Your Roadmap to China’s cosmetics market
The Chinese cosmetics market is the second largest in the world
after the United States and experts estimate that it may reach
U$62 billion by the end of 2020. During the last few years, the
beauty and personal care industry in China registered an impressive
growth due to urbanization, growing disposable income, and social
The global beauty market is also seeing favorable numbers, so the sector will likely bring incredible opportunities to luxury retailers worldwide. China is still far from its saturation level and with its vast consumer base and relatively low penetration level offers growth potential for local and international brands alike.
The Chinese cosmetic industry has undergone a rapid expansion and is set to overtake the United States by 2023, even if growth slows. In 2018, beauty sales in China grew 12.9%, compared with just 4.6% in the United States. The market is expected to grow annually by 7.1 percent through 2023.
International cosmetics companies such as L’Oreal, Estee Lauder and Shiseido are benefiting from this trend. However, European beauty brands are finding that increasingly sophisticated Chinese customers don’t want to pay more just to get a foreign product.
There are certain aspects of the industry that foreign retailers should consider if they want to increase their global profit margin. Luxury beauty companies need to examine the current changes in the Chinese consumer market and its tendency toward younger, brand-savvy buyers.
The new generation of beauty consumers is less loyal than the older one and prefers to try different brands. Big international retailers should be aware of this characteristic and understand the psychology of the modern Chinese buyer.
Thanks to these changes in consumer behavior and the greater proliferation of e-commerce, to be successful within the Chinese beauty industry, you don’t have to be a big cosmetic brand like L’Oréal, Estee Lauder or SK-II; smaller brands still have the opportunity to excel as long as they understand the value of branding.
Chinese beauty buyers are always looking for the latest and greatest cosmetics to match their lifestyles. This means that brands should utilize innovative and personalized strategies to draw the attention of these shoppers.
Currently, two international firms, P&G and L’Oreal, are heading the Chinese cosmetics market, with an 86% share of the total retail sales. Only 3 domestic Chinese brands, CHICMAX, Shanghai Pechoin and JALA Corporation, ranked among the top ten cosmetics brands in 2018. Foreign brands generate most of the industry revenue and are preferred by local consumers.
The penetration rate of online cosmetics shopping in China has risen from 53.4% in 2014 to 74.2% in 2018. Online platforms have become the most important channel for Chinese to buy cosmetics. International brands mainly occupy the high-end cosmetics market. Although their sales account for 60% of the overall Chinese cosmetics market, sales revenue accounts for 90%.
Many Chinese customers outside of the most developed cities tend to receive products through e-commerce sites such as Alibaba, which has been developing more quickly than department stores.
The millennial generation, which is more inclined to health-conscious products, is responsible for the growing demand in the cosmetics market. Modern Chinese beauty consumers take the time to research and analyze product reviews before making a purchase decision. The choice generally depends on the desire to obtain goods with better ingredients and improved functionality rather than the price.
The Chinese beauty industry is constantly improving and advancing because buyers preferences change over time and local brands have an edge in understanding consumer needs. Foreign companies interested in having a strong presence in the country need to show an ongoing commitment toward excellence and innovation in the sector.
Domestic brands now own 56 percent of the Chinese market. Popular brands such as Pechoin (skincare), Chando (skincare), and One Leaf (facial masks) ranked as top-10 Singles’ Day sellers in 2018, despite their relative anonymity in the West.
Skincare products dominate the overall cosmetics market in China. Globally, skincare grew 7.6% in 2018, compared with a 5.2% increase in color cosmetics and 5.5% in fragrance, as consumers in the U.S. also begin to realize the importance of skin care.
According to experts, Chinese women tend to use skincare products earlier in their lives. Prestige cosmetics are considered luxury products and being able to purchase them can be a sign of class or status.
Women are not the only ones enjoying the benefits of skincare products. The male segment is also seeing unprecedented growth. Male moisturizers, creams, and lotions have grown in popularity, since China entered a “male beauty era.” Cosmetic brands would be wise not to neglect this highly lucrative segment.
