Sephora, Europe's leading beauty retailer, announced over the weekend its investment strategy of US$50 million in China aimed at establishing its nationwide sales network.

The plan will be realized by a retail joint venture with the Shanghai Jahwa United Co Ltd.

Sephora shares an 81 per cent stake of the US$6 million registered capital in the venture entitled Sephora (Shanghai) Cosmetics Co Ltd, while Jahwa takes up only 19 per cent, said Jean-Luc Paille, chief financial officer of the Sephora (Shanghai) Cosmetics Co Ltd.

But according to the contract, Jahwa has the right to increase its shares to 49 per cent within two years, said Kang Yajun, deputy general manager of the Shanghai Jahwa United Co Ltd.

"However, Jahwa can also give up the right if the venture doesn't operate as well as expected," Kang said.

The venture is the result of efforts made by the Chinese Government in accordance with the requirements of the World Trade Organization to allow foreign retailers to account for the lion's share of the investment in retail joint ventures.

"It is the right time for Sephora to enter the Chinese market as many people are getting more familiar with cosmetics than before," she said.

Her words were echoed by Paille, who said Sephora is not late even though many foreign cosmetic brands have entered the Chinese market.

Different from the European one, the domestic market needs specially-trained staff to meet the special demands of Chinese customers, he said.

"That's why we set up a joint venture by co-operating with Jahwa," said Paille.

Sephora, funded in 1969 in Limoges, France, now has 520 stores worldwide, with 420 in Europe and 100 in the United States.

Richard Lim, general manager of the Sephora (Shanghai) Cosmetics Co Ltd, said the US$50 million investment will be used to enlarge Sephora's market share in China by opening 100 speciality stores nationwide by 2010.

Sephora will bring 10 or so new and trendy brands from the US and other parts of the world, to Chinese customers.

"We hope to introduce them first in Shanghai, then in the Asian region," Lim said.

But Sephora will not invest in running factories in China to produce cosmetics, said Paille.

"We will just bring expertise, know-how and brands to Jahwa which will produce Sephora cosmetics locally," he said.

However, Kang said the first thing the venture will do is to improve its sales channels and increase sales volumes.

"When the initial target is realized, both sides will consider the local production," she said.

Sephora will open its first flagship store - "beauty candy store" - in Shanghai in April. Under its development plan in China, it will open six stores in the country within two years.

"This year three stores will open in the city. But we won't just stay in Shanghai. We'll go to Beijing and other parts of China," Paille said.

China is set to have more stores than France, which has 280, he said, adding, "our strategy is to go step by step and not too quickly."