Sephora, the LVMH group’s beauty retailer, is embarking on a significant restructuring phase in the Chinese market, as a strategic response to worsening economic conditions.
Sephora, the cosmetics retailer owned by LVMH, is reducing its workforce in China. This decision, communicated on August 21, 2024, follows a decline in consumer spending.
It is part of a wider context of economic and consumer slowdown, highlighting the current challenges faced by major luxury players in the Middle Kingdom. This evolution is particularly visible in the cosmetics sector, where consumer habits have undergone a radical transformation.
In detail, Sephora will be laying off less than 3% of its staff, i.e. less than 120 employees, out of the approximately 4,000 it currently employs in China.
The Number One in luxury goods has not released any results for the brand, so far the second-largest contributor to the LVMH group’s growth behind Louis Vuitton.
However, the beauty specialist is said to have incurred combined losses of $46 million over two years, 2022 and 2023, according to annual reports from skincare manufacturer Shanghai Jahwa United, which owns 19% of its business on the continent.
A difficult economic context
Less than three months after the appointment of Xia Ding as General Manager of the China region, Sephora is cutting its workforce, impacting both field and head office profiles.
For its 2023 financial year, the LVMH group has hailed good momentum for its beauty subsidiary in the United States, Europe and the Middle East. For its part, China, once considered one of the most promising beauty markets, is now facing a decline in consumer confidence due to several interconnected factors.
High unemployment and the collapse of the property market haveweakened customers’ purchasing power, leading to a general reduction in spending on luxury goods. In this uncertain economic climate, major cosmetics brands, including Sephora, reported significant sales declines.
The retailer, despite its extensive local network of 350 outlets in over 100 cities and an e-commerce website, is facing stagnating performance in China, exacerbated by a growing reliance on e-commerce platforms for beauty purchases.
Impact and readjustment strategy
The decision to downsize is part of a wider readjustment strategy aimed at ensuring long-term sustainable growth in China.
According to a company spokesperson, the move is necessary to streamline the internal organization and ensure that the company’s capabilities are aligned with current market conditions.
The restructuring, although affecting a relatively small fraction of the workforce, is crucial to maintaining operational flexibility in the face of persistent economic challenges.
The announcement of this downsizing measure is accompanied by an offer of support to affected employees, including severance packages and career transition services.
This approach aims to mitigate the social impacts of the reorganization while preserving the company’s image as a responsible employer.
However, despite these efforts, the impact on employee morale and public perception of the brand could be significant.
Precedents for similar reorganizations in other companies in the sector suggest that even generous support measures are not always enough to avoid criticism or minimize internal disruption.
Sephora, while continuing to develop its activities in other regions where it is experiencing robust growth, must navigate carefully to overcome this period of turbulence.
The Chinese market, though complex and difficult to maneuver, remains a strategic terrain for the LVMH group, which must balance its investments and local strategies to maintain its leading position in the luxury goods sector.
Although Sephora China’s management has announced a 3% reduction in its workforce of 4,000 employees, this figure contrasts with an initial announcement by Bloomberg of a 10% cut.
Faced with a slowdown in the Asian market, led by China, Sephora closed its operations in South Korea and Taiwan earlier this year. As a reminder, Numéro Un du luxe had announced that its selective division – including Sephora but also Le Bon Marché and DFS – would grow by 25% by 2023.
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