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CB0316
REV: July 8, 2024

TERENCE TSAI

XIAYAN HUANG

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YUNLU ZHANG

L’Oréal in China: The Evolution of Brand Strategy

Founded in 1909 with an initial focus on hair dye, L’Oréal has evolved into the world’s largest
cosmetics group. Over the past century, L’Oréal strategically expanded its brand portfolio through

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acquisitions, now encompassing over 500 brands across hair coloring, skincare, makeup, haircare, and
perfumes. By 2022, L’Oréal achieved a record €38.26 ① billion in sales revenue, marking an 18.5%
increase from the previous year and its highest sales and growth rates in a decade. Amidst intense
competition, what factors contribute to L’Oréal’s sustained success?

In the Chinese market, L’Oréal garnered attention through acquisitions of local brands like
Mininurse, Yue-Sai, and MG. Despite its reputation for adept brand acquisition and management,
L’Oréal faced challenges in replicating its earlier triumphs; many acquired brands either faded into
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obscurity or experienced sluggish growth. What factors contributed to these setbacks?

In 2022, L’Oréal pivoted its strategy in China by establishing an investment firm, opting for equity
collaborations with local brands. What motivated this shift from acquisition to investment? Can this
innovative approach foster new growth opportunities for L’Oréal in the Chinese market?
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L’Oréal Group
Starting with Hair Dye
In 1907, 26-year-old chemical engineer Eugène Schueller pioneered the world’s first non-harmful
hair dye, laying the foundation for what would later become L’Oréal. Founded in 1909 as the French
Harmless Hair Dye Company, the company started small with Schueller as its sole employee. 1 By day,
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he sold his innovative hair dye to barbers, while by night, he conducted research and development in
his own kitchen. 2 As demand grew, L’Oréal expanded rapidly, employing over 1,000 staff members by
1939, including a robust sales force of more than 300 representatives.3

Following World War I, L’Oréal rapidly evolved into Europe’s largest cosmetics company. In 1957,
after the passing of its founder Eugène Schueller, management of the company was entrusted to his
assistant, François Dalle. L’Oréal went public in 1963 on the Paris Stock Exchange.
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① € = EUR = Euro; €1 = approximately US$ 1.0732 on December 31, 2022

Professor Terence Tsai and Case Researcher Dr. Xiayan Huang of China Europe International Business School, and Dr. Yunlu Zhang of Xi’an
Jiaotong–Liverpool University prepared this case. Funding for the development of this case was provided by China Europe International Business
School and not by the company. CEIBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2024 China Europe International Business School. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied,
or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Brand Acquisitions
Under the leadership of François Dalle, L’Oréal pursued an aggressive acquisition strategy guided
by the mantra “Savoir saisir ce qui commence” (Seize new opportunities). In 1964, L’Oréal entered the
high-end beauty market with the acquisition of Lancôme; in 1965, it expanded into mass skincare by
acquiring Garnier; in 1970, it entered the mid-tier men’s market with Biotherm; in 1980, it ventured into

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functional skincare with Vichy; and in 1986, L’Oréal obtained the sales license for Ralph Lauren,
marking its entry into the high-end men’s fragrance sector. Through these strategic moves, L’Oréal
gradually diversified its portfolio from mass to premium segments, expanding from hair care to
encompass skincare, makeup, and fragrances.

Acquiring brands is not merely about expanding the portfolio; L’Oréal strategically aligns each
acquisition to reinforce its core strengths and target growth areas. Lindsay Owen-Jones, L’Oréal’s

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fourth CEO, likened these acquisitions to solving a puzzle, aiming for synergistic effects with each new
addition. 4

L’Oréal organizes its brands into four divisions: the L’Oréal Luxe Division, which includes high-
end beauty brands like Helena Rubinstein, Lancôme, and Kiehl’s; the Dermatological Beauty Division,
encompassing functional skincare brands such as Vichy, La Roche-Posay, and SkinCeuticals; the
Professional Products Division, comprising hair care brands like Kérastase and Matrix; and the
Consumer Products Division, which covers mass-market brands such as L’Oréal Paris, Garnier, and
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Maybelline. 5

L’Oréal has customized its sales channels to suit the positioning of its various brands: high-end
skincare brands like Helena Rubinstein and Lancôme are predominantly available through department
store counters and brand boutiques; mid to low-end brands are found in supermarkets and
hypermarkets; dermatological brands such as Vichy and La Roche-Posay are primarily sold in
pharmacies; and hair care brands like Kérastase and L’Oréal Professional are distributed through
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salons and hairdressers. In 2021, the sales revenue shares for L’Oréal’s divisions were 38.2% for L’Oréal
Luxe, 12.2% for Dermatological Beauty, 11.7% for Professional Products, and 37.9% for Consumer
Products. 6

Through its strategic acquisitions, L’Oréal has not only strengthened its market position but also
expanded into new markets, establishing a global sales network. This network provides efficient sales
channels and a dense distribution network, enabling L’Oréal's brands to enhance their market
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penetration worldwide. 7 Following Owen-Jones’ appointment as CEO in 1988, L’Oréal accelerated its
global expansion. In 1989, it acquired the prestigious American skincare brand Helena Rubinstein, and
in 1996, the mass-market brand Maybelline, establishing the United States as the second-largest market
in L’Oréal’s global operations, following Europe. Post-2000, L’Oréal shifted its focus to emerging
markets, acquiring the African hair care brand Carson in 2000 to bolster its presence in Africa, and the
Japanese brand Shu Uemura in 2002 to enter the Asian market. By 2021, Asia had become L’Oréal’s
second-largest market, contributing approximately 30.5% of its global sales revenue (see Exhibit 1).

