Global Beauty Giants Smell Opportunity in China’s Fragrance-Makers

Global beauty giants are significantly increasing their investments in high-end Chinese perfume brands to tap into a thriving luxury segment, despite a broader market slowdown. [para. 1] For instance, L’Oreal SA revealed in February that it had completed a deal for a minority stake in Chinese luxury perfume brand To Summer as part of its global expansion strategy. [para. 2] This move builds on L’Oreal’s 2022 investment in another Chinese high-end fragrance maker, Documents, whose products generally sell for 980 yuan ($135) for a 30-milliliter bottle, and some even reaching 1,900 yuan; by comparison, Chanel’s iconic No. 5 sells for 890 yuan for a 35-milliliter bottle in China. [para. 3] Similarly, late last year, Melt Season became the first domestic fragrance brand to get funding from Estée Lauder Companies Inc.'s strategic early-stage investment arm. [para. 4]

Industry insiders indicate that these investments are primarily aimed at supplementing product lines and effectuating localization strategies. Accepting investment from giants like L’Oreal or Estée Lauder typically precludes engaging with the other, pointing to exclusive strategies. [para. 5] These deals highlight international firms’ growing interest in the Chinese fragrance market, which appears more resilient to economic headwinds than other beauty sectors. [para. 6]

Following a decline in 2022, China's fragrance retail sales bounced back in 2023, registering a 15.3% increase to over 15 billion yuan, according to Euromonitor International PLC. [para. 8] Notably, premium fragrances drove this growth, achieving double-digit expansion even amid a lackluster rebound in the broader beauty and personal care market for 2023. [para. 9] However, this growth is still slower compared to 2019 and 2021. Macroeconomic constraints and incomplete recovery of consumer confidence have led to high-priced luxury items being more likely to be cut from budgets, compounded by the fact that many Chinese consumers have not yet incorporated daily fragrance use into their habits. Despite these challenges, Euromonitor is optimistic about significant development potential, predicting that China’s fragrance retail sales will reach nearly 26 billion yuan by 2028. [para. 10][para. 11]

L’Oréal's research shows that China's younger consumers are increasingly receptive to domestic brands that emphasize innovation and individuality, driving their investment in brands like Documents and To Summer. This investment strategy often targets companies with strong brand presences and founders with international backgrounds. [para. 12][para. 13] On the other hand, Estée Lauder's partnership with Melt Season is driven by a desire to strengthen connections with Chinese consumers. Emerging Chinese brands like To Summer, Documents, and Melt Season are leveraging traditional Chinese elements in their packaging and fragrances, which aligns with the growing recognition of domestic brands among Chinese consumers. [para. 14]

International firms, including L’Oréal and Estée Lauder, are broadening their presence in global markets, addressing slowing demand for luxury goods, particularly in China where consumer habits are shifting towards more affordable products due to protracted economic issues like a real estate slump and a weak job market. [para. 16][para. 17][para. 18] Despite the more modest performances of domestic fragrance brands, which generally are only breaking even or slightly profitable, international firms see significant future growth potential. This sentiment fuels ongoing investments—though not necessarily full acquisitions—aimed at future growth rather than immediate returns. [para. 21][para. 22][para. 23][para. 24]

The insights provided by employees of several Chinese perfume brands indicate the market’s early stage, with few brands surpassing 100 million yuan in sales. Nonetheless, investments are being driven by the promise of future expansion, as evidenced by Ushopal’s recent lead investment in Documents to support its global growth. [para. 20][para. 25][para. 26][para. 27]

Contact for the story includes reporter Wang Xintong and editor Michael Bellart. [para. 28]