The L'Oréal Group is a French cosmetics and beauty company, headquartered in Clichy, Hauts-

de-Seine. It is the world's largest cosmetics company, and has a registered office in Paris. It has
developed activities in the field of cosmetics, concentrating on hair colour, skin care, sun
protection, make-up, perfumes and hair care, the company is active in the dermatology,
toxicology, tissue engineering, and biopharmaceutical research fields and is the top
nanotechnology patent-holder in the United States.

For more than a century, they have devoted their energy and competencies solely to one
business: beauty. They have chosen to offer their expertise in the service of women and men
worldwide, meeting the infinite diversity of their beauty desires.

Mission
➢ Beauty is a language

For more than a century, L’Oréal has devoted itself solely to one business: beauty. It is a
business rich in meaning, as it enables all individuals to express their personalities, gain self-
confidence and open up to others.

➢ Beauty is universal

L’Oréal has set itself the mission of offering all women and men worldwide the best of
cosmetics innovation in terms of quality, efficacy and safety. It pursues this goal by meeting
the infinite diversity of beauty needs and desires all over the world.

➢ Beauty is a science

Since its creation by a researcher, the group has been pushing back the frontiers of
knowledge. Its unique Research arm enables it to continually explore new territories and
invent the products of the future, while drawing inspiration from beauty rituals the world
over.

➢ Beauty is a commitment

Providing access to products that enhance well-being, mobilising its innovative strength to
preserve the beauty of the planet and supporting local communities. These are exacting
challenges, which are a source of inspiration and creativity for L’Oréal.
Lancôme Paris
Lancôme Paris is a French luxury perfumes and cosmetics house that distributes products
internationally. Lancôme is part of the L'oreal Luxury Products division, which is its parent
company and offers skin care, fragrances, and makeup at higher-end prices.

History
Founded in 1935 by Armand Petitjean in France, as originally an fragrance house. Petitjean’s
motive was simple: to create a beauty brand that would deliver French elegance around the
world. The name "Lancôme" was inspired by the ruins of a castle, Le Château de Lancosme,
while the roses in the area inspired the company’s symbol of the single golden rose.

For more than 75 years, Lancôme, the world's leading luxury beauty brand, has epitomized
beauty and glamour with a quintessential French touch. Women seeking the finest in beauty look
to Lancôme for the highest quality in skincare, encased in timeless style and delivering
scientifically proven results.

The brand continues to strengthen its reputation as a makeup authority and skincare innovator,
not merely keeping pace, but surpassing expectations by continually taking science and creativity
to new levels. With coveted and revered pillars including the timeless Trésor perfume, the
award-winning Définicils mascara, cutting-edge Génifique Youth Activating Concentrate, and
the richly refined L'Absolu Lipstick, Lancôme is committed to making the best in beauty
accessible and relatable to women in over 160 countries around the world.

Lancôme is the brand of women, represented by some of the most accomplished actors and
models today, including Lupita Nyong`o, Julia Roberts, Penelope Cruz, Lily Collins, Kate
Winslet, and Daria Werbowy. Lancôme's mission is to provide women with superior products
and services that fulfill their quest and enthusiasm for beauty.

Products
Lancôme provides Fragrances, Skin care, and Makeup. Their most famous products include
their mascaras, namely "Hypnôse", their Visionnaire Range which contains a patented
ingredient, "LR 2412", aimed to improve skin texture qualities, especially in pore reduction, fine
lines and uneven skin tone. Lancome has recently released a new serum called "Dreamtone",
which claims to improve on colour irregularities including sun spots and blemish marks. The
serum is available in three colour integrals, fair, medium and dark to match individual skin tones.
The Present Travel Retail Market and Competition

Break Down Of the world Cosmetic Market

By Geographic Zone By Product Category

Asia- Pacific Skin Care
3% 1%

8% Western 11% Hare Care

europe
13% 33% 34%
North America 13% Make Up

21% 17%
Latin America Frangrances
22% 24%
Eastern Europe Hygiene
Products

As per the world cosmetic industry by product category statistics Skin care, Hair care and
Makeup are the leaders. L’Oreal is the market leader in Beauty, with 35.1% market share in
Western Europe, 25.1% in North America and 25.1% in Asia Pacific. It is also the leader in
beauty products category in travel retails.

