618 shopping festival trends

The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com — Ed.

  Ahead of China’s 618 shopping festival (Jun 18), pre-sale performance stands out for the Lululemon (fashion) and Proya (cosmetics) brands. Although China reopening effects are proving limited compared to the market’s expectation, consumer goods plays boasting strong valuations, significant market share, and robust brand power present opportunities.

Fashion: Leaders continue to perform well

In terms of the 2023 618 sports category pre-sale (May 26~31) rankings, Lululemon (2022: 8th place → 2023: 3rd) displayed the strongest (y-y) sales growth among competing brands.

Lululemon announced FY1Q24 (Feb~Apr 2023) sales of US$2bn (+24% y-y) and OP of US$400mn (+54% y-y), reporting brisk sales across the women’s, men’s, and accessory categories. Particularly encouraging was FY1Q24 China sales growth of +79% y-y. Inventory growth in the quarter (+24% y-y) was in line with sales expansion, suggesting a smooth path to inventory normalization in 2H23. As a result, Youngone, a producer of Lululemon’s woven products, should see its excessive valuation discount fade in the days ahead.

In China, F&F’s MLB SSSG is outperforming the industry average, topping +60% y-y in April and +40% y-y in May. Maintaining their brand strength, both Lululemon and MLB display high portions of regular-price sales and lower-than-average 618 event discounts versus other brands. Of note, sales at MLB’s online flagship store climbed by more than 60% y-y over April~May, remaining solid even if excluding 618 festival benefits. Although expectations have been shrinking towards China reopening effects, we advise staying focused on consumer goods plays with fortified market shares and robust brand strength.

Cosmetics: Look beyond 618 festival

Regarding 2023 618 cosmetics brand pre-orders (as of May 26), local Chinese brand Proya stands out, ranking first in all beauty and skincare items. Other local brands (Skinceuticals, OLAY, Winona, etc) have also made remarkable progress in skincare product categories.

We expect the recovery of the Chinese cosmetics market to kick off after the 618 event. Believing that marketing competition will be fiercer overall among cosmetics brands than fashion brands, we foresee inevitable cost increase in 2Q23. On the other hand, for cosmetics OEM/ODM companies, order growth from Chinese subsidiaries has become visible since March, and order demand, centered on sun products amid peak seasonality, should continue in 2Q23. In particular, a rise in the portion of orders from local Chinese brands (Proya, 3CE, Colorkey, etc) should serve as a mid/long-term positive.