French premium skincare brand L’Occitane International S.A. (0973.HK) is keen to tap China’s growing e-commerce market but it needs to close the gap between consumer expectations and its brand culture.
Most Chinese still see e-commerce as a discount channel and expect bargains when shopping online, Andre Hoffmann, L’Occitane president for Asia Pacific, told EJ Insight. “That is not very consistent with our brand positioning,” he said.
E-commerce makes up about 15 percent of the company’s business in developed markets such as the United States, Germany and Britain.
In Japan, L’Occitane’s largest single market, it accounts for nearly 7 percent of retail sales.
“In other countries, we have not managed to get above 2 or 3 percent,” Hoffman said.
Also, L’Occitane is facing competition from internet retailers on such sites as Taobao, the online shopping site of e-commerce giant Alibaba Group. These retailers usually buy products from the gray market, he said. Some online vendors are known to offer fake L’Occitane.
“We are trying to work with online shopping sites to find a solution,” he said.
In late 2012, the company warned the public about fake L’Occitane hand creams sold on Weibo and Taobao, according to news portal ifeng.com.
In the fight against piracy, L’Occitane is not alone. American luxury brand Coach and Taobao are stepping up efforts to curb counterfeit Coach products. Taobao is also working with French luxury house Louis Vuitton.
“It’s a difficult challenge and I think all brands have to take a hard look at how they do e-commerce in China. The right strategy is not so obvious to me,” Hoffman said.
Still, he said doing e-commerce in China is a key strategy for the company, especially given that many department stores place great importance on the digital presence of a product.
L’Occitane, one of the earliest adopters of direct e-commerce worldwide, expects the segment to outstrip other businesses for the foreseeable future.
In the first half of its financial year to September, L’Occitane saw its e-commerce business grow about 24 percent worldwide, three times faster than overall sales growth.
Key growth driver
China was the best-performing market for L’Occitance during the first half, with net sales in its 141 mainland stores up 18.7 percent to 31.5 million euros (US$42.75 million), contributing 15.6 percent to overall growth.
“Based on our projections, China will be the second largest market in the world for the L’Occitane brand within three years. However, if we look at Greater China, meaning Hong Kong, Taiwan, Macau and China, it’s already the biggest market in the world,” Hoffmann said.
Among the 76 stores it opened around the world in the first half, 22 are in China. L‘Occitane plans to open another 20 in the country in the second half, mostly in third-tier cities.
At present, the company sells about 174 products in the mainland, with a plan to boost the number to 200 by March 2014. But Hoffmann said the registration process is too slow.
“Today, we are looking at six to 12 months’ delay when we launch a product in the rest of the world than when we launch in China. We’d really like to shorten that… Like in a lot of countries, there is bureaucracy, there is regulation. If we comply with everything, it takes time,” he said.
With a growing number of foreign skincare brands quickening their pace of expansion in China due to promising sales, Hoffmann said the market is evolving very fast and is extremely competitive.
And as more Chinese get to travel abroad and see a L’Occitane product before it hits China, they are less likely to be wowed by something that’s already on Chinese shelves.
However, Hoffman said L’Occitane’s appeal lies in the traceability and naturalness of its products, most of which are made from ingredients grown in Provence in the south France and in the Mediterranean.
And as more Chinese consumers become knowledgeable about the benefits of natural skincare and the origins of the ingredients, they will find themselves increasingly drawn to L’Occitane, he said.
“I am hoping that Chinese consumers will decide not just on discount but on service and quality of merchandise.”
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