Cosmetic changes in China market

After arriving in the Chinese market last year, Oriflame, Europe's largest cosmetic direct sales company, says it is now trying to apply for direct selling licenses in more provinces.

Oriflame got its first direct selling license from the Ministry of Commerce last September and was allowed to start operations in Nanjing, Wuxi and Suzhou in Jiangsu Province.

"Now we are applying for licenses in Guangdong and Sichuan provinces," said Jesper Martinsson, chief operating officer of Oriflame Management SA, during his trip to Shanghai recently.

But he confessed he knew it would not be simple to get the licenses easily as the Chinese government now strictly monitors the industry.

Most direct selling companies are applying for more regional licenses, but none has succeeded yet, except Nu Skin, which got a license in developing direct sales in 18 districts and counties in the Beijing area after it was allowed in Shanghai at the beginning of 2007.

"Like us, almost all companies are waiting for the government's decision," said Helen Chan, managing director of Oriflame Cosmetics (China) Co Ltd.

In a press conference earlier this year, the company declared that it would cover all the major provinces in the country "in about five years". But now that plan has become more "flexible".

"At that time, we didn't realize that getting the license would be so difficult. We didn't change our plan, but we should work according to the practices," Chan said.

During the long wait, most companies choose to launch direct selling businesses in places with licenses and open traditional stores in other places.

"Stores are important, it's a kind of image building. In Stockholm, Oriflame's image store rivals other big names. It is brand building instead of selling, so it can also help our sales representatives to sell easily," the COO said.

However, the company has only opened branches and traditional stores in eight cities such as Chengdu and Guangzhou.

Unlike its US competitors such as Avon, which has over 5,000 stores in China, the Swedish direct seller doesn't seem that keen about opening more stores.

Oriflame decided to expand its business after getting more licenses from the government, according to the COO. "It's just a difference in our business models," he said.

Arriving in China just a year ago, Oriflame is a latecomer compared with Avon, which came to China in 1990, and Nu Skin, which started its retail business on the mainland in 2003.

"Avon and Nu Skin have been in China for many years, they have their own styles. We don't have much pressure though we are a latecomer. The market is going to grow, so there is enough room no matter how many competitors there are," Martinsson said.

Investing over $35 million in China, Oriflame built a 44,000-square-meter plant in Jiangsu's Kunshan. It produces skincare products, cosmetics, personal care products and perfume.

The COO said they are now looking for one more major investment in China - nutrition. "We have started a marketing research. If it succeeds, it would be a huge investment. It may take us a long time, but the wait will be worth it."

The company has turned more attention to the Asia-Pacific region since last year as the region has achieved the fastest growth in the global market, though its sales account for just 6 percent of the world total. However, the growth in the Asia-Pacific region in the second quarter of this year was 60 percent higher compared with that in the same period of last year.

With an ambitious goal to become the No 1 direct selling beauty brand in the world, Oriflame has achieved a faster growth rate than its US competitors. Its global sales this year are expected to hit $1.5 billion, which is almost a 20 percent increase over 2006.

(China Daily 10/11/2007 page15)