Estée Lauder Sees Asian Economic Slowdown Impact Q1 2025 Sales & Eyes Strategy Reset

Olivia Vassiliou 

03.27.25

In its 2025 first-quarter  earnings report, Estée Lauder Companies revealed that the ongoing economic challenges in Asia, particularly in China, led to a significant impact on its quarterly results. Net sales in the Asia-Pacific region fell by 11%, representing a $114 million year-over-year decrease. The company attributed the decline to weaker consumer sentiment and inventory pressures in the travel retail segment. This tension on the beauty company, one of the largest and most valuable in the world, now sets its eyes on a strategy change to bounce back. With China, its most influential market, experiencing a prolonged decline in consumer optimism, the company is shifting its strategy to stabilize growth and adapt to evolving market conditions.

What Happened?

Chinese luxury shoppers were the world's biggest spenders in 2023, according to surveys from Global Blue and Gusto Collective. Given their purchasing power and influence, they are clearly Estée Lauder’s most coveted clientele and a no-brainer target audience for driving sales and brand growth.

China contributed to around one-third of global luxury sales in 2023, with two-thirds of those purchases made while traveling abroad. However, a new shift in spending behavior has created hurdles for Estée Lauder’s travel retail operations in the Asia-Pacific. 

Recent changes in consumer sentiment across Asia are reshaping market dynamics. While other countries in the region show stable consumer behavior, China’s optimism has sharply declined since 2022, with only a slight recovery in the latest quarter, according to a 2024 report by McKinsey & Co. As China represents the majority of buyers, this downturn is having a significant impact on the region’s retail landscape.

CEO Fabrizio Freda addressed these challenges in their Quarter 1 Fiscal 2025 earnings call: “For Hainan and Asia travel retail overall, as traffic returns, conversion levels remained subdued and significantly lower than pre-pandemic levels owing to weak consumer sentiment reducing basket sizes, and to an extent, consumer diverse spending to experiences.” This reality is compounded by high inventory levels, strained sales and restricted revenue growth in this important market.

In turn, Estée Lauder made strategic pricing adjustments in an attempt to mitigate the volume downturn, yet the higher prices were insufficient to counteract weakened demand across key Asian markets.

What Next?

As Estée Lauder contemplates its growth strategy, the importance of mid-tier products as well as more emphasis on social commerce has emerged as a critical element in the competitive landscape. 

McKinsey and Co reports in November 2024 show loyalty continues to erode as consumers switch retailers and brands. With consumer sentiment softening and competitors like L’Oréal and Shiseido successfully capitalizing on more affordable product lines, like L’Oreal Paris, to stay competitive, Estée Lauder may need to expand its mid-tier offerings to capture a broader market. 

These products would meet a growing demand for affordable luxury among young and middle-income consumers who are increasingly mindful of costs but still seek premium brand experiences. 

The Asia-Pacific consumer market is evolving, driven by economic shifts and changing shopping habits. McKinsey notes that younger generations are boosting optimism and embracing omnichannel shopping, with online sales dominating in some regions. While Estée Lauder faces challenges in China, the rise of e-commerce offers a chance to recover by refining digital strategies and targeting engaged, tech-savvy consumers.

To appeal to a diverse consumer landscape, Estee Lauder needs to continue to capitalize on platforms like TikTok Shop, which has established itself as a powerhouse in Asian ecommerce. Continuing to push their subsidiaries onto the platform, like their most recent launch of The Ordinary, is likely to be beneficial, as more than 80% of TikTok Shop sales have been in Southeast Asia, according to Aftership. 

By focusing on subsidiaries like Clinique and MAC, both known for offering more accessible, mid-tier products, Estée Lauder can attract new customer demographics without detracting from its high-end luxury appeal. The accessibility of mid-tier products could expand the company’s presence in emerging Asian markets, allowing Estée Lauder to cultivate long-term loyalty among younger consumers who could eventually transition to its higher-end offerings.

Stabilizing Strategy

Estée Lauder’s response to the headwinds is the launch of a “strategy reset.” This initiative is intended to rebalance the company’s growth model. “We are working hard to rebalance the growth model of the company and avoid in the future overexposures to areas of the global world that are becoming too volatile and uncertain,” Freda explained during the company’s Quarter 1 Fiscal 2025 earnings call.

The reset will involve increasing investment in regions with more predictable growth, such as Europe, the Middle East and Africa, which have shown stable economic growth, strong recovery in international tourism and robust demand for luxury products. Additionally, these regions have managed to maintain consumer spending power better than others, making luxury products more accessible despite global inflation. Estée Lauder will also diversify consumer outreach through global travel and local retail channels.

Part of this reset also includes a focus on local relevance, with investments in research centers and factories in Asia to better adapt to specific market needs. “By building research centers in Shanghai and new manufacturing facilities, we’re positioning our brand for continued relevance and responsiveness to local consumer expectations,” Freda noted in the conference call. These moves are expected to enhance speed, agility and responsiveness, aligning Estée Lauder more closely with market demands.

Outlook and Continued Investment

As they grapple with unpredictable market dynamics in Asia, Estée Lauder remains optimistic about its long-term position in the prestige beauty market. Freda emphasized that the company is poised to stabilize its market share in the U.S. while working towards renewed growth in global prestige beauty segments.

“Our second quarter outlook reflects the extensive headwinds at retail in China, in Asia,” Freda said. He noted that these investments would include bolstering innovation pipelines and expanding consumer reach through digital channels like Amazon’s Premium Beauty store, TikTok Shop and Southeast Asia’s Chauke. 

Although the company faces an uncertain path in Asia, the strategy reset underscores Estée Lauder’s commitment to navigating this volatile environment by focusing on diversification, consumer-centric innovation, and agility. The leadership is hopeful that these strategic adjustments will place Estée Lauder in a stronger position to return to growth in the region when consumer sentiment stabilizes.

Tracey T. Travis, Executive Vice President and Chief Financial Officer at Estée Lauder Companies, emphasized the importance of adapting to these challenges.

“Given the anticipated incremental sales pressure [in China], we acknowledge the need to continuously evaluate the plan and more importantly, take decisive action to maximize its benefits, identify new opportunities for growth and pursue additional savings initiatives.”