Brand Packaging
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Buy and Grow

While most of L’Oréal’s brands are acquired, some have achieved global recognition thanks to
L’Oréal’s effective post-acquisition nurturing. L’Oréal excels at acquiring regional brands with growth
potential and transforming them into global leaders through international packaging and robust

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research and development support. One such success story is the renowned brand “Maybelline New
York.”

In 1996, L’Oréal acquired the American mass-market brand “Maybelline.” Prior to the acquisition,
Maybelline’s international sales represented only about 7% of its revenue. After the acquisition, L’Oréal
relocated Maybelline’s headquarters to New York and appended “New York” to the brand name,

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discontinuing its skincare line to focus exclusively on makeup, complementing L’Oréal’s established
skincare and hair dye sectors. L’Oréal also introduced previously unconventional nail polish and
lipstick colors, crafting a fashionable and avant-garde brand image. Utilizing the slogan “Maybe she’s
born with it. Maybe it’s Maybelline,” L’Oréal highlighted the brand’s ethos.

Within three years, “Maybelline New York” expanded its presence to 70 countries, doubled its sales,
and saw overseas markets contribute more than 50% of total sales. Maybelline New York successfully
transitioned from a regional brand to a global fashion icon under L’Oréal’s stewardship. 8

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However, not all acquisitions have yielded successful outcomes for L’Oréal. In 2006, L’Oréal
acquired the British skincare brand “The Body Shop” in a bid to enhance its presence in the natural
skincare segment. At the time of acquisition, The Body Shop held a prominent position in the natural
skincare market, operating through a single-brand retail store model across 55 countries and nearly
3,000 sales points, including boutiques. Despite maintaining operational independence post-
acquisition, The Body Shop’s performance faced ongoing challenges and declined over the years. In
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response, L’Oréal decided to divest The Body Shop in 2017.9

Overall, the brands L’Oréal has acquired globally have generally developed well. 10 Paul Agon,
L’Oréal’s fifth CEO, emphasized that the company’s strategy revolves around the “Buy and Grow”
model—a continuous upward spiral of acquisition and growth, rather than a divided “Buy or Grow”
approach. 11
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Research and Development

Research and development have been integral to L’Oréal’s century-long evolution. Historical
records are rich with photos of founder Eugène Schueller working in the lab. Under Schueller’s
leadership, L’Oréal developed the first quick-acting hair dye, the first soap-free shampoo, the first
sunscreen, and the first cold perm product. 12

After François Dalle took over, he dedicated 3% of annual sales to research and new product
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development each year. He restructured the R&D team to separate fundamental research, applied
research, and development, establishing specialized labs for applied chemistry. 13 Over time, L’Oréal
established three major R&D teams dedicated to basic science research, applied science research, and
product development, bolstering its Research & Innovation (R&I) capabilities significantly.

Through sustained investment in R&D, L’Oréal has pioneered several effective ingredients such as
the Aminexil molecule, Mexoryl SX technology, and Pro-Xylane. These innovations have enhanced
synergies in product development, continually strengthening the competitive advantages across its
brand portfolio. For example, Pro-Xylane is incorporated into products from renowned brands like
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Helena Rubinstein, Skinceuticals, La Roche-Posay, and Lancôme, with variations in concentration and
effects tailored to diverse consumer needs. 14

To better align R&D with local consumer needs, L’Oréal has established multiple research centers
worldwide. As of 2021, L’Oréal operates 21 R&D centers, 13 evaluation centers, and 58 science and
regulatory affairs departments globally. In 2021, L’Oréal allocated €1.029 billion to R&D, amounting to

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3.19% of its total sales, a substantial investment surpassing Estée Lauder’s 1.5% during the same
period. 15

Marketing
Under the visionary leadership of Eugène Schueller, L’Oréal excelled in marketing innovation.

