HONG KONG -- L'Occitane shrugged off the suggestion that China's economic slowdown is hurting consumption, as the upmarket French skincare brand is planning to expand into the country's lower-tier cities for growth opportunities with the help of e-commerce.
"We've probably reached close to maximum capacity in Beijing and Shanghai," said Andre Hoffmann, the company's vice-chairman and managing director of Asia-Pacific, on Monday, adding that opening new physical stores in China's second- and third-tier cities would help to create brand awareness.
Listed in Hong Kong, L'Occitane already has 187 stores in 65 cities in mainland China but plans to add more. Of the 50 to 60 stores due to open globally later this year, most of them will be in mainland China, Japan and South Korea. Last year, the group added 79 stores globally, with about a third of those in mainland China, 12 in Japan and 11 in Brazil.
As for smaller cities without any dedicated L'Occitane stores, Hoffmann said China's booming e-commerce sector, in particular Tmall -- an online platform for branded goods operated by Alibaba Group Holding -- would fill the gap. The company has a marketing partnership with Tmall to reach out to China's emerging middle class who are eager for imported premium products. L'Occitane's e-commerce channels saw growth globally of 14.5% last year, compared with about a 10% rise in retail sales.
L'Occitane's expansion in China comes at a time when it is seeing a slowdown in traditional markets like the U.S., the U.K., Taiwan and Hong Kong. Mainland China was its biggest source of growth last year, ahead of Brazil, France and Russia. Its sales there grew 16.8%, contributing nearly 30% to the group's overall growth. Sales in Brazil and Russia grew 11.5% and 10% respectively.
The group reported a modest 8.9% rise in sales to 1.28 billion euros ($1.45 billion) in the 12 months ended in March. Full-year net profits fell 9.8% to 113.6 million euros, primarily due to foreign exchange losses of 6.9 million euros in emerging economies and the settlement of tax disputes with the French authorities, which cost 14.6 million euros. It has proposed a final dividend of 0.03 euros per share, the same as last year.
In Hong Kong and Macau specifically, L'Occitane has been more cautious in expanding due to a dwindling number of mainland Chinese tourists visiting these territories. It has closed one store in Macau. In September, it will shut down another in Hong Kong.
While no other concrete plans on store closures have been revealed, Hoffmann said: "Now [that] the mainland tourist numbers are shrinking, maybe we don't need so many stores to do the same level of business."
Hoffmann stressed that all shops in Hong Kong have been "profitable" but the retail market has been "very challenging in the past 18 months." Mainland tourist spending contributes to about 40% of L'Occitane's business in Hong Kong, compared to the industry average of 60-80%.
For now, the group's strategy is to focus more on local customers. "The mainland tourists are just like the cherry on top of the ice-cream sundae," Hoffmann added.