Key Takeaways:Sephora, LVMH’s second-largest revenue driver, has lagged in shifting online amid a shrinking physical beauty retail market in China. Sephora China’s revenue has fallen roughly 40% since 2021, with cumulative losses surpassing $200 million over four years amid layoffs and management changes.Industry sources say LVMH's habit of replacing managers instead of adapting its model has kept Sephora stuck in a loss-making retail strategy in China.Sephora has emerged as one of the few bright spots within LVMH as the luxury group grapples with consumers cutting back on luxury spending. Yet its performance in China is steadily showing that not all that glitters is gold.While Sephora is LVMH’s second-largest revenue driver with around $18.6 billion in annual sales, its long-term bet on the Chinese beauty market is becoming increasingly difficult to justify. The retailer entered China in 2005, but mounting losses are increasing pressure on Sephora CEO Guillaume Motte and LVMH Chairman and CEO Bernard Arnault to turn around the Asia-Pacific business.Despite its large presence in China with more than 300 stores, making it one of Sephora’s largest markets after the US and France, the retailer is becoming a smaller player in the Asian country’s beauty ecosystem. Cosmetics retailers, including Sephora and its local competitors, account for just 6% of China’s beauty market, according to NielsenIQ data. The figures underscore the limited role physical beauty retail now plays in China as consumers shift to online purchasing. They also highlight the growing challenge for LVMH in maintaining heavy investment in Sephora China.