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Schueller spearheaded groundbreaking initiatives such as the world’s first advertising illustration, the
pioneering comet-shaped poster, and innovative building and vehicle advertisements. He also
introduced advertising songs and sponsored cultural performances, establishing L’Oréal as a
trailblazer in modern marketing concepts. 16 In recent years, L’Oréal has leveraged market trends by
strategically choosing popular celebrities as brand ambassadors, consistently enhancing brand
awareness. The company has maintained a steady allocation of approximately 30% of its expenses
towards marketing initiatives. 17

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To enhance its brand influence, L’Oréal has embraced innovative marketing strategies, including
collaborations with Key Opinion Leaders (KOLs) for product endorsements, cross-industry
partnerships, and content marketing. In 2010, L’Oréal embarked on a digital transformation aimed at
enhancing performance through e-commerce channels. By 2013, the company transitioned all regional
brands to digital marketing strategies and appointed its first Chief Digital Officer. In 2016, L’Oréal
pioneered live-streamed sales in the cosmetics industry, with its brand “Maybelline New York” hosting
the first-ever live broadcast, setting a new standard in marketing practices.
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L’Oréal has adeptly merged “beauty” with “technology.” In 2012, the company initiated a
technology incubator project. By 2015, this initiative resulted in the launch of the Makeup Genius app,
pioneering the use of AR (Augmented Reality) technology in beauty applications. 18 In 2018, L’Oréal
acquired Modiface, a company renowned for its expertise in augmented reality technology tailored for
the cosmetics industry. This acquisition enabled L’Oréal to offer consumers online virtual makeup
trials and innovate new marketing models continuously. 19 In 2018, L’Oréal set a strategic objective to
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become “the world’s first beauty tech company.” This ambitious goal aimed to harness augmented
reality, virtual reality, and artificial intelligence technologies to revolutionize its business and
marketing strategies, adapting more effectively to the evolving market landscape. 20

L’Oréal Entered the Chinese Market

The Chinese Cosmetics Market
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Industry Landscape
The cosmetics industry in China has a history dating back over a century. Prior to the establishment
of the People’s Republic of China, the country had fewer than a hundred cosmetics companies. During
the early stages of economic reform, when incomes were low and purchasing power limited, cosmetics
were considered a luxury reserved for the wealthy. However, by the mid to late 1980s, the introduction
of foreign brands sparked a cultural shift. Fashionable clothing and stylish grooming became
increasingly popular, capturing the public’s imagination and fostering a growing awareness and desire
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for fashion and beauty. 21

During that period, the demand for cosmetics in China surged dramatically. Indigenous cosmetics
companies experienced rapid proliferation, with brands like Dabao, Mininurse, and Meijiajing
emerging as prominent industry leaders. 22 These local companies, which started later and initially
lagged behind in technology and concepts, predominantly focused on the low-end market to fulfill

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consumers’ basic skincare needs. While the quality of their products varied, these companies possessed
extensive resources in sales agents and distribution experience. They excelled in stimulating market
demand by providing significant incentives to dealers and swiftly establishing a solid presence in
familiar regions. 23

International cosmetics giants quickly identified the enormous potential of the Chinese market.

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Leaders like Johnson & Johnson, Estée Lauder, Unilever, and L’Oréal eagerly entered, bringing
extensive product lines and sophisticated brand management expertise. Initially targeting affluent
urban centers, they utilized department store counters as their primary sales channels, bolstered by
extensive advertising campaigns. Upon entering China, they swiftly captured the mid-to-high-end
cosmetics sectors. This segment, characterized by specialized chemical formulations, presents high
barriers to entry but also offers substantial profit margins. 24

As a result, the Chinese cosmetics market evolved into two distinct segments: on one side, foreign

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brands established dominance in the mid-to-high-end market, making significant investments in R&D
and marketing, predominantly through department store counters; on the other side, local brands
utilized extensive and intricate distributor networks to penetrate the mid-to-low-end mass market,
expanding through cosmetic stores and robust distribution channels.

High-End Market vs. Mass Market

Compared to the high-end cosmetics market, the mass market in China presents lower barriers to
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entry, numerous participants, and significant product homogeneity, resulting in intense price
competition and relatively narrow profit margins. However, unlike Western markets, China offers
expansive market potential and diverse consumer spending capabilities. Particularly during that
period, China’s overall consumption capacity was developing, with the mid-to-low-end market
holding the majority share and offering substantial growth opportunities.
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Foreign brands targeting the high-end market also recognized the potential of the mid-to-low-end
segment. A wave of acquisitions swept through the Chinese cosmetics industry: L’Oréal acquired
Mininurse, Coty Group merged with TJoy, and Johnson & Johnson purchased Dabao. These
international giants not only expanded their mid-to-low-end product lines but also gained access to the
extensive sales networks established by local brands. 25 During this period, mid-to-low-end brands
emerged as significant growth drivers for these international cosmetics giants. 26

Meanwhile, local brands like Chando and Proya gained prominence in the mass cosmetics market
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through customer satisfaction (CS) channels ①but remained largely absent in the high-end market. 27 In
contrast, foreign brands, leveraging their substantial financial resources, extensive brand expertise,
robust R&D capabilities, and sophisticated marketing strategies, established complete dominance in
the high-end sector.

