Insight: Brand Health Check - Inflexible Revlon pulls plug in China.

Insight: Brand Health Check - InflexibleRevlonpulls plug in China.

Withdrawal from $25bn market ascribed to lack of innovation in product and retail strategy.

Revlon, a US cosmetics brand that entered China in 1996, is pulling out due to steadily falling sales. The exit will result in the loss of 1,100 jobs, saving US$11 million a year.

With China's cosmetics market worth more than $25 billion a year, and expected to grow 8 per cent each year over the next three years, according to Euromonitor,Revlon'sfailure indicates deep-seated problems. Since its entry into the market,Revlonhas adopted only a single distribution channel to market its brands,Revlonand Almay, in 50 of China's 160 cities. The brand has also never launched products specifically aimed at Asian tastes.

Revlon'sUS-centric approach may even be harming its prospects in the rest of the region. Last year, the makeup company made $166 million sales in Asia-Pacific, a drop of 3.5 per cent.

What lessons does the brand need to learn from China to halt the slide and save its business in Asia?

FACT FILE

- China only accounted for 2 per cent of its total sales in 2012

- In China,Revlonholds only 1 per cent share of the makeup market, and 0.1 per cent of the skincare market according to Kantar Worldpanel China

DIAGNOSIS 1 - RICHARD SUMMERS

Despite being one of the first international brands to enter the market, rather than capitalise on their good awareness and create products for local complexions, they stuck with their global (or for many, decidedly 'American') offering.

With the likes of L'Oreal signalling serious commitment to the market by opening an R&D centre in China, tailoring your offering to local audiences is a must.Revlon'sfailure to innovate locally will have limited their appeal.

As local and Korean brands have become increasingly influential,Revlonhas fallen between two stalls: neither aspirational for the top-end end of the market, nor affordable for the lower end.

Meanwhile, although savvyconsumershave shifted their attention and spending online,Revlon'shas stuck to counters. With a plethora of cosmetic shopping portals to choose from - Jumei, Lefeng, JD and, of course, Tmall - this method is somewhat archaic. In contrast, brands such as Lancome have embraced this shift creating platforms like Rose Beauty.

In the end, it may come down to the simple fact thatconsumersjust want to try something new. This is a highly competitive category driven by innovation, andRevlonhas become a brand of a bygone era. Their exit shows the days of simply showing up and selling are over.

Richard Summers is head of strategic planning at Anomaly Shanghai

DIAGNOSIS 2 - TOM EVRARD

Revlon'swithdrawal from China is among a series of economic indicators illustrating that the explosion in the country's cosmetics market is producing both winners and losers.

While luxury products and beauty are at the epicentre of consumptionbehaviour, capitalising on those trends remains challenging even for brands with strong global reputations. The unhindered growth of global retail and cosmetics groups in China has slowed considerably in the wake of shiftingconsumertrends, a war for customer loyalty, and a softening macroeconomic climate.

Revlonlacked the ability to establish substantial market share with its namesake brand, natural Almay cosmetics and cheap and cheerful Sinful Colours. Indeed local sales accounted for just two per cent ofRevlon'sglobal total, indicating its lack of operational adaptability in the market.

Its retail strategy, which included distribution in both boutiques and supermarkets, it seems to suffer from a brand identity crisis. Contrast this with the success of the Estee Lauder brands, which have focused relentlessly on the top end of the market. Estee Lauder has also adopted a deep localisation strategy, including developing a new brand exclusively for China.Revlonhas never able to achieve this level of innovation or relevance to localconsumers.

Tom Evrard is MD of FTI Consulting

RevlonSet To UnveilSocialMediaEffort.

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By BELISA SILVA

RevlonIS getting engaged and hoping millions of women around the world will, too.

A new digital initiative called TheRevlonExpression Experiment — which will be launched on Monday — will present consumers across the U.S. with a series of beauty challenges, beginning with a red lip.

