group has set itself “an ambitious goal” for the medium-term, thanks to its highly integrated artisanal model and balanced distribution network, as well as the creativity of its collections and loyalty of its clients, Dumas said.

Already, the house has kicked off the year on a high, from opening a new store in Nanjing’s Deji Plaza to winning its lawsuit over the MetaBirkins NFTs. Resilient to the negative effects of the looming recession, Hermès stands to gain as China fully reopens and tourists resume their travels — if not to Europe, then to other parts of Asia-Pacific.

Canada Goose battles disruptions in its most important month 

The down jacket leader had a tougher time than Hermès in the quarter ended January 1, 2023. Reported revenue declined 1.6 percent year on year to C$576.7 million ($423 million) due to “worse than expected COVID-19 related disruptions in mainland China” and “slowing momentum in North America,” said Chairman and CEO Dani Reiss.

Although the luxury outerwear group expected a certain level of disruption, it did not anticipate China’s sudden reopening in early December. “This led to a surge in infections, which had a significant impact on our business during what is typically our most productive trading month,” Reiss explained on the February earnings call. 

Chief Financial Officer Jonathan Sinclair estimates that the group’s China operations lost about C$60 million ($44 million) in revenue in the third quarter.

However, transactions jumped in January, with same-store traffic increasing roughly 30 percent year on year in China and tripling in Hong Kong. With the company’s fourth quarter also including the Lunar New Year holiday — celebrated for the first time without restrictions — as well as its milestone of surpassing 1 million followers on WeChat, Canada Goose’s best days are yet to come, Reiss adds. Still, the company has lowered its annual guidance for 2023, forecasting total revenue of C$.1.17 billion to C$1.18 billion ($859 million to $866 million). 

L’Oréal’s luxury division wins 30 percent market share in China

The world’s leading beauty group achieved sales of €38.26 billion ($40.8 billion) in fiscal 2022, up 10.9 percent year on year. While active cosmetics grew the fastest over the 12 months, it was the L’Oréal Luxe division that accounted for the largest proportion of sales — it outperformed the luxury beauty market for the 12th consecutive year. According to the company, L’Oréal Luxe’s skincare business grew three times faster than the market, spurred by names like Helena Rubinstein and Lancôme in the ultra-premium segment.

In China, the luxury division surpassed 30 percent market share in 2022. “LOréal Luxe is the leader by a long distance in China,” said Cyril Chapuy, President of LOréal Luxe, on a call with investors. 

Chapuy predicts that the segment will continue to outperform the market as it has the industry’s most diversified and balanced brand portfolio with five billionaire brands, is dominant in China, “which will bounce back big time after Q2,” and has an added value that valorizes its prices every year, said Chapuy.

Given this strength, CEO Nicolas Hieronimus is confident in L’Oréal’s ability to outperform the market again in 2023. 

“We have the number one beauty brand in the world. We have the most prescribed brands by either skin professionals or hair experts. We have several of the most coveted luxury brands and we have brands at all price points and for all tribes and generations, including those loved by Gen-Z,” he said. 

He goes so far as to call the group a “Unicornus Rex,” a fictional creature that combines the strength and scale of a 114-year-old industry dinosaur with the speed and innovation capabilities of a unicorn.

 

 

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