French cosmetics giant L’Oréal is preparing for significant layoffs in its China operations, particularly targeting its travel retail division, following a slump in sales across the region. According to a report from Caixin Global, the company plans to reduce its travel retail workforce by as much as half, amid a prolonged downturn in duty-free sales.

The layoffs, which have yet to be officially announced by the company, are expected to impact employees working in the travel retail sector — a segment that has been struggling in recent years. This comes as part of a broader slowdown in China’s beauty market, which has seen decreasing consumer confidence and a shift in spending patterns.

According to sources familiar with the situation, employees affected by the layoffs will likely receive compensation packages equivalent to their years of service, with a minimum of five months' salary included. This provision, while not confirmed by L’Oréal, offers a glimpse into the company’s approach to handling its restructuring efforts in the region.

This decision is part of L’Oréal's broader strategy to cope with declining sales in China, a market that has long been a critical growth engine for the cosmetics giant. In the fourth quarter of 2024, L’Oréal reported its first-ever sales decline in China, with North Asia sales falling by 3.2% year-over-year, dropping to €10.3 billion. This decline in sales is attributed to a mix of factors, including weak consumer confidence, a tightening of the duty-free sector, and the growing competition from Chinese domestic beauty brands, which have been gaining popularity due to their affordability and strong local market appeal.

The travel retail sector, once a booming avenue for luxury goods in China, has been under intense pressure as the country’s recovery from the COVID-19 pandemic remains sluggish. As international travel gradually picked up, the expected boost to sales in airports and duty-free shops failed to materialize, adding further strain to brands reliant on these channels.

In response to these challenges, L’Oréal has been reshaping its strategies to safeguard its position in the market. The company has already implemented its "3S Model" — which focuses on Speed, Scale, and Superiority — to streamline its operations. Additionally, L’Oréal opened the Suzhou Intelligent Operations Center in 2024, designed to support both direct-to-consumer and business-to-business orders. This development is part of the company’s broader push to optimize its supply chain and accelerate its e-commerce capabilities.

L’Oréal is also looking to diversify its portfolio, shifting its focus away from the highly competitive Chinese market. The company has begun to place greater emphasis on markets like the United States, where it plans to reduce its reliance on China as a major growth driver. As part of this pivot, L’Oréal has been focusing on strengthening its digital presence in North America and Europe, where the company expects more robust growth prospects.

While L’Oréal has not officially confirmed the layoffs, reports suggest that the company is bracing for a significant restructuring process. As the global cosmetics industry continues to evolve, L’Oréal’s challenges in China reflect broader shifts within the industry — especially as domestic brands continue to make inroads and global giants face pressure to adapt to new consumer expectations and market realities.

As L’Oréal navigates these challenges, it will be essential for the company to find ways to maintain its leadership in the global beauty sector while managing its internal restructuring and adjusting to the changing landscape in key markets like China.