Western brands are losing ground to cheaper Chinese competitors

Some global brands’ earnings slowed for another quarter due to China’s growing consumer austerity, but growth at their local rivals accelerated.

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A day after L’Oréal SA reported disappointing quarterly sales that showed China took a big hit on its earnings, Hangzhou-based Proya Cosmetics Co on Thursday reported a 21% rise in sales and profit during the three months ended September. Entered.

The Chinese company’s performance shows that its relatively affordable products and online-focused marketing are working in a market where premium brands are facing declining sales. L’Oréal’s like-for-like sales in North Asia, which includes China, fell 6.5% during the quarter, with Chief Executive Officer Nicolas Hieronymus blaming consumer disappointment for the poor performance.

The persistent downturn is not limited to cosmetics manufacturers. Luxury giant LVMH Moët Hennessy Louis Vuitton SE reported its worst quarter since the pandemic, while Starbucks Corp continued to lose market share to local rivals like Luckin Coffee and Coty Coffee, which sell at as low as $1.40 an Offers Cup Americano.

Even usual favorites like Nike Inc. and Uniqlo are seeing declining sales, as consumers widely turn to cheaper alternatives, or “pingti” in Mandarin.

“Local brands are winning the competition,” said Ernan Cui, China consumer analyst at Gavecal Dragonomics. “Consumers have become more price sensitive and are looking for products with better value for money amid weak economic growth.”

Chinese budget retailer Miniso Group Holding Ltd. is expected to post double-digit growth in another quarter, according to analyst estimates compiled by Bloomberg. Additionally, analysts expect Luckin’s revenue growth in the third quarter to remain largely flat from last quarter’s more than 30% level.

Sales on China’s biggest e-commerce platform under Alibaba Group Holding Ltd. are also outpacing global big brands. L’Oréal, Estée Lauder Co., Procter & Gamble Co.’s SK-II and Shiseido Co. have seen sales decline 35%-50% in the 12 months through September, according to data from Hangzhou Ziyi Tech. On the other hand, Proya and other local labels such as Cannes and Comfy, owned by giant Biogene Holding Co, recorded sales growth of more than 20% in the same period.

Citigroup analysts including Tiffany Feng wrote in a note earlier this week that L’Oréal’s decline in the China market “reflects challenging demand, particularly in the off-season, and increasing competition from domestic brands.” The company’s premium beauty segment was hurt the most due to cautious consumer spending.

Citi Note previously showed there was no recovery in consumption of luxury goods during the week-long Golden Week holiday earlier this month following recent macro policy stimulus in China, which contributed to a short-term rally in luxury stocks. Was.