As consumer spending power increased and demand for product quality and effectiveness grew,
high-end cosmetics gained favor among consumers. Foreign brands responded by intensifying their
investments in the high-end market. Concurrently, e-commerce platforms such as Taobao emerged
rapidly, initially benefiting local brands as they thrived in this new sales channel. However, as foreign
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brands entered the e-commerce arena, they quickly eroded the initial advantage of local brands.
Through e-commerce, foreign brands successfully penetrated lower-tier cities, swiftly unlocking their

① CS channels refer to the sales network system made up of cosmetics stores, daily chemical stores, and boutique shops that serve

as the retail endpoints for personal care products.

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consumption potential and accelerating the adoption of high-end cosmetics across China. 28 By 2019,
sales of high-end cosmetics surpassed those of mass-market products for the first time (see Exhibit 2).

Entering the Chinese Market

In 1996, L’Oréal formally entered the Chinese market and established its first production base in

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Suzhou. Since then, L’Oréal has introduced dozens of its brands into China, including Lancôme,
Maybelline New York, and Garnier, establishing a “pyramid” brand structure (see Exhibit 3) tailored
to different levels of consumer needs.

At the top of the pyramid are luxury brands like Helena Rubinstein, Lancôme, and Biotherm,
targeting China’s high-end consumer segment. The middle tier includes hair care brands such as
Kérastase and health-focused brands like Vichy, which offer more affordable pricing compared to
luxury brands. At the base of the pyramid are mass-market brands like Maybelline New York and

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Garnier, aimed at the broader consumer market.

L’Oréal’s channel strategy aligns with this brand pyramid: high-end skincare brands are sold
through counters in upscale department stores; hair care brands are distributed through salons and
professional hairdressing shops; health-focused brands are exclusively available in pharmacies; and
mass-market brands are accessible in regular department stores. 29

L’Oréal swiftly achieved success in China’s mid-to-high-end cosmetics market: Lancôme dominated
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the high-end skincare segment; L’Oréal Paris led in high-end hair dye; Maybelline New York made
significant strides in makeup; and Vichy emerged as a leader in active health beauty. However, the
mass skincare market was firmly dominated by Procter & Gamble’s Olay and local brands like Dabao
and Mininurse. L’Oréal’s mass skincare brand, Garnier, struggled with low brand recognition and
underwhelming performance in China, achieving annual sales of only around ¥12① million. 30
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By 2002, the total value of China’s beauty and skincare market reached ¥45 billion, establishing it as
the second-largest in Asia. Despite this growth, L’Oréal held a market share in China of less than 2%,
with sales from the country contributing just 1% to its global sales figures. 31 Paul Agon stated, “China
is a market with relatively low spending power. To achieve greater success, the base of the pyramid is crucial.” 32
Data shows that women aged 22 to 35 are the most frequent cosmetics users, yet 40% of these
consumers earn less than ¥800 per month. 33

In 2003, L’Oréal implemented a pricing strategy, reducing Maybelline New York’s prices by 10% to
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30%. This initiative resulted in Maybelline New York achieving sales of ¥580 million and contributed
to a 69.3% increase in L’Oréal’s overall sales in China for that year. This move underscored L’Oréal’s
dedication to the mass cosmetics market in China.

L’Oréal Acquires Chinese Local Brands

Acquisition of Mininurse
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Before the Acquisition

Mininurse, a brand under Shenzhen Raystar Cosmetics Co., Ltd. (Raystar), was established in 1992
and had grown to become China’s third-largest skincare brand by the time of its acquisition. Positioned

① ¥ = CNY = Chinese yuan renminbi; ¥1 = approximately US$0.14 on May 06, 2024.

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behind only Olay and Dabao, Mininurse introduced a pioneering sunscreen product in 1997, marking
its entry into the Chinese cosmetics market.

Initially, Mininurse emphasized “Professional Sun Protection, No Tanning” as its core concept. The
brand successfully raised consumer awareness about sunscreen products through extensive
promotions on mainstream media platforms such as television. At that time, dedicated sunscreen

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products were scarce in the market, making Mininurse a novel offering. Raystar committed substantial
resources to advertising, engaging top international firms to rapidly elevate Mininurse’s brand
visibility. This effort resulted in an impressive 96% brand recognition rate among young consumers
under 20. 34

Additionally, Raystar developed an extensive distribution network, initially focusing on

establishing key sales points in first and second-tier cities before expanding into third, fourth, and
lower-tier cities. By 2003, Raystar had built a network of 177 distributors and operated 28,000 sales

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outlets across China, primarily concentrated in third and fourth-tier cities. The company employed
over 1,000 staff members and engaged more than 2,000 beauty consultants to support its operations.
Raystar also bolstered its infrastructure by establishing a production base in Yichang, Hubei Province,
capable of producing approximately 100 million units annually. This strategic move aimed to support
the company’s expanding market presence and meet the growing demand for its products across
China. 35
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As Mininurse gained prominence, it also faced intensifying market competition, particularly in
price wars where sunscreen product production costs were relatively high. Coupled with substantial
marketing expenses, this situation squeezed Mininurse’s profit margins severely. Competitors utilized
aggressive pricing strategies, leveraging price reductions to attract consumers, placing Mininurse in a
challenging position as a budget-friendly option. Facing these pressures, Mininurse struggled to
maintain its competitive edge due to limited internal resources and a slow response to market
dynamics and product innovations. Despite efforts like launching “1+1 sets” and other innovative sales
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strategies, Mininurse continued to experience declining market performance.