The Travel Retail Market

The Travel Business

4%

6%
Airports
Down Town and duty free shops
33% Airlines
57%
Cruises
The last five years have been an outstanding period for airport retail with average annual sales
growth of 14% (including duty-free and duty-paid sales), driven mainly by airports’ strategy to
develop non-aeronautical revenues. In order to secure targeted return on investment, airports now
aim to achieve 50% of revenues from non-aeronautical sources, with retail representing the main
source. As a result, airports have increased the space dedicated to duty-free shops significantly,
focusing largely on core business categories (Perfume & Cosmetics, Alcohol and Tobacco).

1 .087 billion people travelled internationally in 2013, equivalent to approximately 15% of the
global population (7.71billion in 2013, according to the United States Census Bureau). These
tourists contributed an estimated $1159 billion to various local economies, purchasing
accommodation, food and drink, local transport, entertainment and shopping in destination
countries (UNWTO).

Visitors to the United States spent the most, contributing a whopping $139.6 billion to the local
economy. Followed by Spain ($60.4 billion) – the country with the most favourable VAT tax
rebate within Europe – with France ($56.1billion), China ($51 .7 billion) and Macau ($51 .6
billion) rounding out the top five biggest recipients of tourist spend.
Biggest Receipients of Tourist Spent

United States
14%
Spain
39%
14%
France

16% China
17% Macau

Globe Shoppers

Global shopper(noun)

1. Fashion addict consumers from emerging countries.

2. Middle class that travel outside their country.
3. Shops everywhere.
4. Internet addicts; device equipped.
5. Impulsive purchase at airports

Someone who regards shopping as a fundamental part of a trip abroad. They are arriving
from all over the world, spending more than ever.
According to the study, Duty Free shopping is their preferred point-of-sale (75% buy in Duty
Free shops, with 78% shopping on their return trip). However high street stores are also
important, with 70% of Global shoppers buying in department stores, 62% in luxury brands’
stores and 55% in perfumeries.

Global Blue christened this segment Globe Shoppers and set out to investigate their habits. 82%
of Chinese traveler respondents in their research agreed that ‘shopping is my priority when I
travel.’ 56% of Middle Eastern respondents felt the same way, as did 48% of Russian
respondents. According to their data, the average shopping budget of a Chinese globe shopper
per European trip is €1 0,800. In 2013, overall international tourism receipts achieved $1,159
billion, lead by Chinese tourists for the second consecutive year – spending 11 .1 % of all
international tourism receipts globally ($1 28.6 billion). Ahead of North Americans and
Germans, Russian tourists were the 4th biggest spenders, spending $53.5 billion for the year,
slightly ahead of travellers from the United Kingdom ($52.6 billion).

“Shopping is becoming an increasingly relevant component of the tourism value chain,”

explains Taleb Rifai, UNWTO Secretary General. “Shopping has converted into a determinant
factor affecting destination choice, an important component of the overall travel experience and,
in some cases the prime travel motivation.”

Trends in Travel Retails

➢ The concept for high-speed shoppers

The airport business is a fast-changing one where clever ideas are much in demand. one
of these innovations. With a very tight time schedule and transit passengers should be the
main target group for Lancôme. Sales area offering a selected range of quick-turnover
products within all the usual categories should be established near the departure gates to
serve these high-speed shoppers.
 ➢ Adapting offer to passenger profile

Reproducing a standard duty-free offer at every airport is no longer relevant. Adapting

the offer, e.g. price, brands, products to the passenger profile is now a key lever for
optimizing revenues.
As a result of market studies and surveys, the travel retail market in airports now better
placed than ever to select the most appropriate mix according to passenger destinations

➢ Techsavvy Shoppers

As technology has boomed shoppers have become more and more informed in their
buying choices and demand a far higher standard of customer service as a result. The rise
of ROBO-shoppers (Research Online, Buy Offline); with technology enabling customers
to quickly compare prices and hunts out the best products and prices. This has led to a
decline in brand loyalty, increasing the importance of good customer service for
shoppers, as retailers are required to go to even greater lengths to encourage discerning
shoppers to purchase from them over rival outlets.

