The Beauty Industry in China

The Cosmetic Market

In recent years, the cosmetics sector in China has experienced rapid growth in consumption, and this trend is expected to continue in the future, surpassing even the United States, the world leader in this sector, in terms of domestic consumption.

As regards the evolution of sales, the continuous growth of the same is observed up to 47.408 billion euros in 2017. Sales should exceed 70.144 billion euros in 2022, maintaining an average annual growth rate of around 9.6%.

By product category, skincare products account for the largest sales volume (41%). As of 2017, sales reached 24.503 billion euros, an increase of 10.3% compared to the previous year. In addition, 22.8% of sales of this type of product were made on the internet.

All categories of cosmetic products in the general record a continuous growth of more than 4%. Regarding the major growth of the different categories of cosmetics and personal care products, there is a particular increase in the categories of luxury cosmetics, color cosmetics, and fragrances.

As for the structure of the entrepreneurial fabric, according to the statistics of the China Food and Drug Administration (CFDA), the number of companies registered to produce and export cosmetics amounts to over 3,880, of which over 500 are foreign companies. Of the latter, most come from France, South Korea, Japan, and the United States.

In general, domestic brands are concentrated in a low-medium segment, while foreign companies dominate the high-end segment.

Multinational companies continue to lead the market with already established and consolidated brands in the high-end segment, thanks to the development of new products and strong investments in marketing campaigns. However, domestic brands are starting to gain more and more shares thanks to the use of naturally extracted ingredients found in traditional Chinese medicine and the phenomenon of Guochao, which pushes Chinese consumers to prefer domestic products.

In relation to foreign trade data, it is noted that the trade balance of the beauty category, which includes skin and hair care products, perfumes, make-up, as well as hygiene products such as shaving preparations, deodorants, or depilatory preparations, maintains a deficit balance in 2017, due to both the increase in imports from foreign countries and the decrease in exports.

According to the trend of recent years, imports are growing at a faster rate than exports. In this way, we observe the evolution of the Chinese market towards a more developed economy, oriented towards the tertiary sector, with a wider middle class, which makes it a good time for the introduction of consumer goods that go beyond basic needs. , such as cosmetics, perfumes, and skin and hair care products.

Compared to the years prior to 2015, China's cosmetics imports increased by 130%, while the average growth of imports from the rest of the countries in the same period stood at 8%. In fact, from 2014 to 2017, China went from being the eighth global importer of cosmetics to being the third-largest importer of cosmetic products, behind only the United States and Germany.

As already mentioned, the main suppliers of cosmetics imported to China are France, South Korea, and Japan, followed by the United States. The great presence and added value of European cosmetics in China stand out, in fact, of the top ten exporters, almost half are European and imports from France, the United Kingdom, Germany, Italy, and Spain represent 32% of the total.

It should also be noted that imports from Asian countries such as Korea and Japan are growing ever stronger, to the detriment of the relative growth of American imports.

With the increase in the purchasing power of the Chinese population, which reached a per capita GDP of $ 10,500 in 2020, the domestic demand for cosmetic products has not stopped growing in recent years, with growing concern for personal care.

The main consumer groups of cosmetic products are the generations after the 80s and 90s, who appreciate the appearance and modernity of the products and are aware of new trends and product lines. As a result, many brands partner with movie stars, TV stars, and influencers, or run campaigns to promote their products and reach these consumers.

In the cosmetics market, consumer attitudes have changed dramatically. Today, Chinese consumers are more independent in their decision-making process: instead of being influenced solely by advertising or promotional campaigns, they gather information through different channels and consider various factors before choosing products, which means that they can switch products indiscriminately without developing an affinity for a product. particular brand.

Currently, the online channel already accounts for a third of cosmetics sales in China, which clearly reflects the boom of recent years and its current relevance for companies in the sector. Online is no longer linked only to cheap products with low added value, and the presence of leading brands in online sales portals is increasing, and consumers are ready to buy even higher-end products online.

Regarding a division by geographical areas, the consumption of cosmetics is higher in megacities, although in Chinese cities belonging to the second and third-tier its importance is increasing, as these are experiencing rapid growth of the middle class. In southern China, mainly in the province of Canton (Guangzhou), a market is consolidating which has grown considerably in recent years. The east of China, on the other hand, the area with the greatest economic development in the country, represents the most mature market in this sector and there is a greater presence of multinationals and the sale of premium products.

The latest trends indicate that the development of new market niches such as men's personal care, baby care, and hygiene, natural cosmetics, those designed for athletes, and professional cosmetics will contribute to the further growth of the sector in the next years.

The Distribution

In terms of distribution, while companies digitize themselves through the massive use of mobile devices, and new information channels such as social networks to communicate the high value of their cosmetic products, online habits are integrated into the consumer's daily life. In this way, a part of consumption has progressively shifted to less traditional points of sale such as websites and e-commerce platforms, first of all, T-Mall. It is currently estimated that 90% of Chinese consumers shop online while maintaining traditional store experiences.

Cross-border e-commerce deserves special mention, defined as the direct purchase of products from a foreign retailer via the Internet. In other words, foreign companies can sell their products to Chinese consumers without being formally established in the country. This business model continues to grow in the cosmetics sector; in fact, the category of products that sells the most on T-Mall Global from 2016 to today is precisely that of beauty and personal care.

Despite the rise of online channels, traditional distribution channels such as hypermarkets, department stores and specialty stores such as Watsons or Sephora continue to have an important market share.

