Summary of Key Points
Shanghai Jahua, which had held a 19% stake in Sephora Shanghai and Sephora Beijing for 20 years, sold its shares for 555 million RMB to Sephora Asia, thereby completely withdrawing from the joint venture. Behind this transaction lies the disappearance of the complementary benefits that came from 20 years of collaboration: back then, Sephora needed Shanghai Jahua's local expertise, and Shanghai Jahua needed Sephora's retail infrastructure; now, both parties no longer rely on each other. Shanghai Jahua did not generate sustainable profits from the joint venture, while Sephora faces the challenge of losing customers. LVMH (Sephora's parent company) is willing to pay a substantial amount to repurchase the shares because Sephora remains a crucial asset for its beauty retail business in China. LVMH aims to redefine the value of its physical retail outlets by gaining exclusive control.
The Background of the Transaction: 20 Years of Cooperation Comes to an End
In 2004, when Sephora entered the Chinese market, it needed a partner with a deep understanding of the local market, so it formed a joint venture with Shanghai Jahua to establish Sephora Shanghai (later followed by Sephora Beijing), with Shanghai Jahua holding a 19% stake. Twenty years later, the joint venture agreement expired and was extended once. After negotiations, Sephora acquired back Shanghai Jahua's shares.
There are two key points regarding the transaction details:
1. Price: Shanghai Jahua initially invested over 55 million RMB and now sold its shares for 555 million RMB, earning a nominal tenfold return, although this profit was received in a lump sum rather than through annual dividends.
2. Restrictive Clauses: Shanghai Jahua was prohibited from opening multiple beauty retail stores in China for two years, essentially preventing the former partner from becoming a competitor.
Why Did Shanghai Jahua Sell?
The surface reason was the expiration of the contract, but the underlying issue was that the investment was no longer profitable for Shanghai Jahua:
- Unstable Returns: Sephora was profitable from 2018 to 2021, and Shanghai Jahua received over 300 million RMB in dividends; however, from 2022, Sephora began to lose money, resulting in a cumulative loss of 235 million RMB from 2023 to 2025.
- Non-Core Asset: Shanghai Jahua's main business focuses on its own brands such as Bai Cao Ji and Liu Shen, while the Sephora joint venture was considered a secondary venture. By the first quarter of 2026, Sephora Shanghai had turned profitable, and the losses in Sephora Beijing had also narrowed. Therefore, the sale was a strategic decision to reallocate funds to its core business during a period of recovery, rather than a forced exit due to losses.
Sephora's “Midlife Crisis”: Why Can’t It Retain Customers?
Sephora is facing a decline in its appeal to consumers:
1. Loss of Exclusivity: Brands that used to be exclusive to Sephora (such as Fenty Beauty) now have their own online and physical stores, reducing the exclusivity value for consumers.
2. Inability to Attract Popular Brands: Global favorites like Rare Beauty and Kylie Cosmetics cooperate with Sephora in Europe and the US but not in China. This is not due to animal testing regulations (which have been relaxed), but rather because the brands prefer not to partner with a third party.
3. Changing Retail Landscape: Previously, Chinese brands had to “upgrade their image” to be sold at Sephora (for example, Mary Kay offered customized products not available on Taobao); now, affordable Chinese brands like Huaxi Zi and Meijidian can enter directly without such requirements. This change is due to these brands gaining popularity on platforms like Douyin and REDnote, giving them more bargaining power with Sephora.
Why Did LVMH Spend 70 Million Euros to Repurchase the Shares?
LVMH is selling many of its non-core assets (such as Make Up For Ever and Fresh), but Sephora is an exception:
- Stable Performance: In the first half of 2026, Sephora’s selected retail business experienced organic growth of 5% (real growth excluding exchange rate impacts), and it continued to expand its store network and gain market share.
- Value of Physical Stores: High-end beauty brands are focusing on in-store experiences (e.g., Maogeping’s makeup services, NARS’ graduation makeup events). Sephora’s advantage lies in allowing customers to try multiple brands simultaneously, which LVMH wants to maintain.
- Strategic Goals: LVMH aims to gain exclusive control to drive Sephora’s transformation, such as investing more in its own brand, Sephora Collection (by appointing its first president), and collaborating with Olive Young to leverage their product selection capabilities.
Sephora’s Path to Survival: From Selling Other Brands to Building Its Own Business
Sephora is transitioning from being a channel partner to a value creator:
1. Attracting Popular Brands: By introducing affordable Chinese brands that are popular on platforms like Douyin and bringing in existing customers, Sephora aims to solve the problem of low footfall.
2. Leveraging External Product Selection: Collaborating with Korean brands like Olive Young to offer trendy products that have been tested in the Korean market, saving time and effort in product development.
3. Developing Own Brands: Enhancing the status of Sephora Collection by creating products tailored to Chinese consumer needs, reducing reliance on third-party brands.
Whether these efforts will save Sepora remains to be seen. However, LVMH’s decision to repurchase the shares indicates its belief that Sephora’s physical retail presence can still be valuable.
In Conclusion
This transaction is not just a simple separation but a new choice for both parties in their respective markets. Shanghai Jahua is returning to its core business, while Sepora, with LVMH’s support, aims to transform into a beauty platform that better understands Chinese consumers. Whether this strategy will be successful depends on its ability to convert customer traffic into long-term loyalty and sales into experiences and its own products.