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Chinese Cosmetic Consumers: Trends and Forecasts

  •   9 May 2019
  •    Hedy He
  •  1934
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    In a background of slowing economic growth and a palpable downturn in the willingness of Chinese consumers to spend, China’s cosmetic sector is a bright point which has maintained impressive growth. According to data from China’s National Bureau of Statistics (NBS) [1], retail of cosmetics in Q1 2019 increased by 10.9% year-on-year to 75.3 billion CNY. In 2019, AskCI expects the total retail sales of cosmetics in China will exceed 295 billion CNY [2].

    This article will firstly analyze Chinese cosmetic consumers stratified by demographics and offer details on some of the characteristics of major consumer groups, emerging consumer groups and look at the groups which offer the most potential.

    Consumption Characteristics

    1. Female post-90s generation is the most important consumer group and has a penchant for high-end cosmetics

    In August 2018, Tmall Innovation Center released a Cosmetics and Personal Care Category Trends Report. The report indicates that young women of the post-90s generation have become the most important consumer group driving growth in China’s cosmetic sector [3]. The post-90s generation has independent consuming power and a simultaneous surge of interest in beauty and skin care amongst this demographic has translated into significant growth.

    1) Demand for Functional Efficacy Driving Product Differentiation

    ⭐The main demand is for anti-aging cosmetics. Staying up late at night has become a new trend among the post-90 generations but this habit takes its toll on the body and is associated with skin problems such as dark circles and gloomy, loose skin.

    To mitigate the effects of skin problems caused by staying up late, many post-90s use anti-aging skin care products. The 2018 craze for anti-aging products packaged in innovative delivery systems like the ampoule is just one of the manifestations of this growth driver. Ampoules contain at least 90% active ingredients, almost 12-13 times that of facial creams. Because it can quickly improve skin condition, it is known in China as the “first aid solution to late nights”.

    There are similar reasons for growth in eye cream and facial essence sales. According to the 2018 Taobao Global Purchasing White Paper, post-90s contributed the most to eye cream purchases, and facial essence purchases of post-95s increased by 63% year on year [4].

     

    Penchant for high-end cosmetics. The sale of high-end cosmetics in the Chinese market demonstrated significant growth. High-end brands such as La Mer, SK-II, CPB, etc., which were once the sole purview of more financially mobile women in their thirties, now appear in the shopping carts of girls in their twenties. During 2018 Double 11 Day, La Mer launched a 15ml cream (half the volume of its standard offering), which along with the lower price point enticed many young consumers to try the product. La Mer’s limited edition cream which retailed at a price of RMB 1,720 (USD 247) was sold out in the first hour of Double 11.

    The market potential of high-end cosmetics has been well documented and is showcased in performance reports released by several of the larger multinational cosmetics giants. L'Oréal’s reported sales of 26.9 billion euros in 2018, an increase of 7.1%. Its China sales performance demonstrated its highest growth rate in 14 years, up 33% year-on-year [5]. Its high-end cosmetics division achieved double-digit growth in China.

    2) Some factors driving growth

    The upsurge of high-end cosmetics in China can be explained by a shift in demand towards products with substantiated efficacy and cutting edge active ingredients. The purchasing preferences of the post-90 generations have been shaped by the development of the Internet which has brought easy access to information on state of the art developments in cosmetic and the beauty sector. The post-90s generation has in-depth knowledge of cosmetics. They know how to choose cosmetics according to their skin condition, avoid hazardous ingredients, evaluate product efficacy through ingredients concentration, etc. They are no longer satisfied by cosmetics which merely offer basic functions, but instead demand products which offer scientifically and clinically verified functional efficacy. Tops of their lists are products which offer anti-oxidant, anti-acne, anti-aging, etc.

    Currently, China’s high-end beauty market is dominated by large multinationals. This is due to a combination of weak domestic competition and local enterprise which lack the technical capacity to produce state of the art cosmetics. Another major component which accounts for the disparity between domestic and international enterprise is that for the most part large multinationals entered the market with an established reputation for excellence. Safety and quality are major concerns shaping consumer preference across numerous sectors and China’s cosmetic sector is no different in this respect.

    2. Cosmetics for Men

    Chinese men have shown higher demand for skin care products and makeup over the last several years. According to a white paper co-developed by TMIC and L’Oréal China Consumer Intelligence Team, online sales of men’s grooming products have soared by more than 50% during the past 2 years [6], indicating men have become an emerging consumer group in the Chinese beauty market. According to Euromonitor, by 2019, the average annual growth rate of Chinese male cosmetics consumption will reach 13.5% [7].

