L'Oreal looking pretty in the Chinese market

Global brands target affluent shoppers in third- and fourth-tier cities, as more people are attracted to luxury products

Before celebrating her 34th birthday with her husband in a Japanese restaurant, Yang Yi went to the nearby Yaohan shopping mall.

"I wanted to buy a set of Lancome eye cream and serum products as a gift to myself," said Yang, the owner of an advertising company in Zhenjiang, Jiangsu province.

Yang, who has been buying Lancome products since 2009, said that the serum, which is similar to a moisturizer and costs 1,080 yuan ($178), is affordable.

She added that the same product costs 300 yuan less in airport duty-free shops, but that she has stopped asking her friends to buy her some when they travel. She now prefers to interact with the shop assistants at her local Lancome shop.

The French brand started selling its products in Zhenjiang in 2011.

"Face-to-face purchases with professional beauty advisors help me to choose the most suitable products. Furthermore, I can try other products and get gift samples," she added.

In recent years, due to increasing incomes, more people in lower-tier cities are buying high-end cosmetics and other beauty products. This has provided opportunities for luxury brands to boost their business outside the mature and saturated markets in first- and second-tier cities.

"The trend is clear and significant," said Cindy Yang, senior director at research and consulting firm Nielsen Holdings NV in China.

Nielsen's data showed that the market share of low-end cosmetics and beauty products in lower-tier cities in China dropped sharply from 47 percent to 28 percent in the past two years.

"In the last three years, third-tier cities, after first-tier cities such as Beijing, Shanghai and other provincial capital cities, have become the fastest growing markets for high-end cosmetics," said Yang.

"As disposable incomes continue to increase, third- and fourth-tier cities, where 70 percent of Chinese people live, will see rapid growth, faster than first- and second-tier cities, for high-end cosmetics," she added.

Lancome is a good example. In 2011, when the French company opened its first store in Yichang, Hubei province, the brand saw impressive daily sales of about 1 million yuan.

That record was soon broken, however, after Lancome sold 1.3 million yuan worth of products on its first day in Zhenjiang's Yaohan shopping mall.

"This is a unique phenomenon in the world and with our leading brand Lancome, we have always been a pioneer in China to plant the flag of luxury where no other brand has ventured before," said Stephane Rinderknech, vice-president of L'Oreal China and general manager of the group's luxury division L'Oreal Luxe.

"Lancome leads, others follow, but customers will always remember that Lancome brought luxury beauty products to them first," Rinderknech said.

In 1997, L'Oreal took Lancome to Hangzhou, Zhejiang province.

"Since then, the Hangzhou store has been one of the most successful Lancome outlets in the world," Rinderknech added.

Lancome now has 179 outlets in more than 80 Chinese cities. Last year, it opened stores in lower-tier cities such as Jiaxing, Shangyu, Zhuji in Zhejiang province and Weifang in Shandong province.

As the fastest-growing seller of luxury beauty products in China, L'Oreal Luxe allows the group to further boost its leading position in the country.