Trends in Beauty Industry

➢ Anti-aging: Younger and younger

More and more people in their 20s and 30s are beginning to understand that great skin
care can never start too early. Women age 25–34 years old, are a key age demographic in
the world of anti-aging skin care. Thirty-nine percent of this demographic considers anti-
aging benefits to be important, a significant leap from the 19% of 18–24 year olds who
agree. Only 33% of Gen Y skin care consumers agree that they ‘find many anti-aging
 products to be ineffective,’ compared to the 44% or more of women over 35 who agree
with that statement.”

➢ Organic and natural

Although organic and natural products aren’t new, they are becoming more legitimate. In
the past and still today, almost any personal care product can claim organic ingredients
without having to legally go through any certification process. Although many companies
have participated in certification of their own accord to add credibility in the confusing
and diluted world of naturals labeling, rising concerns for health safety, increasing green
consciousness and growing consumer awareness are fueling the demand for genuine
organic personal care products, according to a new study by Transparency Market
Research. In fact, the United States’ closest option for organic labeling is the United
States Department of Agriculture (USDA) Certified Organic label, which actually is for
food and not personal care products. As the demand for organic personal care products
grows, so too will the demand for legitimacy in growing practices and certification.

➢ Multicultural beauty and Global Skin

Demographically, African-American, Asian, Indian, Hispanic and other people of color

number very high in the world with ever-increasing spending power. Clients with skin of
color defy traditional marketing segment definitions and, instead, exhibit contextual
cultural identity, hence it more important for cosmetic companies to know their clients.
While developing a product it is important to develop cosmetics specifically for each and
every type of ethinicity. Instead, more and more clients have a variety of cultural
influences in their genetic makeup, and this presents a new and interesting challenge for
the cosmetic industry. It is imperative that beauty companies understand how the skin
functions in those with mixed ancestry.

The Competition
1. The Porters 5 forces analysis of Lancome
Threat of new entry

The cosmetic industry has a low threat of new entrants especially for Lancôme. This is due to
several factors. The first is the huge costs of entry. Developing unique cosmetic products
requires a lot of resources both in terms of research and development and the actual
manufacturing process. Few middle and small scale firms have access to the funds and expertise
required to perform this effectively. Another factor which discourages entry into this industry is
the huge competition present in the industry. In addition to the huge competitors such as Avon,
Revlon, Clinique, Estee Lauder, Mac and Unilever, who have a large market share, there are
many other small scale competitors who also have a small market share and who reduce the
overall profitability of firms in the industry.

Bargaining power of customers

The cosmetics industry has a high bargaining power of customers due to the increased
competition and wide availability of cosmetic products from many different manufacturers.
Since these products have high substitutes, then it is possible for consumers to force
manufacturers to reduce their product prices by buying those of their competitors. This is a
challenge which manufacturers of cosmetic products face across the world.

Bargaining power of suppliers

Lancôme has a low bargaining power of suppliers due to the high number of market players and
large supply of diverse products to the market. There are many cosmetic products which are
developed by both large and small manufacturers. The supply is so huge that consumers have the
power to influence the market prices as opposed to the suppliers.

Threat of substitutes

In the cosmetic industry, there are many competitors as has been discussed. There is therefore a high
threat of substitute products. If manufacturers sell their products at higher prices, or if the products are of
low quality, then consumers are able to purchase substitutes from the many competitors who are present
in the market environment. It is therefore essential for the market players in the cosmetic to be innovative
if they are to tackle the challenge of the threat of substitute. In this case, substitute is not only a
makeup produced by a competitor, it could also be a trip to a beauty salon where a professional
dermatologist takes care of your skin or a surgical operation.

Competitive rivalry in the industry

Cosmetics industry is very competitive at times changes rapidly due to consumer preferences and
industry trends. Various surveys show that every year more women in Russia start using
cosmetics. That is more, on average Russian woman uses more cosmetics than a European one,
therefore Russian market attracts more players due to its big potential. Lancôme faces, and will
continue to face, competition for market share with products that also have achieved significant
national and international brand name recognition and consumer loyalty, such as those offered by
global prestige beauty companies Avon Products, Inc., Elizabeth Arden, Inc., The Estée Lauder
Companies, Inc and Neutrogena, each of which have launched and are promoting mineral-based
as well as natural makeup brands.