To cope with the competition, Raystar attempted to launch new brands like LanGe and gain more
market share by co-developing multiple brands. However, the launch of LanGe did not meet
expectations and instead became a source of financial difficulty. Raystar urgently needed the profits
from Mininurse to support new brands like LanGe. However, with Mininurse’s naturally low profit
margins and the price wars initiated by other brands, Raystar found itself in a financial predicament.
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After the Acquisition

In December 2003, L’Oréal finalized a formal agreement with Raystar, officially acquiring the
Mininurse brand. This acquisition transferred ownership of the Mininurse brand, its 280,000
nationwide sales outlets, production facilities, and most management teams to L’Oréal. The agreement
stipulated that the founder Li Zhida would not enter the cosmetics industry for the next three years as
part of the deal. 36

L’Oréal stated that acquiring Mininurse would allow it to more quickly penetrate China’s mass
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skincare market. 37 Initially, L’Oréal’s strengths in distribution were concentrated in high-end sales
channels like department stores and boutiques. With the acquisition of Mininurse, L’Oréal aimed to
strengthen its position in the mass market segment. 38 Additionally, with the rapid growth of sales in
China, there arose a pressing need to expand the capacity of L’Oréal’s sole local manufacturing facility,
the Shangmei factory, underscoring the importance of integrating Mininurse’s production facilities.

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Following the acquisition, Mininurse was integrated into L’Oréal’s Consumer Products Division.
Despite L’Oréal (China) already having the Garnier brand, which occupied a similar market position,
L’Oréal affirmed its commitment to retaining the Mininurse brand. The company planned to increase
its research investments to strengthen Mininurse’s leadership in the Chinese skincare market. 39

In the first half of 2004, Mininurse was formally integrated into L’Oréal, retaining 96% of its

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personnel within the Consumer Products Division to maintain local market expertise. This integration
aimed to foster synergies between Mininurse and other L’Oréal brands. Following the merger, L’Oréal
established the Mininurse-Garnier Research Center, launching a new generation of skincare products
in April 2004, including the “Fresh” and “Bright White” series, which capitalized on combined research
efforts and market insights from both brands. 40

By mid-2004, L’Oréal initiated a transformation of Mininurse’s sales channels. The company made
substantial investments in counter and terminal fees, shifting Mininurse from traditional department

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store shelf sales to boutique counter sales. Additionally, L’Oréal intensified advertising efforts to
enhance the brand’s visibility and image in supermarkets and stores. 41 However, due to an insufficient
number of counters and inflexible sales operations, this strategy proved ineffective. Within a year,
L’Oréal significantly reduced Mininurse’s advertising efforts, and the boutique counters were
gradually withdrawn, reverting to shelf sales. 42 By 2006, L’Oréal had positioned the Garnier brand to
replace Mininurse in the market. While Mininurse remained available in urban supermarkets, it was
also distributed by agents to third and fourth-tier cities and rural markets. 43
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After L’Oréal’s acquisition, the clash between L’Oréal’s standardized, institutionalized
management style and Mininurse’s previously flexible approach became evident. The management
team lost much of its autonomy, particularly in terms of profit sharing with distributors. Mininurse’s
multi-tier distribution model, which provided significant profits to distributors, conflicted with
L’Oréal’s emphasis on brand building, involving higher upfront costs and offering lower profit
margins for distributors. 44 As a result, original distributors gradually withdrew, leading to the closure
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of many sales outlets.

To salvage the situation, Mininurse underwent several initiatives to reorganize its distribution
system under L’Oréal’s management. Initially integrated into Maybelline’s distribution network,
which experienced dealers managed in large channels and store operations, this strategy saw success
in first-tier cities but faltered in second and third-tier cities.

L’Oréal also pursued new sales channels, focusing heavily on cosmetic specialty stores by opening
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over 1,000 stores quickly. However, Mininurse often faced challenges being bundled with other
products or placed in less prominent locations within these specialty stores, resulting in lackluster sales
performance. Over time, its market share eroded as competitors gained ground.

