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Jun
2015

The Chinese cosmetics sector

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Statistics

In 2013, the import value of cosmetics into China was US$1.687 billion, an increase of 10.7% compared to 2012.

The major source of products come from France, Japan, the US and South Korea and are mainly make-up products and skin care products.

Sources and value of imported products

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Price adjustments

On January 1st 2013, import and export tariffs in general were adjusted by the government including those of cosmetics which decreased from 6.5% to 5%, however international brands then proceeded to increase their retail prices. In the first half of 2013, after SK-II had increased its prices by up to 80% for some of their products. Chanel, Dior and others also decided to increase theirs by 7% -10% due to the rising costs of raw materials, labour and other contributing factors. In June, Shiseido, L’Occitane, Clarins and a number of other cosmetic brands also set off a second round of price increases within their high-end product lines.

Category activities

Skin care products: represent the fastest growing category in the Chinese cosmetics sector.

Shampoos and hair care: the market is becoming saturated and its growth has declined.

Make-up products: the market is far from saturated, particularly in rural regions and inland cities. Sales of eye make-up products have recorded significant growth in recent years.

Products for children: sales of cosmetic products designed for use by children continue to soar.

Sunscreen products: sunscreen products still ensure sales during traditional seasonal quiet periods.

Anti-aging products: cosmetic products that help consumers stay youthful and fight aging are increasingly popular.

Sports cosmetics: many consumers who love sports and pursue general fitness are keen to maintain an attractive appearance. Sports cosmetics that help prevent the loss of moisture and are anti-odour, anti-sweat, anti-bacterial and in a compact portable size are most popular.

Cosmeceuticals: consumers are increasingly aware of products which combine cosmetic and pharmaceutical features, cosmeceuticals, such as spot lightening cream, acne treatment lotion and acne ointment.

Green/natural cosmetics: these cosmetic products contain natural or nutritional ingredients such as aloe and vitamins.

Cosmetic products for men

According to estimates by Euromonitor, the market of skin care products for men expanded by 34% in 2011, more recent surveys are not available. However, the share of the cosmetic products for men within the overall cosmetics market is still relatively small at an estimated 12.7%. Oil-control and cleansing are the two major and most popular product groups with respect to men’s skin care requirements. While facial cleansers take the lion’s share of the market, demand for specialty products such as masks and sun-blocks is also on the rise, demonstrating that male Chinese consumers are paying more attention to skin conditions such as aging and coarseness.

Cosmeceuticals

It is predicted that Chinese herbal cosmetics will break new territory in the cosmetics market in the coming years, and it is estimated that cosmeceutical sales in Mainland China have a potential market valued of 20 Billion RMB and an annual growth rate of 10-20%.

Attitude change

Consumer attitude to cosmetics and skincare has changed dramatically in recent years. Today, consumers are more independent in terms of making purchasing decisions. Instead of being influenced by advertisements, they gather information through different channels and consider various factors before picking the products that most suit their needs, especially opinions from family members, friends or opinion leaders from the Internet. Buyers of imported branded products in the high-end market are mostly high-income earners in large and medium-sized cities. The majority are young and middle-aged women who prefer famous cosmetic brands from Europe, the US and Japan.

Consumption snapshot

The overseas consumption of Chinese citizen is always described as ‘purchases with Chinese characteristics’. Tourism product purchases such as local food snacks, ointment and cosmetics are considered very good presents to take back to families and friends.

Ms. Gan who was visiting ten European countries over fifteen days for her first trip aboard, estimated that her travelling expenses for flights and accommodations were 14,800 RMB, and she spent an additional 14,000 RMB on presents. Almost 80% of the purchases were for her family and friends. Coincidentally, almost all those interviewed as part of a survey of Chinese travellers claimed to have spent similar proportions of their budget. Of this research, 93% of respondents claimed that their families felt loved by being given gifts and that giving gifts purchased while on foreign trips was a good way to maintain relationships with colleagues, friends and relatives.

Ms. Gan listed the items purchased on her European tour as: 27 perfumes at 300-400 RMB/bottle; 5 Swiss Army Knifes at 1500 RMB; 2 small Swiss Army Knifes at 260 RMB; Swarovski products for 1000 RMB and skin care products for 2000 RMB.

Although there have been rumors in China regarding the quality of some well-known cosmetics products, it has not quashed the passion of domestic consumers to pursue these international brands. Domestic consumers are convinced that even if there were minor problems with some products, the overall qualify could be trusted based on the high-profile and long life time of the brand. Many young women are proud to say they own and use these brands as part of their lifestyle and to pursue current fashion trends.

Sales channels

Major sales channels of cosmetic products in Mainland China include wholesale markets, supermarkets and department stores, speciality counters, specialty stores, beauty parlours and direct-marketing organisations. Online sales channels have also recorded significant growth in recent years.

Department stores and supermarkets are the top two sales channels in China, and It is estimated that retail sales of cosmetics through these two major channels account for approximately two-thirds of the whole cosmetics market.