Seller and buyer concentration

The cosmetic industry is appealing for people of all age groups and social backgrounds. There
are many cosmetic products which are tailored to meeting the needs of different market
segments. The buyer concentration can therefore be deemed as low since there are many buyers
who cut across different market segments both in the developed countries and the developing
countries. However, the seller concentration may be deemed as high in developed countries.
Many large scale cosmetic producers are concentrated in developed countries. However, the
seller concentration in developing countries and emerging markets is relatively low. Few
firms have ventured into developing products which meet the specific needs of this market
segment. In order to achieve long term profitability, Lancôme should focus on this neglected
population segment.

2. SWOT Analysis of Lancôme

SWOT analysis of Lancôme brand in Travel Retail channel was created after deep analysis of
Lancome strategy in Travel Retail industry. The picture below clearly interprets the main
Strengths, Weaknesses, Opportunities and Threats which Lancôme faces in terms of Travel
Retail.
 Strengths
•Lancôme logo and Brand Image
•Segmented market
•Digital Market Leader
•Natural
Ingridients/Sustainibility
•Existing Distribution Channels
Weaknesses
•Storage Issue in airplanes
•Single Market Concentration
•No diversification in shopping
experiences in POS
•Heavily dependent upon 3rd
party retailers

Opportunities
•Emerging Markets
•Market Segment of Men
•Interactive Touchsceens
•Impulsive Purchase
•Increasing Trend for gift
shopping in airports
•Increasingly Large middle class
•Tech Savvy Global Shoppers
•Long Waiting Time for Flights
Threats
•Fierce Competitors
•Economic downturn
•Low service from the crew
•Counterfiets Goods
•Low Loyality

Pic. 1: SWOT Analysis of Lancôme in Travel Retail Industry

Strengths:

To design the analysis of stregths we can start with Lancôme logo. For the written logo, the
word Lancome with the name of the city, Paris, helps customers to feel the sense of French
chic.What is more, according to statistics, Paris is the most visited city in the world which makes
travelers traveling to Paris more interested in Lancome products.

Segmented Market: As L´Oreal is historical leader in the Beauty category of the Travel retail
market, they have developed a precise understanding of traveling consumers. On certain routes,
the type of customers in terms of nationality, purchasing power, purchase of the trips is uniform.
This enables to ease the choice of the listing of the produts. Moreover, Lancôme shows
outstanding actions during seasonal and local events. As a matter of example, we can quote the
celebration of Diwali at Dubai airport, as Indian customers are the most numerous travellers at
this airport.

In 2014 Lancôme has been elected best digital performance by L2’s beauty report on Digital IQ
Index in China over 84 global and local brands. Lancôme was also ranked 20th in China’s top 20
cosmetics brands according to China Internet Watch. Lancôme developed an efficient digital
strategy that enables it to stay close to their customers. Focus is on e-commerce website, social
networks and forums. Thanks to this triple digital strategy applied to the Internet, Lancôme built
one of the biggest online communities in the cosmetics field in China.

Natural ingredients and sustainability

L’Oreal bought the Body Shop in 2006, even though it was polar opposite of the £100bn global
beauty industry: one has all the glamour of Paris and the promise of products to transform your
looks; the other is a company formed in a garage in Littlehampton selling products in recycled
urine sample bottles. But a year later it became clear that the £650m acquisition was the start of
something new at L’Oreal - the group has taken a leaf out of Body Shop's book and decided to
go natural. The natural cosmetics phenomenon has gradually migrated into the mainstream and is
now a booming market.

They are working on new ways to improve the environmental and social profile of their products
which includes making sure that renewable raw materials used in products are sustainably
sourced. For example they source argan oil in Morocco directly from six women-led production
cooperatives, ensuring a stable income for around 300 women, and protecting the biodiversity of
the ecosystem. They commit that by 2020, 100% of their products will have improved their
environmental or social profile. This means reducing the environmental footprint of our
formulas, especially the water footprint.

Existing distribution channel

In 2013, L’Oreal’s organizational structures were modified to adapt to a perpetually changing

cosmetics market. The general Management of the Selective divisions has been created to
leverage the expertise of the brands of L’Oreal, Active Cosmetics, Professional Products and the
body Shop in each of the selective distribution channels.

