Estée Lauder accused of hiding over-reliance on "daigou" in China, may pay $210 million in settlement

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According to Red Star Capital Bureau on May 10, citing foreign media reports, cosmetics giant Estée Lauder's shareholders accused the company of deliberately concealing its over-reliance on the gray market channels of "daigou" in China from 2020 to 2023, allegedly defrauding shareholders. Estée Lauder has agreed to pay $210 million to settle the lawsuit.

It is understood that during the settlement process, Estée Lauder denied any misconduct and stated that insurance would cover part of the settlement costs. As early as March 2025, a judge dismissed Estée Lauder's request to dismiss the lawsuit, stating that the company only promoted its own success reasons, "but deliberately concealed some truths it deemed inconvenient to disclose."

On May 10, regarding the above news, Red Star Capital Bureau sent interview questions to Estée Lauder's China media email, but had not received a reply as of press time.

Photo courtesy of Visual China

Public information shows that "daigou" refers to agents purchasing luxury goods at duty-free prices and reselling them to consumers at below-market prices. On Taobao Tmall flagship stores, Estée Lauder's popular product, the 50ml Little Brown Bottle serum, is priced at 990 yuan, while on a Taobao "global purchase" daigou store, the same product costs only 539 yuan.

Estée Lauder's shareholders stated that from 2020 to 2021, the company heavily relied on daigou business in the Chinese market, especially in Hainan Province; after China strictly regulated the gray market of daigou in January 2022, Estée Lauder delayed disclosing the impact. Shareholders claimed that Estée Lauder concealed the truth until November 1, 2023, leading to a 19% plunge in the company's stock price and a loss of approximately $8.7 billion in market value.

According to China Youth Daily, in 2022, the China Customs launched the "National Gate Sword" and "Fenglei" joint operations, deepening efforts to crack down on smuggling of key taxed goods,洋垃圾 (foreign garbage), ivory, and other smuggling activities, as well as tackling "water passengers," island duty-free "set daigou," and cross-border smuggling between Guangdong, Hong Kong, and Macau. Throughout the year, 4,509 smuggling criminal cases were filed, with a case value of 121 billion yuan, representing increases of 5.8% and 25.6%, respectively.

On November 1, 2023, Estée Lauder disclosed its first-quarter financial report for fiscal year 2024. As of September 30, 2023, the first quarter net sales were $3.52 billion, down 10% from $3.93 billion in the same period last year. Organic net sales declined by 11%. Estée Lauder stated that the decline was mainly due to pressure on its Asian travel retail business and that the overall recovery speed of high-end beauty products in mainland China was below expectations.

Red Star Capital Bureau notes that starting from fiscal year 2026, Estée Lauder will report China as a separate region. Currently, about one-fifth of Estée Lauder's sales come from mainland China.

Red Star News reporters Yu Yao and Zhou Yi

Editor: Xiao Shiqing

Review: Wang Guangdong