L’Oréal is taking back the control of its e-commerce operations in China

Recently it is said Beauty Giant L’Oréal is severing the ties with a local e-commerce solution provider called “Lily Beauty” which has been operating Maybelline flagship store on behalf of L’Oréal on Alibaba’s Tmall for the past 8 years. Last year, L’Oréal also took away two big cakes from Lily, the contract deals for Lancome and L’Oréal Paris.

It should be quite a blow for Lily. Maybelline has been a cash cow for the company. In 2018, running Maybelline e-commerce stores alone brought Lily sales revenue of RMB470 million (USD 67 million), accounting for 13% of its total pie.

The reason is probably not about Lily doing a bad job. The reason is probably more about L’Oréal’s determination to put e-commerce control back into its own hands. Earlier in 2014, it already acquired a leading e-commerce operator Buycoor based in Guangzhou. Buycoor had been a long term e-commerce operation vendor for L’Oréal’s multiple brands. Today the beauty giant is gradually restructuring Buycoor and putting every brand under its grip.

Some key statistics suggest the digital channel is L’Oréal’s growth engine, in particularly propelled by the increasing contribution from China region. And it might be a wise strategy to consolidate and integrate all brands in a more centralized internal governance, instead of leaving everything into several external hands and even creating a cannibalism competition dynamics.

The rise of Alibaba marketplace gave birth to the booming industry of 3rd party e-commerce service providers, which are also nicked name”TP” (Taobao/Tmall Partners). Those TPs have alchemized incredible cash and gained solid prowess in the past decade, basically by capitalizing on big brands’ unwillingness and unskillfulness in building in-house e-commerce management capability. In 2018, China TP market size is still a jaw-dropping RMB 962 billion (USD 137 billion) business.

However, the wind is changing. The move from L’Oréal might send a chilling signal to the market. Few insiders told some local cosmetics brands might want to follow the suit, starting to throw money and prepare to cut the middle man TP as well. Perhaps the heyday of TP in China is already over.

By: Cecilia Wu