L’Occitane’s US branch filed for bankruptcy, but it keeps double-digit growth in China

At present, there has been a sharp contrast between China’s domestic and foreign consumer markets. China’s consumer market is recovering strength. The current situation of consumer markets in many countries still affected by the pandemic is very worrying. The United States is one of them.

L’Occitane was overwhelmed by shop rent and filed for bankruptcy in the United States

According to multiple media reports, on January 26 local time, the US branch of the famous French skincare brand L’OCCITANE filed for bankruptcy in a US court.

The reason why L’Occitane’s US branch filed for bankruptcy is to reduce the lease obligations that have become more and more difficult to bear after the COVID-19 pandemic. To put it in simpler terms: the store rent is too expensive to pay.

The application documents show that the L’Occitane US branch operates a total of 166 boutiques in 36 states and Puerto Rico, all of which are leased shops, and the annual lease cost is as high as 30.3 million US dollars.

L’Occitane’s US branch currently has high debts of US$162 million. As of the date of the bankruptcy filing, it has owed US$15 million in-store rent, and the landlord holds more than US$500,000 in security deposits.

Faced with the huge pressure of shop rent, L’Occitane tried to renegotiate the lease terms with the landlord, but these landlords refused to negotiate, refused to adjust, and were unwilling to provide sufficient concessions.

In fact, L’Occitane’s US branch had a difficult time before the COVID pandemic, with physical store sales declining. Although the e-commerce market’s revenue share increased, the overall business situation was worrying.

The sudden pandemic has brought long-term effects, and the operating conditions of L’Occitane’s US branch can be said to have worsened.

Market data shows that at the beginning of the pandemic, L’Occitane also closed its physical stores in the United States and restarted the business in March 2020. From April to December during the pandemic, L’Occitane’s sales in the United States fell by 21% during the same period. Among them, physical store sales fell year-on-year. A decrease of 56.5%, and the proportion of total sales dropped from 61.7% in the same period in 2019 to 34%.

Due to operating pressure, the parent company of L’Occitane also provided approximately US$30.5 million in loans and inventory to the US branch, but to no avail.

Under the pandemic situation, L’Occitane’s US branch filed for bankruptcy and was unable to pay the rent owed to the store. It is expected that these landlords will be affected.

L’Occitane US branch is just the latest company to file for bankruptcy under the pandemic. Since the outbreak of the pandemic in 2020, the US retail industry has experienced several rounds of bankruptcy.

For example, the luxury department store Neiman Marcus filed for bankruptcy on May 7, 2020. The department store Plano, which has a history of more than a century, also filed for bankruptcy in May of that year. The classic suit brand Brooks Brothers also filed for bankruptcy in July of that year.

China’s cosmetics market grows against the trend

The news that L’Occitane’s US branch filed for bankruptcy quickly attracted market attention and media reports.

So, how much impact does L’Occitane’s US branch’s application for bankruptcy have on the entire L’Occitane company, especially on the Chinese market?

The person in charge of the related business of L’Occitane told the media that the filing of bankruptcy by the US branch of L’Occitane will not affect its parent company, the global market and other brands.

L’Occitane’s latest financial report data for the third quarter of fiscal 2021 showed that net sales in the quarter were 5.73 euros, which increased without falling but increased by 4.3% year-on-year. Among them, the Chinese market achieved a year-on-year growth of 28.9%, much higher than growth data for markets such as Russia, Japan, and the United Kingdom.

It can be seen that the Chinese market has become the main contributor to L’Occitane’s overall sales, and China is already L’Occitane’s largest market in the world, maintaining strong double-digit growth in the Chinese market.

Thanks to the effective control of the pandemic in China and the accelerated recovery of the social economy and consumer market, the Chinese market has become the core driving force for the performance growth of many international brands and companies, and it has become a “life-saving” for many international companies under the pandemic.

China has become the world’s second-largest cosmetics market

Take the cosmetics industry where L’Occitane is located as an example, China has already become one of the fastest-growing markets in the global cosmetics industry. The Chinese market quickly resumed growth after the pandemic stabilized last year.

The latest data released by the State Food and Drug Administration of China show that China has become the world’s second-largest cosmetics market. According to statistics, from 2015 to 2019, the total retail sales of cosmetics in China increased from 204.9 billion yuan to 299.2 billion yuan, a total increase of 94.3 billion yuan.

With the continuous development of the economy, the continuous increase of residents’ per capita disposable income, and the strong rise of the “pretty economy”, it is expected that the scale of China’s cosmetics market will continue to expand in the next few years.

Compared with developed countries and regions, China still has more room for improvement in the per capita consumption of cosmetics. In 2019, the highest per capita consumption of cosmetics in the world was in Hong Kong, China, reaching US$475. Japan is a close second, with a per capita consumption of US$309. The average American spends $282. On the other hand, China’s per capita consumption in 2019 was only US$50, which is far from Hong Kong, Japan, Norway, and the United States.

As Chinese residents pay more attention to their appearance and their consumption levels continue to increase, it is expected that the per capita consumption of cosmetics in China will increase.

At present, international cosmetics brands, including L’Occitane, are optimistic about the Chinese cosmetics consumer market and continue to increase their investment in the Chinese market and launch more products that meet the needs of Chinese consumers.

The industry generally predicts that China’s cosmetics consumer market will continue to grow in 2021, which will bring development opportunities to Chinese and foreign cosmetics companies.

Source: The Paper

 

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