- Teaming up with L’Oreal could be seen as a move by Hong Kong-listed Prada to target China’s fast-growing luxury beauty market
- Prada posted a 2 per cent drop in sales in China in the first half of this year
Cosmetics giant L'Oreal will develop Prada Group's fragrance business, in the first step of a licensing agreement to run the Italian fashion house's luxury beauty products.
Starting January 1, the parent company of Maybelline, Kiehl's and Urban Decay will be in charge of creating, developing and distributing Prada's high-end beauty products, according to an announcement to the Hong Kong stock exchange on Thursday.
It comes after Hong Kong-listed Prada decided not to renew its current perfume licence held by Puig since 2003.
In May, Italian designer Valentino also ended its contract with Puig to work with L'Oreal.
In an email to the Post, Prada, which owns brands including Miu Miu and Church's, said the deal will include "a variety" of new projects aside from fragrances, without giving further detail.
"We thought it was a good opportunity to select a new partner, also considering the possibility to develop new projects that today we are not ready to disclose," it said. "We chose L'Oreal because it's the leading company in the beauty sector and we believe it will help us to further exploit our brand's potential."
Partnering with L'Oreal would also help the brand "reach even more audiences around the world", said Patrizio Bertelli, chief executive officer of Prada, in a press release.
The partnership comes at a time of declining sales for Prada in China, a key market, while L'Oreal is enjoying growth in the country's high-end beauty sector. As such, teaming up with L'Oreal could be seen as a move by Prada to target China's luxury beauty market, which is on course to account for over a fifth of global market share in the next five years, according to Euromonitor.
Luxury goes local as Chinese shoppers gravitate towards home-grown brands
"China is going to be an important target market for this Prada/L'Oreal deal in all aspects. China is now one of the most important luxury markets globally, with luxury beauty being the fastest-growing sector," said Alice Li, a senior research analyst at Mintel, a global market research firm.
"Beauty products from Prada's competitors, such as Chanel, YSL and Dior among others, and more recently Gucci, have resulted in a buying frenzy in China, especially among younger consumers. The expansion into beauty seems quite necessary now if Prada wants to further foster the young generation of Chinese luxury shoppers."
But how fast Prada is able to gain market share against those rivals will depend on how its products and marketing strategies resonate with young consumers, said Li, "especially when the fierce competition has presented them more options than ever."
Prada's shares closed 4.2 per cent higher on Thursday after the news was announced in the morning.
According to a report by research firm Gartner in February, L'Oreal replaced Estee Lauder as the top ranked beauty brand in China this year, pushed by its digital strategy. In November it raked in over 1 billion yuan (US$142 million) as one of the top-selling brands on Singles' Day. One of its subsidiaries, Lancome, recently announced plans to open a flagship store in China.
Prada posted a 2 per cent drop in sales in China in the first half of this year, with Asia-Pacific being the only region in which it saw declines. Though the group attributed this to the protests in Hong Kong, competitors like LVMH " owner of Dior, Celine and Louis Vuitton " and Kering " owner of Gucci, Saint Laurent and Balenciaga " remained resilient in Asia, despite being up against a slowing Chinese economy, the ongoing US-trade war and the disruption caused by the civil unrest in Hong Kong.
In June, Louis Vuitton chief executive officer Michael Burke described his label's growth in China as "unheard of", according to Bloomberg. And on Sunday, Kering said it planned 14 new outlets across six Chinese cities.
Luxury brands fighting to survive in Hong Kong see sales boom in China
Euromonitor predicts China's luxury beauty market will more than double in the next five years, from its current size of US$5.5 billion to US$13.5 billion, to make up 21 per cent of the global luxury beauty market.
The research house considers the segment of "premium beauty and personal care" to include things like cosmetics, fragrances, and skin care.
It said Prada is not currently one of China's top 10 luxury, or super-premium beauty brands.
Sales of luxury goods as a whole in China are forecast to grow 26 per cent annually, and may reach 30 billion (US$33.3 billion) this year, according to management consultancy Bain & Co.
Prada declined to comment on the deal's possible relationship to China.
"Today is just the first step of this new partnership and it is therefore too early to discuss future plans relating to specific markets," it said.
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