Sephora layoffs: LVMH’s cosmetics retailer cuts around 10% of its staff in China as problems deepen

Cosmetics retailer Sephora is cutting hundreds of staff in China, according to people familiar with the matter, as one of LVMH’s biggest brands tries to turn around a loss-making operation in the world’s second-largest economy.

Sephora China has laid off both office and store employees and persuaded others to quit. An estimated 10% of the country’s more than 4,000 employees have been affected, according to the people, who asked not to be identified for fear of retaliation. Some senior executives, including national heads of retail and e-commerce, have also left the company, one of the people said.

The shakeup comes after Sephora named Ding Xia, Nike Inc.’s former head of e-commerce in Asia, as its new head of mainland China in a bid to revive its fortunes on the continent. The brand has struggled to expand in China, a market that executives at billionaire Bernard Arnault’s luxury empire see as key to eventually hitting a global sales target of 20 billion euros ($21.3 billion).

“In response to the challenging market environment and to ensure our future growth in China, Sephora China is currently streamlining our organizational structure at our head office to ensure we have the right capabilities for long-term, sustainable growth,” a company spokesperson said.

In a statement sent after publication, the spokesperson said the number of head office positions affected by the rationalization represents less than 3% of Sephora China’s workforce of more than 4,000 employees. Asked about the number of store employees being cut, the person said the company does not comment on market speculation.

Sephora’s operations in China are something of a beachhead for one of LVMH’s most important brands, as the retailer has retreated from the rest of the region and closed its operations in Taiwan and South Korea over the past year. However, the brand’s success in the US, Europe and the Middle East (which made it LVMH’s second-biggest revenue contributor after Louis Vuitton in 2022) is proving difficult to match in China.

The brand incurred combined losses of about 330 million yuan ($46 million) in 2022 and 2023, according to annual reports from skincare product maker Shanghai Jahwa United Co. Ltd., which owns 19% of its mainland business.

While Sephora has expanded to about 300 stores since entering China in 2005, the country is becoming increasingly difficult for high-end retailers to navigate as consumers seek out cheaper products amid a slowdown. Sephora’s items, mostly from Western cosmetics and personal care brands, also tend to be priced higher than local Chinese brands that are gaining popularity for being more suited to domestic preferences as well.

On Chinese social media platforms including Xiaohongshu, an Instagram-like network, users claiming to be former Sephora employees have shared posts saying they were forced to leave. Some of them were accused of using Sephora membership to help customers buy products at discounts — a common practice to boost sales in China’s beauty industry that the company has tolerated for years, according to the posts.

Some employees who were fired were accused of misconduct and denied severance pay as a result, people familiar with the matter said, but it is unclear how many cases were handled this way.

A Sephora spokesperson said “severance packages, compensation and professional support services” are being extended to those affected.

In Western markets, Sephora has leveraged its high-quality brick-and-mortar sales service and established itself as a way for consumers to discover niche brands. That strategy is less effective in China, where online shopping is the dominant mode of consumption and Alibaba Group Holding Ltd.’s Taobao and Tmall boast millions of brands.

Competition from cheaper local brands is also increasing. Chinese cosmetics makers captured around 50% of the country’s market last year, overtaking foreign brands for the first time, state media reported.