Summary of Key Points
Shanghai Jahua has sold its 19% stake in Sephora China for approximately 555 million yuan, completely withdrawing from the joint venture. In recent years, Sephora China has become dependent on discounts, with consumers only placing orders during major promotions and merely trying products without making purchases on a daily basis, leading to a continuous decline in revenue (from a peak of 10.8 billion yuan in 2021 to a loss of 6.5 billion yuan in 2025). However, the number of visitors has increased (a phenomenon known as "visiting but not buying"). Sephora China's traditional advantages, such as the discovery of new products, pricing power, and the right to launch brands first, have been eroded by platforms like REDnote, Douyin, and live-streaming e-commerce. The company is currently trying to turn itself around by transforming its stores into "experience centers" and redefining its product selection process. With full ownership, Sephora China will have more flexibility in making decisions, but it still needs to address the core issue of whether consumers are willing to pay the full price for its products.
1. Why Did Shanghai Jahua Decide to Sell Its Stake in Sephora?
In simple terms: it was not cost-effective and did not align with its strategic goals.
- Strategic Focus: Jahua has been focusing on developing its own brands (such as Liushen, Baicaoji, and Yuzhe) in recent years, which differs significantly from Sephora China's approach of operating physical beauty stores. Jahua helped Sephora China establish a presence in local markets and secure relevant policies in the early years, but now that Sephora China is more established, its value to Jahua has diminished.
- Financial Benefits: Selling the stake will generate approximately 474 million yuan in after-tax profits, providing a stable income for Jahua while allowing it to concentrate on its own brands.
2. Sephora China's Dependency on Discounts
Sephora China now operates as a store that attracts customers only when discounts are offered:
- Consumer Behavior: Consumers typically visit the store to try out products and smell perfumes but do not make purchases. They either wait for the 75% discounts in March, June, or November or go directly to live-streaming sessions or Tmall to buy cheaper options. For example, a foundation that normally costs 450 yuan has no competitive advantage at full price but becomes affordable at 337 yuan during a discount.
- Fluctuating Sales: Sales surge during promotions, while business is sluggish at other times. The full price has become a mere reference point for discounts, with revenue relying on a few key promotional periods.
3. The Loss of Former Advantages
When Sephora China entered the Chinese market in 2004, it was a gateway for Chinese consumers to discover niche foreign beauty brands. However, these three key advantages are no longer present:
- Discovery of New Products: Sephora China used to be the first to introduce new brands like Huda Beauty to the Chinese market, but now bloggers on platforms like REDnote and Douyin release reviews before Sephora can even get the products on shelves, reducing its influence.
- Pricing Power: Sephora no longer has control over prices, as live-streaming platforms and cross-border e-commerce offer lower prices, and brands are reluctant to maintain low prices across all channels.
- Right to Launch Brands First: Overseas brands no longer rely on Sephora China to enter the Chinese market; they first test products through cross-border channels or open their own flagship stores, with nearly 30 brands having terminated their partnerships with Sephora China.
4. Increased Visitors but Declining Revenue: The Dilemma of "Visiting but Not Buying"
Although Sephora China has seen double-digit growth in visitor numbers for 21 consecutive months, revenue has been declining. Visitors come to browse but do not make purchases. For example, they may try a lipstick color in store and then buy it more cheaply online, or they may try a perfume and place an order at a Tmall flagship store. The "experiential value" of physical stores remains, but the "transaction value" has shifted to online platforms.
5. How Does Sephora China Plan to Turn Things Around?
Sephora China is taking two steps to try to make consumers willing to pay the full price for its products again:
- Transforming Stores into Experience Centers: Instead of just selling products, the company aims to create spaces where customers can enjoy beauty experiences, such as skin tests, customized makeup consultations, and AI-powered makeup trials. It is also integrating popular products from REDnote into its stores to facilitate online-to-store purchases.
- Reinventing as a Professional Buyer: Sephora China aims to become a platform that selects products carefully, whether from overseas or domestic brands, ensuring that only high-quality, niche products are offered. For example, it will help customers find truly effective, lesser-known brands.
- Greater Flexibility with Full Ownership: With full ownership from LVMH, Sephora China can make faster strategic changes, such as modifying store formats and brand portfolios.
However, success will depend on whether consumers are willing to pay the full price for Sephora China's professional services and product selection. This will be the key to its future success over the next 20 years.
(End of translation)