The agreement on the documents represents a change of strategy for L’Oréal

Following last month’s announcement that L’Oréal’s China investment arm had taken a minority stake in Chinese fragrance brand Documents, CosmeticDesign-Asiamet with Allie Rooke, founder of Clean Beauty Asia and guru of the Chinese beauty market, to get her to accept the deal.

Although L’Oréal has been in the Chinese market since 1997 and acquired several Chinese brands during that time, the purchase of a stake in Documents marked Shanghai Meicifang’s first transaction since its inception in May as a fund. group’s Chinese investment.

According to Rooke, L’Oréal’s previous acquisitions in China – which included Mininurse, Yue Sai and Magic Holdings – have not been very successful.

“Previously an iconic Chinese mass-market skincare brand, under L’Oreal, Mininurse has not thrived and is now focused on lower-tier cities,”Roke said.

Regarding the acquisition of Yue Sai by L’Oréal in 2004, she said that it “came early, before the Chinese aspired to buy local brands”. Initially positioned as a mainstream brand, Yue Sai was later repositioned as a premium offering, but despite L’Oreal’s reinventing efforts, Rooke said that “overall Yue Sai is still not a hit inside or outside China”​.

Magic Holdings, a Chinese brand of cosmetic masks, was acquired by L’Oréal in 2014 for more than $800 million. By mid-2015, L’Oreal had written off the acquisition for $236 million, after which the management team left very quickly and sales plummeted, Rooke said.

“In 2016, sales were down to about $30 million from $200 million in 2012,” she says. “L’Oreal tried to bring it to the premium space but failed. Now it exists in cosmetic stores in lower tier cities and in VIP and Pinduoduo.

C-market acquisitions are critical to success

Despite these setbacks, Rooke insisted that further acquisitions of local brands are vital if L’Oreal and its peers are to succeed in the Chinese market.

“The future in China for L’Oréal is a balanced portfolio of local and international brands”, she says. “L’Oréal and all the groups must diversify their portfolios beyond the brands created for Western consumers. The purchasing power of Asian consumers is increasing and in many cases they want brands that have been developed for them. For these big beauty groups to stay on top of their game, they need to include more local Asian beauty brands in their portfolios. »

There are several reasons why Documents could take a very different path from L’Oréal’s previous Chinese acquisition targets.

First, it was an early stage investment, paving the way for a full acquisition while reducing the total cost.

“This represents a change of strategy on the part of L’Oréal”,noted Rooke.

Second, she said the fragrance category is growing rapidly.

Third, unlike brands such as Yue Sai and Mininurse, Documents is a true luxury brand – a rarity in China, she said.

“Documents has adopted a hugely ambitious positioning – the introverted, understated Zen Cool image rooted in Chinese culture, with artistic storytelling and the assurance of quality ingredients from Givaudan. L’Oréal has strong brands but nothing like it. “, she said.

In terms of positioning, Rooke pitched Documents alongside Byredo (recently acquired by Puig) and listed Aesop and Le Labo as other potential competitors due to their similar brand style.

Documents also has the advantage of its own retail presence, with plans to expand to between 30 and 40 stores over the next five years, according to Rooke. The store is unconventional, providing an immersive experience.

All of these factors have resulted in a brand that appeals to young Gen Z audiences — the consumer demographic that is most focused on C-beauty (aka Chinese-origin beauty brands), according to Rooke.

“They want brands that can reflect their personality and many Western brands don’t fill that void,”she says.

Exciting move for C-beauty

In this regard, she said the move was exciting for the C-beauty space.

“C-beauty has had a strong performance in recent years. A deep understanding of local consumers and supply chains enables brands to quickly develop new products and tailor products to consumer needs.

She said L’Oreal’s investment in Documents showed how seriously beauty groups take C-beauty.

“C-Beauty is evolving and defining itself and this acquisition will restore confidence to other brands. There will be other acquisitions in the years to come. They [beauty multinationals] are all watching the market very closely. Everyone wants a piece of explosive growth.

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