‘Outstanding growth’: Estée Lauder sees no slowdown in China despite geopolitical concerns

22-Aug-2019 - Last updated on 22-Aug-2019 at 01:32 GMT

ELC believes the firm will see “long-term sustainable growth” in China. ©ELC

Estée Lauder CEO Fabrizio Freda believes the firm will see “long-term sustainable growth” in China, thanks to a rising middle class, a young demographic eager to spend on cosmetics and untapped opportunities in lower-tier cities.

In the fourth quarter of this year, the company saw continued solid growth in China. Nearly every one of its brands and channels saw strong double-digit growth in the market.

During the company’s earnings call, Fabrizio Freda, the company’s president and CEO, commented: “Our growth in China was outstanding. All categories and channels grew and virtually all brands posted double-digit gains… So the short answer is no. We are not seeing any slowdown in China at this point in time.”

He added that the fundamentals for long-term growth in China were “absolutely there and super strong”.

“The middle class, the demographic, the fact that the young consumers in China spend more than the older ones, the huge opportunity we have in front of us on tier two and three cities which is completely untapped – actually I should say tier three and four cities which is completely untapped at least, numerically for luxury goods.”

While Freda is confident China’s growth will remain strong, he said the company expected “some declaration” compared to the rapid growth from the last two years.

However, he added that the company was prepared for potential volatility in the country.

“There are economical and geopolitical reason why we expect moderation and also because we believe that now the base of growth is super strong and we need to be realistic about the future… we are completely convinced that they are the fundamentals for double-digit growth in China with Chinese consumers for the sustainable future.”

The company’s strategy is to mitigate the risks with a local presence, said Freda.

“We have been investing in China for the long term and we are in China for the long term… Like any other area of the world, we are a local relevant organisation in everything we do. We are investing substantially in many emerging markets, particularly in China, and these investments are important to the countries we participate in.”

Addressing tensions in Hong Kong

Freda said that the company is continuously learning how to manage volatility.

In the case of the 2014 Hong Kong protests, the firm realised its Hong Kong business was more exposed to tourists and did not have high penetration locally, which it has since changed.

With the current situation in Hong Kong, the company is currently working to recover the potential lost of Hong Kong’s travel retail channel, which Freda noted is less than 4% of its global business.

Freda reiterated the importance of localisation in the midst of tensions. “Today we have a bigger share of local business [in Hong Kong] and local business is less subject to this kind of protest because people still buy what they need to live in a normal way locally. And so, we are mitigating that with good local activity and local marketing and local relevant products.”

Freda concluded: “Our priority at this moment in Hong Kong is actually the safety of our employees and of our consumers and that's where we are focusing our effort and that's where we definitely manage our priorities in the market.”