A New York federal court has preliminarily approved a settlement in a case accusing The Estée Lauder Companies of misleading investors about the extent of its reliance on daigou-driven purchasing activity in China’s travel retail market. The settlement – which will see the cosmetics giant pay $210 million to settle the securities class action – is significant not just because of its size, but because it signals growing scrutiny around the role daigou demand played in the pandemic-era travel retail boom.
The Case in Brief: Filed in the U.S. District Court for the Southern District of New York in 2023, the case centered on allegations that The Estée Lauder Companies (“ELC”) and two former executives violated federal securities laws by making false and misleading statements about the company’s inventory levels, supply chain management, financial outlook, and most notably, its reliance on the daigou market in China.
Specifically, the plaintiffs alleged that ELC misled investors by concealing the extent to which it relied on daigou-facilitated purchasing activity to sustain sales amid global store closures and travel restrictions during the COVID-19 pandemic. According to the complaint, reseller demand flowing through Hainan’s duty-free retail ecosystem helped prop up portions of ELC’s Asia travel retail business as traditional retail channels weakened. They further alleged that after Chinese regulators intensified scrutiny of daigou activity, the resulting slowdown exposed how dependent portions of ELC’s travel retail business had become on those reseller-driven sales.
Rather than acknowledging the impact of weakening daigou demand, the plaintiffs alleged that ELC attributed slowing sales to more temporary factors, including COVID disruptions and inventory shifts. When the company later disclosed that changes tied to “unstructured market activity” in China had contributed to weaker performance, its stock price fell sharply, triggering the securities litigation.
In March 2025, the court denied ELC’s motion to dismiss, holding that the plaintiffs had plausibly alleged that the company misled investors by omitting the extent of its alleged reliance on gray-market daigou sales while making affirmative statements about the drivers of its success.
>> In a settlement agreement filed on May 7, ELC denied wrongdoing, stating that it agreed to settle in order to avoid the burden and uncertainty of prolonged litigation. The settlement – which gained preliminary approval from the court on May 13 – will resolve securities fraud claims brought on behalf of investors who purchased ELC stock between February 3, 2022 and February 3, 2025.
The Broader Business and Legal Implications
For years, luxury and beauty companies quietly benefited from strong growth in Asia travel retail, particularly in Hainan’s duty-free shopping hubs. A meaningful portion of that demand was reportedly driven by daigou shoppers – individuals who purchase luxury goods abroad and resell them in China’s gray market – helping to fuel rapid sales growth across cosmetics, handbags, watches, and other luxury categories during the pandemic. But as discretionary spending slowed and inventory pressures intensified, investors started to question whether some of that growth reflected genuine end-consumer demand or a more fragile ecosystem heavily dependent on gray-market purchasing.
That distinction has broader implications for the luxury industry. At the center of the ELC case is the question of whether investors were given an accurate picture of how dependent growth had become on daigou activity and other intermediary-driven channels that could reverse quickly once market conditions shifted.
Increasingly, investors are looking beyond headline revenue growth and demanding greater visibility into channel concentration, inventory dynamics, reseller exposure, and the overall quality of demand underpinning financial performance. The settlement could signal a broader shift in how luxury-sector growth stories tied to China and travel retail are being evaluated. Where strong China-facing growth and travel retail performance were once viewed largely as indicators of strength, investors now appear more focused on how sustainable and transparent those sales channels actually are.
For luxury and beauty companies still heavily reliant on China-facing demand and travel retail channels, that shift carries not only financial consequences, but could also be a source of growing litigation risk.
The broader implication is that luxury companies may no longer be able to rely on China growth figures alone as proof of business strength. Increasingly, investors – and potentially, courts – are asking a more fundamental question: how much of that growth is tied to durable consumer demand, and how much is being driven by reseller ecosystems that companies may not fully control or transparently disclose?
The case is In re The Estée Lauder Co., Inc. Securities Litigation, 1:23-cv-10669 (S.D.N.Y.).
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