Throughout these changes, the Mininurse brand underwent multiple image shifts. Initially known
for its “Fresh” and “Bright White” series targeting a youthful demographic, it later adjusted its
positioning with products like the Vita Nourishing Soothing Cream, before reverting to its traditional
focus on sunscreen. These frequent changes in brand direction posed additional challenges.
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By 2006, Mininurse had slipped below the top ten in China’s mass skincare market, nearly fading
from prominence. Concurrently, the Garnier brand faced similar market challenges and eventually
exited the Chinese market in 2014. 45

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Other Acquisitions
In 2004, L’Oréal acquired the Chinese mid-to-high-end brand Yue-Sai, positioning it strategically at
the base of the brand pyramid in the mass cosmetics market, aiming to imbue it with a youthful,
fashionable, and international image. L’Oréal bolstered Yue-Sai’s competitiveness by establishing the
Yue-Sai Research and Development Center in Shanghai, dedicated to leveraging Chinese ingredients

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and formulations. Despite these efforts, Yue-Sai’s market performance fell short of expectations. By
2018, L’Oréal attempted to reposition Yue-Sai as a luxury cosmetics line by incorporating traditional
Chinese herbal ingredients, but this strategy did not yield the desired results.

Additionally, in 2013, L’Oréal acquired the popular Chinese facial mask brand MG, which held a
significant market share at the time. However, the rapid growth of micro-commerce and e-commerce
channels, particularly in the facial mask segment, posed challenges to MG’s performance. Despite

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L’Oréal’s introduction of a “Facial Mask Philosophy” and the establishment of a dedicated Mask
Research Center, the brand struggled to fully capitalize on these emerging sales channels.
Consequently, MG’s market share gradually declined, leading to its discontinuation in 2018.

L’Oréal Shifts to Investor Role

In recent years, the Chinese cosmetics market has experienced significant transformations, marked
by consumer upgrades, brand segmentation, digital marketing revolutions, and the ascent of local
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brands. This evolution has ushered in an era of mass consumption characterized by diverse, refined,
and personalized consumer demands. High-end cosmetics have emerged as a significant growth
driver, appealing particularly to younger generations such as Gen Z. 46 These consumers, with
increased spending power and a preference for novelty and personalized products, show a growing
affinity for domestic brands that integrate traditional Chinese cultural elements into their offerings.
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In May 2022, L’Oréal made a strategic move by establishing its first investment company in China,
Shanghai Meicifang Investment Co., Ltd. (“Meicifang”). This entity is exclusively focused on investing
in innovative startups within the beauty tech sector. L’Oréal has expressed an intention to target
startups that possess breakthrough technologies and offer new tech services in the beauty industry for
investment. 47

“The Chinese market demands speed and scale. You have to be fast enough to scale in the future,”
revealed Fabrice Megarbane, CEO of L’Oréal China. “Having a local team that is closely connected
No

with the Chinese beauty market ecosystem is a major reason why L’Oréal set up an investment
company in China.” 48

In recent years, there has been a notable emergence of the “olfactory economy,” particularly within
the fragrance sector. This trend has seen the rise of numerous new local brands that draw inspiration
from traditional culture. These brands are known for integrating Eastern aesthetics into their fragrance
compositions, brand storytelling, and packaging design, which has resonated well with consumers and
garnered their favor. 49
Do

In September 2022, L’Oréal made its first investment in the local high-end perfume brand
DOCUMENTS. 50 Founded in 2021, DOCUMENTS specializes in crafting fragrances using original
spices sourced from or inspired by China, embodying a Zen Cool style that reflects Chinese
philosophies rooted in Confucianism, Buddhism, and Taoism. The brand has introduced several
product lines, such as HUMAN, FREE, and LOST, aimed at affluent young consumers who prioritize
individuality and artistic expression.

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t
os
Looking at L’Oréal’s trajectory, its global expansion through acquisitions has indeed solidified its
position as the largest beauty empire globally. In the Chinese market, L’Oréal’s acquisitions of local
brands like Mininurse, Yue-Sai, and MG did not meet initial expectations. Now, as L’Oréal shifts
towards an investor role, aiming to collaborate with local Chinese brands, it marks a new chapter of
cooperation. The success of this strategic move will depend on how effectively L’Oréal can leverage its
global expertise while integrating with the strengths and market insights of local brands in China.

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Exhibit 1: L’Oréal’s Global Sales in 2021

Sub-Saharan Africa
(SSA) Market, 7.20%
Latin American
Market, 5.50% European
No

Market,
31.50%

North Asian
Market,
30.50%

North
American
Market,
Do

25.30%

Source: Data compiled by the case author based on L’Oréal’s financial reports. https://www.loreal-finance.com.cn/zh/annual
-report-2021/financial-performance/.

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os
Exhibit 2: Market Size of High-End and Mass Cosmetics in China (¥ billion)

200
161.4
150.2 145.8 147.4 151.8
150
116.1

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90
100 72

50

0
2016 2017 2018 2019
Mass Cosmetics High-End Cosmetics

yo
Source: Data compiled by the case author based on data from the Foresight Industry Research Institute. https://www.zhihu.co
m/tardis/sogou/art/140755983.
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Exhibit 3: The “Pyramid” Brand Structure of L’Oréal China

Helena Rubinstein,
Lancôme, Biotherm
No

Vichy, La Roche-Posay, Kérastase

L’Oréal Paris, Maybelline New York, Garnier

Do

Source: Changjiang Securities. L’Oréal: The Master Architect of the Brand Pyramid. October 8, 2016, accessed February 27, 2024
. https://pdf.dfcfw.com/pdf/H3_AP201610090021775404_1.pdf.

