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L’Occitane posts record profit as China becomes its largest market

Beauty products retailer L’Occitane International has reported sales and profit beyond expectation after successfully adapting to the challenges of selling products during a global pandemic. 

Despite the Covid crisis, like-for-like net sales of US$1.83 billion were down just 1.1 per cent against the previous year, but net profit grew by 36.3 per cent to a record $187 million, representing 10.2 per cent of net sales.

China is now the company’s largest market, with year-on-year growth of 36 per cent.

The overall performance was largely driven by a strong focus on online sales in the absence of travel retail business and long periods of physical store closures – more than 75 per cent of the company’s outlets were closed at the peak of the pandemic. Global e-commerce turnover soared 69.2 per cent and accounted for more than one-third of overall sales. 

Social selling was a key component of the online push, with 68 projects in Europe alone, including personal shopping concierge services, live streaming, and online consultation services. 

“Thanks to the group’s agility and adaptability in a socially distant world, the strong sales recovery in the second half of the year helped recover most of the ground lost earlier in the year, resulting in only a slight sales decline,” said chairman Reinold Geiger in a Hong Kong stock exchange filing.

“Importantly, the group made tremendous progress in expanding its bottom line – recording an operating margin of 14.3 per cent with contribution from its online channels, excellent performance in key markets in Asia, strong results from its newer brands, as well as greater operational efficiency.”

He put the strong performance down to the group adhering to five pillars of its strategy to build trust, sustainable growth and profitability: empowering teams; executing fundamentals, especially in a retail context; adopting an omni-channel, mobile and digital approach; engaging customers; and strengthening brand commitments. 

Geiger said China was undisputedly the group’s best-performing market, coinciding with it being among the first to emerge from Covid-19. During the fourth quarter, L’Occitane International’s China sales grew by more than 50 per cent, boosted by successful Chinese New Year and Women’s Day promotional campaigns, as well as a low base the previous year. Physical roadshows during Chinese New Year encouraged product sampling and conversion. 

Meanwhile, Geiger says two major restructuring activities will help the business achieve greater efficiency in future years. 

Last October, the company announced a reorganisation that led to the loss of some 300 positions globally from its 9000-strong workforce, mostly at corporate offices. And in January, its US subsidiary, L’Occitane, Inc, commenced voluntary Chapter 11 bankruptcy protection in order to accelerate its store rationalisation process. By the end of March, 25 underperforming US stores were closed. The Chapter 11 process is expected to achieve savings of up to $12 million annually for the next four to five years.

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