In order to boost the strategy of universalisation and conquering the next billion consumers, the
group is refining and completing the structure of its zones with the creation of new geographic
entities: the Americas Zone (including North America and Latin America), the Eastern Europe
Zone and the Western Europe Zone

Weaknesses:

The storage issue on an airplane has for direct consequence a usually small panel of choice.
Thus, if the consumers do not find what they expect, they will directly look for the equivalent
product in the competitor´s offers rather than buying a similar one by Lancôome. Besides, this
can make Airlines refuse to list some large products, such as perfumed bodylotion Trésor.

Concentration on single segment Lancôme targets mainly women in their 40s which may be
considered as a huge disadvantage. Lancôme´s competitors are able to cover wider population of
women and men. Shis strategy provides them with competitive advantage. Concentration on
wider group of travellers may be beneficial for Lancôme in terms of sells. For example, the
average income of Chinese people is increasing and it goes the same for senior citizens.Chinese
senior citizens are quite important to the travel retail market because they have time, money as
well as the desire for travel.China ranks number one for senior citizen population and with the
most rapid growth in the world. By the end of 2014, there will be 200 million people over 60
years old living in China. According to the tradition of Chinese, children are expected to care and
financially support their parents for as long as possible.

Heavily Dependentupon 3rd party retailers

Loreal is heavily dependent upon 3rd party retailers, which is making it difficult for thecompany
to control product quality.This is resulting negative reviews and may alsocauselegal liability
without any fault. Also because of this it is unable to control consumer trends.

Opportunities:

Emerging markets are expected to produce strong growth in beauty and personal care. Lancôme
can benefit from the shift of consumption to the emerging markets. According to
www.blabla.com the top three emerging markets are.....

In these years, many market dominants mainly develop the middle-aged female group customers.
However, the market segment of males is now been less concerned. In this way, Lancôme may
benefit a lot from taking advantage of this market segment.Moreover, to promote this step,
Lancôme should hire a male ambassador to attract wider range of travellers.

Interactive Touch Screens

In today’s technology driven market innovation and interaction are highly praised. Airport retail
has seen major developments over the last fifty years and aiming for innovation and interaction
has become increasingly more important. Lancôme can offer an interactive touch screen to the
international mix of travelers passing through the airport. Placed in airports in front of Lancôme
duty-free shops will not only ensure higher interest in the brand and its products but also will
give them the personalized experience while at the same time offering information about the
goods commercialized.
Impulsive Purchase

Airport shopping is characteristically related to airport environmental conditions. The evaluation

of emotions leading to impulse purchasing and airport environment effect is still hidden in
academic context. Airport shoppers tend to make impulse purchases; however, previous studies
relating to impulse purchases did not have the shopper as an independent variable. Lancôme has
to research and asses airport shoppers and the airport’s influences on impulse shopping and
consumers’ buying behaviors. A study found that the relationship between airport impulsive
shopping and the related shopping behavior is significant only when airport shoppers believe that
acting on impulse is appropriate.

Increasingly large middle class

Not long ago, most Asian tourists were from Japan, South Korea, or Hong Kong—the region’s
more affluent markets—but that trend is rapidly changing. China has now surpassed Japan to
become the second-largest travel and tourism market in the world in terms of contribution to
gross domestic product. With high rise in GDP, which has increased the disposable income of
Chinese people, more and more middleclass families are now travelling. This has opened a new
opportunity door for Lancôme.

Long Waiting hours in Airports

Airports are becoming, really, a service facility, like a shopping mall. Because of high traffic in
airlines the transit times are getting higher which gives people a lot of time to stay in the airports.
People may usually get bored and unable to leave they will be drawn toward shopping. In the
airport environment, Lancôme can capitalize on the captive audience and on their dwell time.
Since airports are open 365 days a year, there are no days off. It’s not like a mall where you can
close on holidays. Airport shoppers are often stressed and in a hurry to catch flights, with limited
time to browse Lancome will have to train staffs to work quickly and efficiently while keeping
the traveling customer’s behavior in mind. It’s been shown that the traveling public has a higher
education level as well as a higher income level, many over $100,000,” he says. “They’re more
likely to spend … on an unplanned purchase.

