L'Oreal's Garnier loses beauty contest

France-based cosmetics giant L'Oreal SA has announced that it will halt the operation of its beauty product brand Garnier in China, one week after United States-based counterpart Revlon Inc announced its exit from the Chinese market.

In an e-mail to China Daily on Wednesday, L'Oreal said it had made the "proactive" decision of discontinuing the sales of Garnier products in China so that the group's consumer products division can grow at a "faster and more sustainable" pace.

The company will concentrate on its two leading brands: beauty brand L'Oreal Paris and makeup brand Maybelline New York.

The transition is intended to prepare for L'Oreal's future and strengthen its leading position after 17 years in the Chinese beauty market, said the e-mail.

The group's fiscal reports show that sales of L'Oreal China totaled 12.05 billion yuan ($1.99 billion) in 2012, up 12.4 percent year-on-year.

According to market research firm Euromonitor International, L'Oreal China held first place in skin care in 2013, with double-digit value growth from 2012 across the company.

"Brand Garnier was targeted at the mass skin care market in China. As this company had a series of brands, including both mass and premium in China, Garnier was not its flagship brand", said Vera Wang, senior research analyst at Euromonitor.

Although Garnier had its day in the sun, with annual sales reaching 800 million yuan at one point, sales were less than 200 million yuan in the past three years, and it has been losing money continuously, which it can't afford as a public company, said Michael Deng, who focuses on fast moving consumer goods at Roland Berger Strategy Consultants.

Deng said the reasons for Garnier's decline are complicated. First, it failed to build an image as an expert in herbal beauty products among Chinese consumers. Second, L'Oreal didn't have much experience in dealing with supermarkets, its major distribution channel in China. Third, Garnier had a very slow supply chain, with only two regional distribution centers in Suzhou and Shanghai, so getting its products into lower-tier cities was difficult.

"Garnier's retreat from the Chinese market will definitely affect L'Oreal's mapping in China. The group is now dedicated to further reaching third- and fourth-tier cities. As Garnier is the one and only low-end brand under L'Oreal, the absence of this brand will definitely mean more difficulty for the group's new strategy," he said.

Deng said that the next decade will be the prime time for Chinese FMCG brands, as overseas brands are losing competitiveness and the ability to make a profit.

Market research firm Nielsen's China Consumer Landscape Shifts report, released in May last year, showed that local brands are becoming more active than multinational brands in several FMCG categories, such as functional drinks, toners, skin moisturizers, packaged water and toothpaste.