L’Oréal Pulls Garnier Brand From China; French Cosmetics Firm’s Mass-Market Brand Fails to Gain Traction in Key Emerging Market

L’Oréal Pulls Garnier Brand From China

French Cosmetics Firm’s Mass-Market Brand Fails to Gain Traction in Key Emerging Market

NADYA MASIDLOVER And LAURIE BURKITT

Updated Jan. 8, 2014 10:19 a.m. ET

French cosmetics maker L’Oréal SA said Wednesday it is pulling its Garnier brand from the Chinese market, citing slowing sales, the second beauty company to pare exposure to the country in the past week.The surprising move highlights the growing hurdles faced in China by Western cosmetic giants due to fierce competition and a crowded market, after beauty companies struck it big there in recent years.

A spokeswoman said L’Oréal will no longer sell Garnier—one of its three mass market brands—in China. The company will instead focus on its two leading brands there, L’Oréal Paris and Maybelline. L’Oréal Paris is China’s No. 1 full range beauty brand, including products such as hair-care, skin care and makeup. Maybelline is the No. 1 makeup brand in China, the company said.

China has been a major source of growth for the personal care and the cosmetic industry. But brands are running up against major competition in the country, where the Internet has redrawn the cosmetic and personal-care market, giving smaller and niche brands greater access to China’s 1.34 billion consumers.

L’Oréal’s move comes hot on the heels of Revlon Inc. REV +0.67% ‘s announcement a week ago that it was cutting loose its ailing operations in China and slashing more than 15% of its workforce. The U.S. beauty company, which sells products under its namesake and Almay brands, has reported weak demand in China, which accounts for about 2% of its total sales.

L’Oréal’s Garnier line, where inexpensive hair-care and beauty products are positioned as an entry point for new customers, has also failed to gain traction in the key emerging market of China, since its launch in the country in 2006.

“Garnier isn’t a significant brand in China,” said the L’Oréal spokeswoman.

The brand made up “a little over 1%” of L’Oréal’s sales in China for 2012, which totaled around €1.5 billion ($2.04 billion), according to the spokeswoman.

Garnier’s exit marks a setback in L’Oréal’s long-term strategy to pin growth on rising demand from consumers in emerging countries. The company aims to win 1 billion new consumers in the decade up to 2020.

Experts say that Garnier and Revlon’s failures in China have been weak positioning. “Garnier wasn’t L’Oreal’s flagship brand,” said Vera Wang, a senior researcher at Euromonitor, adding that it was aimed at the mass market. Compared with L’Oréal’s skin-care brands, L’Oréal Paris and premium brand Lancôme, sales of Garnier were low, Ms. Wang said, noting that it was due to their mass-market branding.

She added that other L’Oréal brands with clearer market positions, such as the niche-brand Kiehl’s , known for its natural products and its nontraditional labels and marketing, have seen “dynamic performance” in China.

Many consumers are also weary of mass-market products, fearing they aren’t healthy, which means that brands aimed at the premium or high-end market tend to perform better, said Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group. China has had a number of food and drug safety scares in recent years and even news of faulty face masks and tainted cosmetics have made headlines.

“Consumers just don’t believe mass-market products are good for them,” said Mr. Cavender, adding that beauty companies have consistently had to roll out new products for the Chinese market because shoppers there are worried that using any one product too long is bad for their skin. That means that there are more brands being launched, giving shoppers more choice and creating more competition, said Mr. Cavender.

Sales of beauty and personal-care products from China’s physical retail stores, including cosmetics and shampoo, dropped to 71.1% of total sales in 2012 from 85.4% in 2007, while sales via the Internet increased to 13.1% in 2012 from 0.8% in 2007, according to the most recent available data from market research firm Euromonitor.

L’Oréal sells online in China, having launched a multibrand e-commerce site for its luxury brands, like Kiehl’s and Shu Uemura, in 2010, according to the company.