“This is asocialmediacampaign which we believe will become asocialmovement toward experimentation,” said the company's executive vice president and global chief marketing officer, Julia Goldin. “We have set out on a journey to inspire and encourage women.”

Theonlineinitiative via Facebook, which will offer participants a new beauty task each month, will also allow participants to post and share the experience with friends — who they can also invite to take the challenge.

“We are reigniting the heritage of theRevlonbrand,” said Goldin, who cited the brand's classic Fire and Ice print ad as an early example ofRevlon'sfocus on consumer engagement. “It's about getting an idea of what a red lip feels like, it's not just about product. The world has changed but our point of view hasn't.”

Coinciding with each challenge, users will be offered a corresponding tutorial byRevlon'sglobal artistic director, Gucci Westman. Participants can also utilizeRevlon'sshade finder, viarevlon.com, to match and sample various colors to achieve the desired look.

“Gucci is a big believer in helping people to try new things,” said Goldin.

Upcoming challenges include a colorful eye for August, a daring nail for September, vintage glamour for October, a foundation-matching challenge for November and a holiday-appropriate sparkle-and-shimmer task for December.

“At the heart ofRevlon, there is a desire to inspire femininity and bring out the fabulous selves of customers,” said Goldin. “This is the same original idea of expressing emotions, but it's first person for the consumer. It is a way of showing instead of telling about something inspirational.”

In order to make the experience as authentic as possible,Revlonsupplied bloggers with boxes of product and tasked NYU film students with creating their own videos, sharing their thoughts on their new looks.

“We want to get women to tell their story,” said Goldin, who added that another objective is to create “brand advocates,” or “true friends” of the band. “We are not out for likes,” she said. “We see this as a long-term platform, continuing and evolving over time.”

To that end, Goldin said the project will be expanding and entering countries like South Africa, Australia, China and India within the next 12 months. Although each locale will have its own culturally tailored Facebook page, Goldin said there will be digital “connection points,” meaning a participant in the U.S. could look through slide shows of women sampling looks on the other side of the world. For Goldin, the potential scope of the initiative is limitless.

“This is just the beginning,” said Goldin. “The platform will bring people together around similar issues and experiences and allow them to be in a community where they can share and express their points of views insocialchannels. Every woman can find something in common.”

The initiative is also designed to help women address reservations they have with trying out new makeup and highlighting some ofRevlon'snewest products. “We are throwing to women both a challenge and an inspiration to experiment with their makeup and different looks,” said Goldin. “It's a way to engage with women on a new level.”

As far as advertising for the digital platform, plans are in place to utilize all ofRevlon'sbrand ambassadors. Halle Berry will be featured in the introductory video.

To build buzz for the Expression Experiment,Revlonwill leverage everything from bloggers and consumer events to digital advertising andmediapartners.

TheRevlonExpression Experiment Facebook page.

Insight: Sector study Beauty - Chineseconsumersno longer dazzled.

Foreign beauty brands are having to reposition their marketing messages and distribution methods in the face of stiff competition from local and Asian products, writes Jenny Chan.

News

WithRevlonand Garnier pulling out of China for good, there seems to be a major shift in the mainland's beauty industry. Western brands, which previously enjoyed strong reputations for higher product quality, seem unable to compete in the low-cost segment. While Western multinationals still dominate the overall market, domestic brands are catching up in pricing and connecting with localconsumers.

Local brands understand what Chinese women want and how to be relevant to their lifestyles. This is significant in midto low-tier cities, where it's a 'get local, or get out' deal breaker, says Matthew Crabbe, director of research for Asia-Pacific at Mintel. Chineseconsumersin these cities no longer want to pay premium prices for foreign brands when they can buy local. Marketing messages designed for Europe or the US just don't reflect who they are, says Crabbe.

Western beauty giants must offer sophisticated products at lower prices to compete with local brands, says Oru Mohiuddin, senior beauty and personal-care research analyst at Euromonitor. They also expect brands to embrace their history. Using ingredients from traditional Chinese medicine in cosmetics is a point of differentiation for local brands such as Yue Sai, which was acquired in 2004 by L'Oreal, thanks to its success in the market.