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Endnotes
1 Yang Dajun. Master of Mergers and Acquisitions: The Capital Game in the Fashion Industry. China Textile & Apparel Press (B
eijing), 2016.
2 Chen Run. Commanding Elegance: The 200-Year Saga of French Business. China Industry and Commerce Joint Publishing Ho
use (Beijing), May 2017.

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3 Liu Fei. “L’Oréal Review: A Beauty Conglomerate Driven by Digitalization and Technology”. Western Securities, February 4,
2021. https://m.hibor.com.cn/wap_detail.aspx?id=2b9a86bbc95981b7ba02c6150c27308d.
4 Sui Wenhuan. A Study on the Marketing Strategies of L’Oréal (China) Co., Ltd. Xi’an University of Technology, 2007.
5 Tang Jun and Fan Rong. “Reviewing L’Oréal’s M&A Strategies in China: From Optimistic Visions to Disappointing Outcome
s”. Dongwu Securities, December 28, 2020. https://data.eastmoney.com/report/zw_industry.jshtml?infocode=AP202012281
444419837.
6 Liu Wenzheng and Xie Huixin. “L’Oréal Case Study: Insights from the Rise of a Century-old Beauty Empire”. Minsheng Secu

yo
rities, October 28, 2022. https://cj.sina.com.cn/articles/view/7426890874/1baad5c7a001014nnl?finpagefr=p_104.
7 Sui Wenhuan. A Study on the Marketing Strategies of L’Oréal (China) Co., Ltd.
8 Feng Yi, Zhao Congdong, and Ren Xiaofan. “Weekly Analysis of Consumer Discretionary Sector: Robust Recovery in Consu
mer Retail - Weekly Focus ‘Lessons from L’Oréal’”. Donghai Securities, July 9, 2022. https://stock.finance.sina.com.cn/stock
/go.php/vReport_Show/kind/search/rptid/711540625287/index.phtml.
9 Modern Stories. “The Body Shop’s Decision for Natura After Parting Ways with L’Oréal”. WeChat Public Account”专业湃 (Z
huan Ye Pai)”, June 14, 2017. https://cj.sina.com.cn/article/detail/3178098452/284605.
op
10 ibid.
11 Growth Box. “Decoding L’Oréal: The Digital Transformation Journey of a Time-Honored Beauty Powerhouse”. CSDN, March
22, 2022. https://blog.csdn.net/weixin_44063718/article/details/123675532.
12 Leqing Think Tank. “In-Depth Analysis of L’Oréal Group: Building Core Competitiveness with Classic Products”. Financial
Headlines, May 3, 2017. https://cj.sina.com.cn/article/detail/5160876646/237891.
13 Liu Wenzheng and Xie Huixin. “L’Oréal Case Study: Insights from the Rise of a Century-old Beauty Empire”.
tC

14 Feng Yi, Zhao Congdong, and Ren Xiaofan. “Weekly Analysis of Consumer Discretionary Sector: Robust Recovery in Consu
mer Retail - Weekly Focus ‘Lessons from L’Oréal’”.
15 ibid.
16 Chen Run. Commanding Elegance: The 200-Year Saga of French Business.
17 Website of L’Oréal. Financial Performance section of the L’Oréal Annual Report, accessed February 27, 2024. https://www.lo
real-finance.com.cn/zh/annual-report-2022/financial-performance/.
18 Tech Walker. “When Technology Meets Beauty: How L’Oréal Used AI to Enhance Performance”. Tech Walker, September 9,
No

2019. https://www.techwalker.com/2019/0909/3121053.shtml.
19 Liu Fei. “L’Oréal Review: A Beauty Conglomerate Driven by Digitalization and Technology”.
20 Shen Jianyuan. “L’Oréal China’s CIO Zhao Feng Discusses the Central Role of Digital Transformation in the ‘Beauty Tech’ Str
ategy”. eeo.com.cn, September 30, 2022. http://www.eeo.com.cn/2022/0930/560691.shtml.
21 Science and Fortune. “An Overview of Cosmetic Consumption and Growth in China During the Four Decades of Reform and
Opening up”. China Light Industry Internet, August 20, 2018. http://www.clii.com.cn/zhuantixinwen/ggkf40/201811/t20
181113_3924790.html.
22 Ye Yicheng and Li Yutong. “From Xie Fuchun to Perfect Diary: The Centennial Struggle of Domestic Beauty Brands”. Deterg
ent & Cosmetics, 2022, 45(04): 58-61+70.
Do

23 OKChina Think Tank. A Think Tank’s Perspective on the Evolution of Domestic Cosmetic Brands. OKChina Think Tank, Sep
tember 19, 2020. https://mp.weixin.qq.com/s/Nb9kY5q4erAfDrY2ZXEdJg.
24 Zeng Pingbin. “Unveiling the Daily Chemicals Industry”. China Investment, 2004(04): 34-36.