    Main Characteristics:

    Product segmentation: Men are beginning to use lipstick, eyebrow pencils, facial essence, sunscreens and facial mask

    Men are now demanding a diversified range of products. Men’s skin care steps tend to be more subdivided and complete. Skin care products with different functions such as toner, mask, eye cream, etc. are well accepted.

    According to Tmall Big Data [8], an increasing number are buying makeups. In 2018 on Tmall platform, the growth in sales of men's eyebrow pencil, lipstick and facial sunscreen were 214%, 278%, 145% respectively. BB cream, lip makeup and eyeliner are the most popular products among the post-95s, who are the core consumer group of men’s beauty products.

    Product specialization: Male-specific brands growth rate reached 56% on Tmall

    Male cosmetic consumers also place a high value on quality cosmetics. In the past, if a man wanted to use cosmetics, he basically could only use a female-specific liquid foundation, eyebrow pencil and lotion. But in the last 2 years, major brands have launched numerous male-specific products. Skin care products have rapidly gained traction amongst male consumers and now we are also seeing growth in sale of makeup. 2018 statistics show that male-specific products sales demonstrated remarkable growth on Tmall.

    Male cosmetics have become a new consumption hotspot, and the growth of male-specific brands has further indicated that major cosmetics enterprises have begun to break into the emerging market of male cosmetics. “Male Only” promotion and advertisement will continue to ramp up and drive further growth in the sector and coincides with an overall societal shift away from typical male stereotypes which are destigmatizing the use of cosmetics amongst men.

    A noteworthy point is that although men have begun to accept makeup, it is a little intimidating for some men to browse for makeup in shopping malls. This fear has led to a disproportional growth in online sales when compared to offline sales.

    3. Younger Consumers in Small Cities and Towns Offer Huge Potential

    2019 Tmall Beauty Trends Report [9] shows that the 4 most promising consumer groups in the beauty industry are younger consumers in small towns, Generation Z (15-25 year-olds young people), mature women and families with children. The most noteworthy group at the moment is younger consumers in small towns. This group includes single young people or young couples without children in prefecture-level and county-level cities, aged 20-35 years old. At present, China has approximately 220 million of these consumers, which can contribute about 518.2 billion CNY to the Chinese beauty sector annually.

    In 2018, the consumption attributed to this demographic increased by 8% year-on-year, higher than the growth rate of similar demographics in upper-tier cities. As for the online market, the consumption of young people in small towns grew at a rate of 38%, far exceeding the 16% growth rate of the youth in upper-tier cities.

    In terms of product preferences, young consumers in small cities and towns tended to purchase more mouthwash, electric toothbrushes and lipstick compared to similar demographics in upper-tier cities.

    The beauty market in prefecture-level and county-level cities has great potential. Lower-tier cities previously occupied by local brands such as Proya, Kans have attracted many foreign brands. Also, the booming e-commerce sector has greatly facilitated the purchase of cosmetics by young people in prefecture-level and county-level cities.

    Chinese Beauty Market Future Trends

    1. Product functions and product positioning

    In the past 30 years there has been a rapid and sustained development of the Chinese beauty market. In the past brands that catered to basic needs dominated the market including brands like Safeguard, Head & Shoulders, OLAY and so on.

    In recent years, China’s consumption upgrade has meant that basic needs are now an afterthought and consumers have moved away from being satisfied by basic functionality and are increasingly seeking exceptional efficacy, novel functionality, tailored solutions, packaged in innovative ways and delivering cutting edge active ingredients. As a basic prerequisite brands must tick all of these boxes to succeed in China and must position themselves to align with trends.

    We recommend brands targeting China’s market to first tailor their product to specific consumer groups and then provide subdivided products and services for that consumer group. For example, L'Oréal's Active Cosmetics Division, which achieved double-digit sales growth in 2018, has 4 brands: La Roche-Posay, Vichy, Skinceuticals and Cerave. Although the 4 brands are all aimed at skin repair, they still have their own subdivided functions and do not encroach on each other’s respective market niche.

    BrandsFunction
     Anti-oxidation
     Anti-acne
     Moisturizing
     For dry and sensitive skin
     

    According to Pinguan, subdivided product functions and development of products tailored to meet the demands of niche consumer will become the main competitive points of cosmetics companies in the future [10].

