South Korea

Moody Davitt Report – Moody Davitt Report

Moody Davitt Report – Moody Davitt Report


Key challenges in North Asia’s key duty-free markets such as Hainan and South Korea were the main drivers behind US beauty giant The Estée Lauder Companies’ net sales decline of -6% for the year ended June 30.

Group net sales announced today amounted to US$15.91 billion, with the decline mainly due to travel retail in Asia, particularly South Korea, the world’s largest duty-free market, and China’s Hainan province.

The company’s total organic net sales in emerging markets* When it comes to fragrance, every rose hits double digits. The group’s net profit was US$1.01 billion, a year-on-year decrease of -57.7%.

Global travel retail net sales declined (unspecified) by double digits, reflecting the challenge of lower product shipments primarily to retailers in Hainan and South Korea. As reported in the group’s third-quarter earnings report, the challenges have been caused by an official crackdown on the Hainan daigou trade in recent months and pressure from South Korea’s Customs Service on the same unofficial channel ahead of 2023.

On a more positive note, travel retail net sales in EMEA and the Americas posted strong double-digit growth. This trend was driven by increased domestic and international travel as well as increased activations, in-store staffing and advertising compared to the prior year.

Group-wide, weakness in key travel retail channels in Hainan and South Korea was partially offset by growth in almost all markets in Asia Pacific and EMEA.

Estee Lauder results FY 1 1

Skincare has been hit hard by travel retail difficulties in Hainan and South Korea. All charts courtesy of The Estée Lauder Companies click image to enlarge

Travel retail woes hurt skincare

Net sales of key skin care products in the Hainan and South Korea duty-free markets were down -14% year-on-year, primarily reflecting challenges in these two regions, but also a slower-than-expected recovery from the COVID-19 pandemic.

Estée Lauder, La Mer and Dr. Jart+ reported lower net sales, again largely due to travel retail issues in Asia.

Color cosmetics were also hit by dual market challenges, with net sales of Estée Lauder and La Mer negatively impacted, as well as Tom Ford.

Estee Lauder at cdf Sanya

Shoppers walk into the Estee Lauder boutique at cdf Sanya International Duty Free Mall in June Photo: Martin Moodie

Even fragrances are gaining popularity in Hainan and South Korea, a testament to Jo Malone London’s early success in those regions. The group noted that while the category grew 14% globally, Jo Malone London’s net sales declined, reflecting the challenges facing travel retail in Asia.

Net sales in EMEA were down -16%, mainly due to challenges in travel retail in Asia, including a slower-than-expected recovery from the COVID-19 pandemic, but net sales in almost all markets Growth partially offsets this challenge.

Estee Lauder results FY 2 1

North Asian headwinds hit EMEA, where travel retail belongs

Hainan, South Korea destocking

President and Chief Executive Officer Fabrizio Freda said, “We returned to organic sales growth in the fourth quarter, meeting our outlook. Momentum continued in the EMEA and Latin American markets, And the Asia-Pacific region, led by Mainland China and Hong Kong Special Administrative Region, accelerated strongly.

“For full-year FY23, we delivered organic sales growth and prestige beauty share gains across many developed and emerging markets, but travel retail in Asia weighed on performance, particularly in skincare, and we continued to experience weakness in North America.

“Fragrances performed well, with double-digit growth in every region, and cosmetics also posted double-digit growth in the fourth quarter as more markets entered the post-pandemic era.”

Commenting on the inventory issues faced by operations in Hainan and South Korea as a result of the crackdown on the daigou industry, Freda said: “In travel retail Asia, we are taking action to capture demand from returning FITs and continue to reduce inventory.” As we deal with the current market When there is a headwind, there are fewer inventories in the trade. “

He added: “In FY2024, we expect to return to organic sales growth, leveraging the strong equity and appeal of our brands, with continued margin improvement throughout the year.

“We are focused on driving a boom in the North American market and re-accelerating growth momentum. In this new fiscal year, we also intend to lay the groundwork for a stronger acceleration in fiscal 2025, with plans to build a very strong innovation pipeline over two years and develop incremental profit reconstruction plan.”

Looking at the full fiscal year, the company said: “The operating environment continues to be impacted by the COVID-19 pandemic. Most notably, travel retail in Asia and Mainland China have seen a slower-than-expected recovery.

“In Hainan, prolonged store closures (Aug & Sep 2023 – Ed) initially created headwinds, and thereafter, when travel resumed, conversions were lower. This was exacerbated by tighter inventories at some retailers.

Estee Lauder at cdf Sanya 2

La Mer’s high-profile promotion at cdf Sanya International Duty Free Mall. The brand’s full-year net sales were hit by inventory issues in Hainan.

“In South Korea, travel retail business slowed during the transition to post-COVID-19 regulation. In addition, a slower-than-expected resumption of international flights, visa issuance and package tours further challenged the Asian travel retail recovery.

“As a result, the company’s Asia travel retail business has been challenged by a slower-than-expected recovery throughout the financial year.

“In mainland China, the company’s 1H FY23 results were impacted by lower retail traffic due to COVID-19-related restrictions and rising COVID-19 cases.”

Elsewhere, the recovery of global markets from the COVID-19 pandemic gained ground this financial year as restrictions were lifted. In the West, the company continued its recovery from the pandemic, with strong organic net sales growth in nearly all markets in EMEA and Latin America. In Asia Pacific, the company’s markets recovered strongly throughout the fiscal year, delivering broad-based organic net sales growth across the region.

In the U.S., organic net sales growth was negatively impacted by a slower-than-expected improvement in the company’s retail sector due to inflationary pressures and recession concerns, as well as inventory tightening at some retailers in the first half of fiscal 2023.

Finally, the company’s business has been pressured by a stronger dollar, global inflation and recession fears.

Skincare weak in Q4 amid challenges in travel retail in Hainan and South Korea

In the fourth quarter of fiscal 2023, net sales returned to growth, growing +1% on a reported basis and +4% organically, reflecting growth in cosmetics, fragrances and haircare and double-digit growth in the company’s global emerging markets.

The decline in skincare net sales mainly reflects the aforementioned ongoing challenges in the travel retail market in Asia.

Net sales increased in virtually all markets in Asia Pacific and EMEA, as these markets continue to make progress in their recovery from the COVID-19 pandemic. The overall performance was supported by the Group’s strategic investments in advertising and promotional activities, innovation and targeted expansion of consumer reach. ✈

*Note: The emerging markets of the company are India, Middle East, Turkey, South Africa, Central Europe, Israel, Russia, Kazakhstan, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Singapore, Brazil, Mexico, Chile, Colombia, Panama, Peru and Argentina.

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