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Sales are plunging, sending an economic warning signal

Chinese consumers, who have for years driven the growth of global cosmetics makers, have tightened their purse strings as the country’s economy slows. Their shifting tastes toward domestic rivals add another wrinkle to the industry’s woes and bode poorly for other foreign brands that have pinned their growth hopes on China.

The share price performances of global cosmetics companies in the past couple of years are anything but pretty. Estée Lauder EL -2.49%decrease; red down pointing triangle, which owns brands such as Clinique and La Mer, has lost three-quarters of its market value since early 2022. Japan’s Shiseido 4911 -0.22%decrease; red down pointing triangle is down nearly two-thirds since 2019. L’Oréal OR -1.20%decrease; red down pointing triangle, the world’s largest cosmetics company, has done relatively better, but its shares have also fallen 16% in the past four months.

China’s sluggish economy is the main reason. For the fiscal year ended June, Estée Lauder’s organic net sales dropped 2% year on year, driven by a 3% decrease in the Asia-Pacific region, which includes China. Shiseido’s organic net sales in China fell 7% from the previous year in the six months ended June. Retail sales of cosmetics only grew 0.3% year on year in China in the first eight months of the year, according to official statistics.

Apart from weaker sales in the country, beauty companies are also suffering from a plunge in revenue from so-called travel retail, which includes selling at duty-free shops in airports. That in turn also was driven by less spending from Chinese tourists. China’s outbound tourism has yet to return to the prepandemic norm. Arrivals of Chinese visitors in Japan in the first seven months this year are still 31% lower than the same period in 2019 and have almost halved for the U.S. Shiseido’s net sales from travel retail last quarter plunged 15% from a year earlier.

And as Chinese consumers become more price conscious, local brands have popped up offering value-for-money products to grab market share from foreign giants. They are also more adept at marketing and designing products that appeal to younger Chinese consumers.

China’s imports of beauty and skin-care products in the first eight months of 2024 dropped 11% from a year earlier and 31% from their 2021 level. Among the top 10 brands of China’s mass beauty and personal care market, the share of domestic brands has risen from 15% in 2018 to 22% last year, according to Euromonitor International.

Shanghai-listed Proya Cosmetics is one of the domestic beauty companies that has been growing fast: Its revenue rose 38% year over year in the first half of this year. But even its stock isn’t immune to the economic downturn—it has dropped 25% since the end of 2022.

The Chinese market had been a driving force for the industry’s growth. For example, China accounted for 34% of Estée Lauder’s net sales for the fiscal year ended June 2022, up from 13% four years earlier. In the latest fiscal year it was down to 26%. China’s economy, and its consumers, have long been gold mines or the great future hope for global brands. But the economic slowdown and the rise of competent domestic competitors have dented the hopes from automakers to coffee chains.

Beauty companies may just be the latest example.

The bank lent loosely on some credit cards, contributing to a big loss as it tries to sell the General Motors card business

Behind Goldman Sachs’ GS -3.55%decrease; red down pointing triangle messy departure from credit-card lending: lax underwriting standards.

The bank is facing mounting losses — including a roughly $400 million pre-tax hit disclosed Monday — as it tries to offload the remaining pieces of its Main Street lending business.

Goldman Chief Executive David Solomon said Monday the bank expects to incur the loss on the eventual sale of its General Motors GM -4.80%decrease; red down pointing triangle credit-card business and a smaller, unrelated business.

Goldman has been in talks for months with GM and Barclays about transferring the carmaker’s credit-card business to the British bank, The Wall Street Journal reported in April.

Barclays has been unwilling to pay the price Goldman originally expected, in large part because of high charge-off rates in the program, according to people familiar with the matter. Charge-off rates refer to the portion of the balances the issuer has to write off because borrowers are unlikely to pay them back.

People familiar with the talks say Goldman will likely receive less than the outstanding balances after having paid a premium to buy them.

The GM cards are largely targeted towards people who own and lease GM cars. Cardholders earn points they can put toward car payments or servicing, among other things. The partnership has roughly $2 billion in balances.

The problematic accounts were primarily originated by Goldman after it took over the program from Capital One and began opening new accounts in 2022. Average charge-offs on the Goldman-originated accounts, which make up roughly one-third of the GM portfolio, surpass 10%, the people said.

In contrast, the annualized credit-card charge-off rate for commercial banks in the U.S. was about 4.5% in the second quarter of the year, according to Federal Reserve data.

Goldman struggled to grow the number of GM credit-card accounts, partly because travel-rewards cards have been all the rage. To boost demand, it turned to third-party websites including Credit Karma to find new cardholders. But that attracted people with lower credit scores.

As Goldman’s top executives tout a more streamlined institution focused on investment banking, markets and asset and wealth management, its missteps in the consumer business continue to weigh on its earnings.

Goldman Sachs has lost more than $6 billion on a pre-tax basis since the beginning of 2020 through the second quarter of this year on a big chunk of its consumer-lending businesses, including its credit cards. Goldman also finalized a deal last year to sell specialty lender GreenSky at a steep loss.

The far more challenging deal to offload will be the Apple partnership, where credit-card balances total around $17 billion. Apple sent Goldman a proposal late last year to exit the contract within 12 to 15 months, the Journal reported, which called for an end to the credit-card partnership the companies launched in 2019 and the savings account they rolled out in 2023.

Goldman could be facing a bigger loss when it sells this credit-card program to a new issuer than what it’s now expecting to incur with the GM sale.