    2. Hot product: Beauty instrument

    The 2018 Taobao Global Purchasing White Paper shows that sales of beauty instruments have increased by 56%. The search frequency of terms like “Black Technology Skincare” increased fourfold. Sales volume of online beauty instruments in 2018 showed an upward trend, with average monthly sales of nearly 600 million CNY. The double 11 was an outbreak period with sales exceeding 900 million CNY.

    According to 2019 China Beauty Instrument Consumption Trend Report [11], the online channels are still the mainstream with regards to purchasing beauty instruments, among which Taobao and Tmall account for the highest proportion. Little Red Book, Vipshop and other e-commerce platforms have begun to compete for online market share.

    Between October 2017 and October 2018, the market share occupied by e-commerce platforms decreased by 12%, and for hypermarkets and personal care stores increased by 5% and 7%. Brands can consider improving their offline channels and consider opening offline flagship stores, and organizing offline activities to enhance user experience. In addition, the proportion of Daigou decreased by 2%, indicating users are gradually turning to official stores.

    According to estimates made by Cathay Securities and Euromonitor, the total sales of facial cleansing instrument will reach 8.26 billion CNY by 2020 [12]. Tmall Beauty also announced that in 2019, it will focus on promoting professional and intelligent beauty products [13]. For now the market for beauty instruments is not saturated. The Top 5 brands at Tmall and Taobao are FOREO, ReFa, Kingdom, TriPollar and YA-MAN, which together only occupy a 25% market share, leaving a lot of room for competition.

    3. Imported cosmetics will still occupy more market share, but the competition between domestic and imported cosmetics will become increasingly fierce

    On January 14th 2018, during a press conference on import and export the spokesman for the General Administration of Customs announced that the total import of cosmetics in China in 2018 was 65.7 billion CNY, representing a year-on-year increase of 67.5%, which was significantly higher than the overall growth rate of imports [14].

    1) Understanding Growth in Imported Cosmetics in China

    Consumers’ Passion for Imported Cosmetics

    The rapid growth of imported cosmetics in 2018 was foreseeable. According to the “Statistical Analysis Report on the Supply and Demand of Major Consumer Products” issued by the Ministry of Commerce in May 2018 [15], 75% of consumers believe that domestically produced skin care products cannot meet their demand, and 38% of consumers plan to increase their purchase of imported cosmetics in the second half of 2018.

    Policy Support

    Policies released in 2018 and 2019 are all beneficial for imported cosmetics. Additional signs of future growth can be seen in China hosting the first China International Import Expo held in Shanghai on Nov. 5, 2018.

    DatePoliciesInfluence
    July 1st, 2018The average import tariff rate on cosmetics was reduced from 8.4% to 2.9%Stimulate the import of cosmetics
    November 10th, 2018Registration of imported cosmetic was entirely replaced by filingSimplify the procedures of imported cosmetics entering the Chinese market and reduce the time required
    January 1st, 2019CBEC transition period was further extended without deadline, so the policy tends to be stable and long-term. The single transaction limit and annual transaction limit were raised to 5000 RMB and 26,000 RMB respectively.Enterprises can choose CBEC channel to import cosmetics without worries. And the increase of transaction limit promotes the import of high-end cosmetics.
    April 1st, 2019CBEC comprehensive tax rate was lowered to 9.1% and 23.05% for ordinary cosmetics and high-end cosmetics respectivelyFurther promote the import of cosmetics through CBEC

    2) The competition between domestic and imported cosmetics will become increasingly fierce.

    Although policies released in 2018 and 2019 are all beneficial for imported cosmetics, the excellent performance of domestic products on e-commerce platforms cannot be ignored. Last year's double 11, sales of Winona on Tmall exceeded 200 million CNY in 1 day. HomeFacialPro recorded sales of 700 million CNY in a year with Tmall as the only sales channel. The 2 brands’ high sales indicate that nowadays emerging domestic brands can achieve sales in 1-2 years that established brands have taken 10 years to reach.

    Furthermore, according to Vipshop data [16], 52 of the top 100 sales of cosmetic products on Vipshop belong to domestic beauty brands, and the growth rate of domestic beauty products for all ages exceeds the growth rate of overall beauty products. It is expected that in 2019, the competition between domestic and imported beauty brands will become more intense.

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