The most common traditional ingredients are ginseng, paeonia, pomegranate and white tea, which are believed to be effective for anti-aging and whitening - priorities for Chinese women.

According to Euromonitor, Yue Sai ranked 54th in terms of brand share in China's beauty and personal care market, whileRevlonranks 100th. In its 17 years in China,Revlonhas relied onHollywood names such as Emma Stone and Olivia Wilde to endorse its products instead of Chinese celebrities.

"Marketers from the West have got to realise that the 'hallelujah, we-send-they-buy' period is over," says Steven van der Kruit, global trends consultant to Firmenich.

While Garnier has made a stronger attempt to localise thanRevlon, it has been reported in the Chinese media that the L'Oreal-owned brand was facing fierce compeition from local brands such as Chando and its declining contribution to group revenue led to L'Oreal's decision to pull it from the market.

L'Oreal may also be choosing a more local path with the acquisition of local facial mask brand, Magic Holdings reported WantChinaTimes.

Unilever's Pond's also seems to be changing tack. Its momentum in China started in 1988 with its flagship cold cream product. Unilever then tried to push it into the high-end skincare segment in 2008 with a heavy spate of advertising and a loss of branding focus. Local news reported in January that Pond's dropped its dedicated counters at major department stores for mere shelf presence at multibrand retailers. The decision has been attributed to reliance on outdatedconsumerresearch and a lack of marketing.

Avon too is struggling. The direct-selling cosmetics giant reported a 48 per cent drop in revenue in China in 4Q2013.

Of the foreign brands in China, those from Korea do particularly well. Thanks to the country's renown as the go-to place for plastic-surgery and the popularity of K-Pop culture and soap operas full of cosmetics and toiletries, Korean beauty brands are all the rage, says Van der Kruit. Even unconventional products such as facial masks made of snail mucin are seen as innovative, while the star products of Korean brands like Aupres, Mamonde and Laneige have multiple benefits, often combining cosmetics with skincare.

Success in China is worth the effort, however. Between 2007 and 2012, China contributed nearly 30 per cent to the global growth in the beauty industry and is expected to add another 20 per cent between now and 2017.

EXPERT OPINION - NO ROOM FOR COMPLACENCY IN UNFORGIVING MARKET

The days when foreign brands could win in China based on their foreign cachet are long gone; they must keep up with the times in China to remain relevant. Connecting with local people is crucial as Chinese lifestyles diversify, while balancing brand origin and positioning is tricky.

L'Oreal built its brand in China based on it being French, fashionable and finessed. It achieved a higher-end position, but selling Garnier products in supermarkets both distractedconsumersfrom this higher-end focus and was increasingly unsustainable in such a competitive environment.

Revlonfocused on colour cosmetics, a crowded sector with low brand loyalty. Mintel'sconsumersurvey data has found that Chinese women generally avoid wearing colour cosmetics every day due to concerns over side effects, preferring cosmetic products with skincare benefits.

China is an unforgiving market that is not one for making a quick buck. Brands must get to know theirconsumers, and must adapt to rapidly changing needs as China travels at about three times the speed of the rest of the world's economies.

This means constantly keeping an ear to the ground, reading shifts inconsumertrends by staying in touch with Chineseconsumers. This also means providing a superior user experience, whether functional, emotional, cultural or lifestyle-wise.

Dilute the message and China's fickleconsumerswill quickly switch to another brand that gets the message right. There can be no room for complacency.

Matthew Crabbe is APAC director of research at Mintel

SHARE OF CHINA'S BEAUTY MARKET

Companies 2012

Procter & Gamble 15.3

L'Oreal 11.2

Shiseido 5.4

Unilever 4.6

Amway 3.5

Colgate-Palmolive 3.5

Mary Kay 3.3

Beiersdorf 2.7

Johnson & Johnson 2.3

Estee Lauder 2.1

Source: Euromonitor