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t
os
25 Ye Yicheng and Li Yutong. “From Xie Fuchun to Perfect Diary: The Centennial Struggle of Domestic Beauty Brands”.
26 He Zhexin. “The Beauty Market Accelerates Premiumization, Leaving Limited Time for Domestic Brands”. TMTPOST, Septe
mber 1, 2021. https://www.tmtpost.com/5632081.html.
27 ibid.

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28 BeautyInSight. “The Share of High-End Cosmetics Sales Exceeds That of the Mass-Market Cosmetics for the First Time, Mark
ing the Start of a Crisis for Domestic Brands”. Jiemian.com, May 25, 2020, accessed February 27, 2024. https://www.jiemian.
com/article/4426104.html.
29 Ji Tao. “The Acquisition of Mininurse by the Gallic Rooster”. China Investment, 2004(06): 24-27.
30 Hu Gang. “L’Oréal (China)’s ‘Three-Step Strategy’ for Advancing into the Mass Market.” Mechanical and Electrical Informati
on, 2005(07): 37-39.
31 Effective Marketing. “Witnessing the Great Transformation of Chinese Marketing: Strategies and Notable Cases of 2003”. Sin

yo
a Finance, February 2, 2004. https://finance.sina.com.cn/g/20040202/1006615627.shtml.
32 Ji Tao. “The Acquisition of Mininurse by the Gallic Rooster”.
33 ibid.
34 Liu Qiong. “The Enigma of Mininurse’s Decline: L’Oréal’s Conspiracy or a Case of Cultural Misfit?” China Business News, Ja
nuary 14, 2011. http://jingji.cntv.cn/20110114/100847.shtml.
35 Ji Tao. “The Acquisition of Mininurse by the Gallic Rooster”.
36 Zhou Yi. “L’Oréal’s Maiden Acquisition in China”. Chinese Entrepreneur, 2004(02): 96-97.
op
37 i Tao. “The Acquisition of Mininurse by the Gallic Rooster”.
38 Tang Jun, Fan Rong. “A Post-Merger Review of L’Oréal’s Acquisitions in China: From Promising Vision to Disappointing Ou
tcome”.
39 Shan Jia Yu Wu Ye (meaning exploiting things to one’s advantage). “Was the Acquisition of the Obscure Brand Mininurse by
L’Oréal 10 Years Ago a Good Move?” WeChat Public Account: Shan Jia Yu Wu Ye, December 26, 2013. http://mp.weixin.q
q.com/mp/appmsg/show?search_click_id=7309086611042074849-1674355225570-9851142467&__biz=MzA5MTIyNzEwMA
tC

==&appmsgid=10000057&itemidx=2&sign=53f81a3f1d26afddd0c910ee9ab2460e#wechat_redirect&scene=7#wechat_redirec
t.
40 Tang Bailu. “L’Oréal’s Domestic Acquisition Principles”. 21st Century Business Herald, May 19, 2005. https://finance.sina.co
m.cn/leadership/case/20050518/14361599074.shtml.
41 Yang Yumou. “The Rural Perspective of Multinational Daily Chemicals Giants”. Business Manager, 2007(01): 119-121.
42 Liu Qiong. “The Enigma of Mininurse’s Decline: L’Oréal’s Conspiracy or a Case of Cultural Misfit?”
43 Yang Yumou. “The Rural Perspective of Multinational Daily Chemicals Giants”.
No

44 Chen Xi. “Vanished? — The ‘Mininurse’?” Technology and Enterprise, 2011(02): 35-36. DOI:10.13751/j.cnki.kjyqy.2011.02.001.
45 Tang Jun, Fan Rong. “A Post-Merger Review of L’Oréal’s Acquisitions in China: From Promising Vision to Disappointing Ou
tcome”.
46 AskCI.com. “Overall Market Data Summary and Forecast for China’s Cosmetics Industry in 2023”. QQ.com, December 2, 202
2. https://new.qq.com/rain/a/20221202A025ZO00.
47 Xue Peng and Guan Xiaopu. “China is a Critical Growth Engine”. China Discipline Inspection and Supervision Newspaper,
May 21, 2022.
48 Xie Chuchu. “A Review and Outlook of the Beauty and Fashion Industry: Beauty Industry Leader Established an Investment
Company in China for the First Time”. eeo.com.cn, January 19, 2023. https://www.163.com/dy/article/HREQVRRQ0519C
Do

QO3.html.
49 Liu Mengyan. “The Rise of the Smell Economy: The Fragrance Market May Be Poised for a Golden Era of Growth”. Xinhuane
t, November 1, 2022. http://www.news.cn/fashion/20221101/c097dcf2348b48be8bb84461a2f4e57e/c.html.
50 Xie Chuchu. “A Review and Outlook of the Beauty and Fashion Industry: Beauty Industry Leader Established an Investment
Company in China for the First Time”.

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