TechSavvy Global Customers

As of 2013, worldwide mobile phone internet user penetration was 73.4 percent. In 2017, figures
suggest that more than 90 percent of internet users will access online content through their
phones. Mobile internet usage has worked its way into the daily life of smart phone and tablet
users, enabling consumers to access information and share their lives on the go. The usage of
mobile devices for shopping activities has also become increasingly popular. Mobile commerce
is still going strong, but there is still room for improvement. 67% of the smart phone users say
that using their mobile phone is their first way of passing time while getting bored.
Threats:

Lancome products face severe competition in the cosmetics industry in travel retail. However, its
professional products, Hypnôse or Génifique face significantly less competition because of their
target marked of specialized clientele. Lancome products in travel retail market face competition
from Max Factor or M.A.C.

The recent economic downturn has affected the beauty industry in distinctly different ways than
any other CPG (consumer packaged goods)market segments. Activity in the hair care, skin care
and cosmetic beauty markets has been uneven. As consumers plan and budget for hair, cosmetic,
and skin care purchases they implement the “Trade off” strategy. Some shoppers are remaining
loyal to their favorite beauty brands, purchasing less. Others are shifting to value brands. Travel
industry has also been shaken by the economic turndown as during this time airlines reported
sharp declines in passenger traffic.

Lower service from the crew than in usual Travel Retail Business or the Local Market. Thus,
Lancôme brand loose in credibility and can often rely on the goodwill of the passengers to have
a look at an inflight magazine.

Counterfiet goods

As mentioned in the weaknesees section Loreal depends heavily on 3rd party retailers. Which
has created problems with the counterfeiting of goods. In September 2007 L'Oréal sued eBay in five
European countries, for trademark infringement, alleging it didn't do enough to prevent the sale of
counterfeit goods under the L'Oreal name. EBay argued it wasn't responsible for the actions of
fraudulent third-party sellers. EBay previously has said it has systems to ensure counterfeit goods
are removed from its site when identified, but it is the responsibility of trademark holders to
monitor for problematic merchandise. This not only is one of the biggest weaknesses but also
possesses an eminent threat if proper care is not taken.

Low loyalty

TABS Group has released the results of its 2014 Beauty Consumer Insights Study, and one of the
key findings Millennials(GenY) show no more brand loyalty. And, apparently, they aren’t loyal
to any one retailer, either. Kurt Jetta, founder / CEO, TABS Group, said, "The heaviest cosmetics
shoppers demonstrate no brand loyalty, purchasing more than 8 brands, on average, and
shopping at many more outlets than lighter buyers. Consistent with the data from our Consumer
Value Study earlier this year, most consumers say they prefer to shop for cosmetics at stores that
offer good deals. The bottom line is that more deals lead to more sales, particularly among the
heaviest buyers who have no loyalty to specific brands.”
Some Key Issues
A Research by JCDecaux confirms this new category of travelers, who consider shopping an
integral part of their travel experience. In a recent survey, 96% of people interviewed agreed that
they enjoy shopping when visiting a foreign city. 83% consider that shopping is an important
part of their trips and 68% choose their travel destination according to the shopping opportunities
and available brands at a location.

Fig 1(country specific details of no of outbound travellors in 2013) sources:- world-statistics.org

Biggest Spenders during travel

Rank International tourism Market share Population 2011 Expediture per
expenditure (US$ billion) (%) 2012 (million) capita US$
World 1.074 100 6.929 151
China 102 9.5 1.347 54
Germany 83.8 7.8 82 1.05
United States 83.7 7.8 312 252

In 2012, Chinese shoppers became the largest group of luxury shoppers in the world and now
account for 25% of global revenue for luxury retailers, ahead of the Americans who account for
20%. While already impressive, this share is likely to increase, as the consumption of luxury
products by Chinese consumers is expected to grow by a double digit rate annually over the next
few years. Nevertheless, despite the increasing demand for luxury products, more than half of the
luxury products purchased by Chinese shoppers are purchased abroad specially while travelling.

According to estimations by the Chinese Ministry of Commerce, the average price of luxury
goods in China is 45% higher than in Hong Kong, 51% higher than in the United States, and
72% higher than in France. For some, the price differences are enough to justify the troubles of
obtaining a visa and the additional expenses to travel outside the Mainland.

