What Makes The Chinese Beauty Market A Desirable One For Global Beauty Leaders?

June 23rd, 2017 by Trefis Team
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According to a Morgan Stanley report, currently China is the biggest cosmetics market in the world. Even though 2016 was a slow year for luxury beauty brands many of which saw their rankings fall according to UK-based consultancy, Brand Finance, their stories have been quite different in China. While the mass cosmetics sales growth surpassed that of  luxury cosmetics in the rest of the world, the scene was the opposite in China, according to Zhang Fei, Brand Finance’s Cosmetics Analyst. Along with the rise of the upper middle class segment of the population in China, the aspiration to lead a luxurious lifestyle has led Chinese beauty users to opt for premium beauty brands more than the mundane mass products even in the backdrop of a weak economy. The economic slowdown in China might lead to a slightly slower growth in luxury beauty sales in the future, according to Zhang, however, the overall market will continue performing well on account of the improved standards of living and increased aspirations towards beauty and personal care. Let us take a look at the Chinese beauty market and see the factors that might lead global beauty leaders to invest in this market.

Unique Demands And Growth Through Acquisitions

Though China promises good opportunities for luxury beauty, it is also important for international brands to understand the unique needs and trends in China’s beauty market which might differ significantly from the Western beauty markets. For example, protection from sunburn or whitening skincare are in raging demand in China. Additionally, China’s domestic brands with a better knowledge of indigenous demands are better positioned to provide tough competition to the foreign brands such as L’Oreal and Estee Lauder. In 2014, L’Oreal acquired Magic Holdings, one of the prominent skincare brands in China to deeper penetrate the market. Strategic alliances and acquisitions are a great way for foreign brands to capture a bigger share of this market.

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International Cosmetics Demand Is On The Rise Due To Rise In Overseas Travel And E-Commerce

The purchase of domestic cosmetics in China had been falling since 2014, currently cross border e-commerce and overseas purchases comprise around 30% the total spending on cosmetics. Along with the rise of the Chinese overseas travelers, their cosmetics spending overseas can become a significant part of the international beauty companies’ revenues. One of the greatest factors that encourage overseas spending on cosmetics is lower prices. Sometimes, luxury cosmetics could be available at a lower price internationally because of the import duty levied on them in one’s own country of residence.

With improved standards of living, the number of Chinese outbound travelers kept rising (it is currently the largest in the world and Chinese travelers are also the highest global spenders during international travels). While the Chinese traveled to shopping hubs such as Paris, Milan, Dubai, or New York, they also discovered the luxury cosmetics that the international fashionistas were wearing and hence began their journey with international beauty brands.
Even two to three decades back, Chinese consumers were comfortable with buying their beauty related requirements from local stores. The change in focus came due to the penetration of the digital media, thus giving them access to cosmetics from all over the world, available by a mere click on the smartphone or the computer. Online stores generally give a lot of beauty products to compare and choose from, also a lot of products are sold at a lower prices on online stores than a brick-and-mortar outlet. Finally, online stores have access to brands which might not be available elsewhere or difficult to find around a consumer’s locality. These are some of the reasons why online cosmetics shopping is becoming such a rage.
The Chinese Government is Helping Global Businesses
Recent government reforms, including lower import duties and a decreased consumption tax will help international companies to sell more of their products in China by raising consumer demands due to decreased prices.  The scope for China is currently huge with almost 500 million potential consumers for beauty, over 200 rising cities, and with the world’s biggest middle class population. It is only natural for beauty companies to capitalize on this opportunity and tap a market that is soon set to become one of the largest beauty hubs in he world.
L’Oreal, the global beauty leader, regularly invests in China. The company has a headquarters, a research and innovation center, three plants, five distribution centers, and an academy in the country. According to Stephane Rinderknech, CEO of L’Oreal China, the Chinese government’s initiatives towards globalization spells brighter days for international companies, as well. For example, the Belt and Road initiative that focuses on cooperation and connectivity between Eurasian countries, also helps companies like L’Oreal to further expand their global presence. Mr. Rinderknech said that the initiative not only increases China’s connection with the outside world, but it also focuses on creating innovative products in China. L’Oreal too, with its focus on innovation is keen on developing new products in China and then selling them beyond its borders to international markets. The company has already started incubating and scaling the next generation of startups stressing on connected beauty, and is working in alliance with big names such as Baidu, Alibaba, and Tencent.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for L’Oreal

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