Companies should pay more attention to makeup products which continue to gain popularity, such as lipstick. On the other hand, the facial skin segment is still the main focus of skincare, with a large market foundation. In addition to the basic needs of moisturizing and using sunscreen, consumers will have an increasing demand for functional skincare products such as color-evening and anti-aging creams.
Until recently, South Korean beauty trends were preferred in China because of the popularity of K-Pop “boyband” music. But now, Chinese beauty buyers are acquiring domestic and Western brands. The South China Morning Post observed that the popularity of America’s West Coast aesthetic has been on the rise in China.
This change in consumer trends strongly relates to a search for authenticity, and consumers now want products that allow them to express their identity and individuality rather than the uniformity promoted by K-beauty.
According to studies on Chinese cosmetics consumers, people born between the 1970s-1990s have the strongest buying power. They account for nearly 90% of cosmetics consumption in China, of which nearly 40% is from those born in the 1980s alone. Cosmetics products, especially lipstick, have become a new trend for gifts, which increases the sales volume by 76.5% year on year.
As Chinese born between 1995 and 2000’s, also known as Gen Z consumers, start to enter universities and society, they increase their demand for cosmetic products. For this reason, this group might become the new leading force of the beauty industry in the country.
Gen Z consumers are addicted to online shopping, have diversified brand preference with changing demands and are happy trying new products. Culturally, they feel comfortable with a mix of both China and western influence. Their Chinese culture gives them a sense of pride.
China’s beauty industry is creating innovative technologies that assist brands in better engaging with their customers, such as VR exchanges to AR shopping features. This digital arena now offers next-level livestreaming, which connects beauty lovers to vloggers, industry experts, and other audience segments.
As livestreaming becomes increasingly mainstream, younger consumers have turned to Douyin, Kuaishou, and DuoYu, to find peer-to-peer reviews, user-generated content, and influencer interactions. And since younger demographics are addicted to their mobile devices, luxury beauty brands must incorporate livestream marketing into their content marketing plans if they are serious about increasing customer engagement and conversions.
International beauty companies still dominate the Chinese market, but new tendencies are pushing these firms to reevaluate their business strategies and seek out critical alliances to improve their positioning and speed up growth.
Johnson & Johnson acquired the Chinese cosmetics firm Dabao, and Coty Inc. acquired a majority stake in T-Joy. Naturally, well-known brands are still in high demand in China, but competition from emerging and domestic players is steadily growing.
On the regulatory front, the Chinese authorities have taken notice of the size and growth of the cosmetics market and are overhauling the system to better control the industry.
The Regulations on Hygiene Supervision of Cosmetics currently govern the production of cosmetics and the operation of cosmetic companies in China. The legislation was created a long time ago and is too outdated to deal with new issues that continue to emerge in the industry.
Recently, authorities have taken measures to improve the governing framework under the Current Regulation to meet changing needs of the market. The Second Draft provides a more detailed and practical regulatory framework that better fits the market realities of China today.
The main drivers for the authorities were to simplify the administration but also encourage technological innovation. The Second Draft has adopted a classification management system for the administration of cosmetic new ingredients and for cosmetic products which is based on different perceived risk levels. This aims to balance consumer safety on the one hand but on the other to ensure that regulation is not an overly burdensome constraint and thereby still allow for innovation.
This new policy will simplify the process by which foreign cosmetics can be imported into the Chinese market. This will shorten the purchasing cycle for imported cosmetics and will lower the costs of logistics and warehousing for foreign cosmetic companies.
China represents one of the most dynamic and untapped cosmetics markets in the world. As a result, global players are pursuing partnerships and mergers with Chinese beauty brands to satisfy ever-evolving consumer preferences and secure a larger market share.
Though the Chinese cosmetic market has become highly competitive, there is still plenty of room for new players. Companies interested in developing a presence in the industry must adopt a suitable market entry approach, find the right manufacturing or distribution partner, use effective marketing strategies, and deliver appropriate products for various customer groups at reasonable price points.
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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.