Hainan has become a massive duty-free destination over the past 10 years. Travel retail sales in the so-called “Hawaii of China” have ballooned from US$317 million in 2012 to US$7.9 billion in 2021.

Beauty is one of the main pillars of sales growth in Hainan and ELC has a leading position. For example, last October saw the opening of Haikou International Duty Free City, the largest duty-free space in the world at 280,000 square metres and many of the major beauty multinationals have grabbed a large slice of the action.

The Covid-19 restrictions in China late last year resulted in a downturn for Hainan’s onwards-and-upwards progress and the effects flowed on to the Q2 results of The Estée Lauder Companies (ELC).

The multinational has reported a 17 per cent year-on-year decline in its second quarter to US$4.6 billion – down from US$5.54 billion during the same period last year.

Skincare, ELC’s biggest category, saw sales drop to US$2.38 billion in Q2 – down from US$3.6 billion in the previous year. The Ordinary and Bobbi Brown posted sales growth but these gains were offset by lower sales for Estée Lauder, La Mer, Dr Jart+ and Clinique.

Makeup sales also dipped over Q2 to US$1.268 billion by contrast to US$1.386 billion for the same period last year. M.A.C. bucked the trend by recording double digit growth over the quarter but the Estée Lauder and Tom Ford Beauty brands suffered drops in sales.

Fragrance revenues were also hit in Q2, topping out at US$775 million as opposed to US$799 million a year previously. But hero performers such as Le Labo and Tom Ford Beauty both posted double digit growth in the second quarter.

Haircare sales edged up to US$182 million by contrast to US$180 million last year. Aveda was particularly popular in Europe, the Middle East and Africa and buoyed the category as a whole.

ELC has forecast a decrease of between 5 per cent and 7 per cent for its full year 2023 outlook, but Fabrizio Freda, president and CEO of ELC, remains confident.

“We delivered on our expectations for the second quarter of fiscal 2023, despite the incremental pressure of Covid-19 in China in December. Many developed and emerging markets around the world outperformed to realise our organic sales growth outlook. Fragrance excelled globally, while makeup prospered in a great number of markets, as our brands are realising the promise of the category’s renaissance as usage occasions resume.”

Freda acknowledged that ELC would be lowering its 2023 outlook because of disruptions in Hainan, but expects a return to overall growth by the fourth quarter because of the resumption of international travel by Chinese consumers and strong performances in Western Europe, the Asia/ Pacific region and key emerging markets.

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