2. The increase of personal wealth. According to Credit Suisse, the wealth per adult in China
more than tripled between 2000 and 2011. In the meantime, the number of Chinese millionaires
has increased rapidly. By the end of 2011, the number had already leapt past 1 million (+6%
compared to 2010) and is now expected to more than double by 2016 (Credit Suisse).
Accordingly, with a greater income, travelling abroad becomes more accessible.

4. The importance of the country of origin. Our research with more than a thousand wealthy
individuals in China shows that about two-thirds of Chinese luxury shoppers consider the
country of origin of the product to be important. Buying a product in the country where it was
crafted adds cachet and prestige. Furthermore, there is a general perception in China that foreign
made goods are better than Chinese made ones, which reinforces the idea that buying a product
abroad is better – even when identical to the local one.

5. The gift tradition. Social gifting is a practice deeply entrenched in the Chinese culture and
buying luxury goods for relatives, friends or business partners when travelling to Europe or the
United States remains a must for someone with the financial means.

6. The authenticity of the products. China is notorious for its counterfeits of luxury products and
many Chinese consumers prefer, when they can, to buy luxury goods abroad to be sure that they
are “genuine”.

7. The visa: The greater ease with which Chinese citizens can now obtain visas for Europe or the
United States is also contributing to an increase in the number of trips to these destinations.

2. Where do Chinese luxury shoppers buy luxury products?

Today, more than half of the luxury products purchased by Chinese are bought outside the
Mainland and this proportion is likely to increase, at least in the short term, as the share of
Chinese luxury shoppers buying exclusively in Mainland China is declining rapidly (see the
Chart below).
 Source: McKinsey Company – Luxury without Borders

While Chinese luxury shoppers are now diversifying the destinations of their trips, the bulk of
their luxury purchases are still made in Hong Kong. According to our survey, 39% of Chinese
shoppers still prefer to go to Hong Kong to buy luxury products, compared to 24% preferring
Europe, 10% preferring the United States and 7% preferring Japan. Hong Kong offers several
considerable advantages for Chinese Luxury shoppers: its proximity to the Mainland – less travel
expenses and less time spent traveling, its tax free retail sales, and the ease with which they can
obtain a visa. The incentive to go to Hong Kong is such that it is not unusual for Mainlanders to
visit the city with the sole intention to splurge on luxury products. In 2011, 28 million Chinese
tourists visited Hong Kong – four times the city’s population – and their shopping expenditure
accounted for 27.3% of Hong Kong’s total retail sales, almost 6% of the city’s GDP.

Europe and the United States are becoming increasingly popular among Chinese tourists, due, as
explained above, to the rise in personal income, easier access to visas, and the appreciation of the
Renminbi. However, unlike trips to Hong Kong, trips to Europe or to the United States are
mostly for the purpose of sightseeing, and shopping, while still a must, is a secondary factor.
Considering the recent data on consumption by Chinese luxury consumers abroad, it is not hard
to see how the rise of travels to Europe or the U.S. benefits the luxury sector in these regions. In
2011 alone, Chinese tourists bought two-thirds of the luxury products sold in Europe, according
to the World Luxury Association.

Tax cut or not, it is unlikely that we will see major changes in the behaviour of Chinese luxury
shoppers any time soon. Mainlanders will continue to make extensive purchases abroad due to
increasing incomes and the greater ease with which they can now travel, but also due to the
prestige of buying luxury products where they are crafted. The main looser of this tax cut would
certainly be Hong Kong, as the number of Chinese luxury shoppers is likely to decline if the
price difference is reduced, but considering how large the current price gap is between the city
and the Mainland, we can expect the change to be slow.
The Chinese way of buying cosmetics
Chinese consumers look for real value in products, paying attention to the ingredients, how they
function and how effective they are. Products which are too rich for Chinese people due to
different skin types, are avoided. Estee Lauder, which already sells many of its popular brands in
China, like Clinique and Kiehls, announced in 2012 that it was developing a completely new
brand, Osiao, purely for the Asian market, supposedly containing ingredients derived from
Chinese plants, such as ginseng. Lancôme has to invest in its R&D department in order to
develop similar products ,which are herbal and will suite specifically the asian skin in order to
win customers, and fight off their Western rivals.