Speciality retail counters are a major traditional sales channel for cosmetics, and have been adopted by most of the worlds most renowned cosmetics brands. These counters generate a great return in terms of word-of-mouth publicity and are thus highly effective in establishing brand image. Top global brands such as Lancôme, Estée Lauder, Chanel and Dior dominate the sales of cosmetics through special counters in the mainland. Just a few domestic brands like Herborist are able to compete with these giants.
Some brands have expanded their business by opening specialty stores, mainly in the formats of both direct and franchise operations. Directly operated specialty stores are often preferred by many multi-national brands because they can better represent the brand image, ensure the quality of service, and deliver stable pricing. As might be expected, compared to other sales formats, opening franchise chain stores is regarded as the most cost effective format to adopt with the lowest setup costs and highest rate of success.

Direct selling of cosmetic products through distributors’ personal networks is popular in China as it has been in the west. The direct sales companies award their distributors according to the quantity of goods they sell through their respective networks. Avon was the first brand to engage in a pilot programme after the Measures for the Administration of Direct Selling were established in 2005.

Selling cosmetics through drugstores has also become a major channel in China. While the cosmeceuticals market is currently dominated by foreign players, a number of local pharmaceutical companies have already established a presence in this market. Domestic brand Longrich, for example, has adopted a two-pronged approach, and apart from distributing through shopping centres and supermarkets, it has also launched its products into local pharmacies.

Cosmetic products can also be distributed through various types of beauty parlours; traditional, pampering and therapeutic beauty salons, large and medium-sized high-end beauty spas, franchise chain stores; and grooming and hairdressing salons.

The retail concept of a ‘cosmetics supermarket’ or ‘one-stop shop’ is also gaining acceptance. With the entry of players like Watson’s, Sephora and Sasa, this sector continues to thrive and may even influence other sales formats in future.

Recommendation via social media

Using social media sources such as Weibo and BBS to confirm or even provide recommendations of product purchases is extremely popular amongst those who plan to travel. These recommendations may include both the best products and retail spaces from where they can be made. As of March 2014, the following are the top recommendations from Chinese social media sites.

Hong Kong

Recommended brands: Elizabeth Arden, Direct selling in HK, cheapper than the Mainland

US

Recommended brands: Clinique, Estee Lauder, Kiehl’s, Benefit, Origins
Especially: Clinique dramatically different moisturizing gel, because is super cheap compared to the price in China. CN price RMB 460/125ml, US pre-tax price USD 24/125ml

France

Recommended brands: Lancome, Dior, Chanel, Caudalie, Clarins
Especially: Caudalie anti-acne products

Japan

Recommended products: Various affordable cosmetics and cosmeceuticals
Especially: Kose sekkisei

South Korea

Recommended: Every popular Korean drama always makes some Korean makeup look popular, and of course promotes Korean cosmetics
Especially: Hera UV SPF50+ PA+++

How do the major players compare in China?

La Prairie

4,500,000 search result on Baidu.com
Chinese website: yes
Online shopping service: no
42 special counters in China

February 12th, 2014 the first La Prairie flagship store in China opened in the IFC, shanghai.

Keywords: Live Cell Therapy; anti-senility

Selling point, star product: Caviar series

La Mer

7,260,000 search result on Baidu.com
Chinese website: yes
Online shopping service: yes
43 special counters in China

Selling point: celebrities, such as Meg Ryan, Britney Spears, Oprah Winfrey, Halle Berry, Jennifer Lopez

Story: It was originally developed by NASA scientist Max Huber to treat his severe chemical burns which he sustained in an accidental explosion during an experiment. Dr. Huber sold and marketed this product himself.

November 12th, 2013, La Mer opened its first concept flagship store in the IFC shanghai.

Star product: La Mer Moisturizing Cream

Estee Lauder

20,100,000 search result on Baidu.com
Chinese websiye: yes
Online shopping service: yes

According to Shen Meixiang, the Manager Director of China, ‘In China, skincare products occupy 2/3 of the high-end cosmetics market. China is a special market where consumers care about the efficiency and safety of products. We are always inventing new products particularly for the special needs of Asian skin; our products are tailored to Asian people’

Famous slogan: If you were using ANR series 16 years ago, and now, 16 years later, you still have the same exquisite and delicate skin as 16 years before.

Star product: Advanced Night Repair

Helena Rubinstein

8,980,000 search result on Baidu.com
Chinese website: yes
Online shopping service: yes
37 special counters in China

To Chinese people, the brand is famous for its makeup products. Many people are talking about its mascara cream products online.

Guerlain

10,300,000 search result on Baidu.com
Chinese website: yes
Online shopping service: no

Star product: Guerlain Success Future

Lancome

38,900,000 search result on Baidu.com
Chinese website: yes
Online shopping service: yes

Brand position: Lancome offers several different product lines, for skincare, makeup and perfume. Their target is highly educated and high income female consumers, aged from 25 – 40

Star product: Lancome Genifique

Elizabeth Arden

9,310,000 search result on Baidu.com
Chinese website: yes
Online shopping service: yes (Taobao)
Over 100 counters in middle-end department stores.

Positioning: The brand targets the mass market, and usually offers discount.

The brand has a long history in China, and is often compared to Estee Lauder and Helena Rubinstein as one of the 3 famous US brands that have contributed to the cosmetic industry. The products are affordable and cost-effective which has brought it a good reputation.

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Summary of a straw pole survey

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The information above was gathered in a straw pole survey of Chinese consumers who had travelled overseas and purchased cosmetic products during that time


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