Finally, the Chinese market has a series of regulatory peculiarities that hinder the rapid landing of cosmetic products from abroad. It is important that companies that want to market their cosmetic products in China are familiar with the legal environment and know what permits and certificates are required in order to bring their product to market. Among the main procedures to be carried out, obtaining the health registration certificate is a process that can last from 18 to 24 months.

In conclusion, in general, the prospects for the cosmetics sector in China are increasingly positive, with the increase in purchasing power and concern for the physical appearance of the population, the approach towards Europe in the regulatory field, trade electronics, and the large size of the market makes China an increasingly attractive destination for European exporters.

Competitor Analysis

By analyzing the international cosmetics market, China has become the first cosmetics manufacturer in Asia and the second globally, after the United States. Despite its size, it is estimated that only 10% of the population regularly uses cosmetics.

The Companies

The table below shows the twenty companies with the largest market share of the sector in China.

Imports

The pace at which imports are growing is indicative of the great moment that the Chinese market for foreign cosmetics is experiencing. Despite the important certification requirements, the Chinese customer is a priority target for companies in the sector wishing to expand product sales, as all imports have a positive trend, as well as greater and faster growth than exports.

Once again skincare represents a higher percentage of total imports, reaching 76% of the total. Furthermore, it is the item whose imports have grown the most in recent years, at a faster rate than other cosmetic products. It is of particular interest to note that all items recorded growth of more than 29% over the previous year.

This is a sign of the evolution of the Chinese market towards a more developed, tertiary-oriented economy with a larger middle class, which makes the current period a good time to introduce consumer goods that go beyond basic needs, such as cosmetic products such as perfumes, and skincare preparations.

As previously described, the main suppliers of cosmetics imported to China are France, South Korea, and Japan, followed by the United States. The great presence and added value of European cosmetics in China stand out. Of the top ten exporters, almost half are European. Imports from France, the United Kingdom, Germany, Italy, and Spain represent 32% of the total.

Finally, it should be noted that imports from Asian countries such as Korea and Japan are growing stronger and stronger, to the detriment of the share of French and American imports.

Market Demand

The demand for cosmetics in China has increased significantly in recent years, mainly due to a more mature market and an increasingly sophisticated and self-image-aware society. Various aspects of the demand are presented below, including demand by product category as well as the consumer profile.

The evolution of demand by product category

Skincare products account for the largest sales volume (41%) of all cosmetic products analyzed. In 2017, sales reached RMB 186,655 million (€ 24,503 million), an increase of 10.3% over the previous year. In addition, 22.8% of sales of this type of product were made via the Internet.

This category is expected to continue to grow driven by strong market demand and the development of anti-aging products. Currently, there are few products aimed at the older segment of society, despite the fact that since the year 2000, the population in China is aging faster and faster.

Products related to skincare are followed, with 19% of the sales volume, by luxury cosmetics, which in 2018 achieved a turnover of 84,513 million RMB (11,094 million euros). Interestingly, only 8.8% of sales of this type of product were made via the Internet, a share that is far from the share of sales of other cosmetic and personal care products via the Internet (22.8% ). It could be said that the consumer of luxury products prefers to spend more on luxury cosmetics in specialized shops and in those of the brand itself, where he can try the product on the spot and be assisted by specialized personnel.

In third place are hair care products which account for 11% of the sales volume with a value of RMB 51,071 million (€ 6,704 million). 24.3% of these products are sold via the Internet.

The three main sales categories mentioned above are followed by oral hygiene products, colored cosmetics such as lipsticks and eye makeup, bath products such as gels and shampoos, and cosmetic and personal care products sold in kit form. /set.

All the categories of cosmetic products analyzed recorded a continuous growth of more than 4% in the Chinese market. Regarding the upward growth of the different categories of cosmetics and personal care products, there is a particular increase in the categories of luxury cosmetics, colored cosmetics, and fragrances. On the other hand, the implementation of the new second-child policy in China may have influenced the increase in sales of baby products (13.8%) in 2017. The rest of the product categories kept their usual line. of growth.

The Chinese Consumer Profile

With the increase in the purchasing power of the Chinese population, which in 2020 reached a per capita GDP of 10,500 dollars, the domestic demand for cosmetic products has not stopped growing in recent years.

Although Chinese consumers are willing to pay for premium products, customers, in general, tend to be less brand loyal and more price-sensitive than European consumers. As a result, demand for products, even among established brands, can be very volatile from year to year.

Analyzing consumption by age group, it is observed that the main groups of consumers of cosmetic products are the generations following the 80s and 90s, who appreciate the appearance and modernity of the products, and are aware of new trends and lines. of product. As a result, many brands partner with movie, TV, and Internet stars or post embedded ads in media and events to promote their products and reach these consumers.

According to Euromonitor International, since 2016, despite a larger customer base, wholesale sales have experienced slower growth than premium products, mainly due to the improvement in household disposable income in China. On the other hand, the Chinese consumer resorts to various sources of information to keep abreast of developments in cosmetic products: online channels, social networks, and the recommendations of friends and family are some of the most important sources, in an industry in which word of mouth among consumers has a great impact.

The Chinese Beauty Sector during COVID-19

China has become the world’s second-largest beauty market since 2019. The sales of skincare products accounted for more than half of the beauty market in China.

Even if the beauty market was hit hard by COVID-19, it quickly recovered, registering only a small decrease over the year. Here is an estimation of revenues for the next years:

Do you want to know more about the cosmetic industry in China? Take a look at the video: