Monthly Digest: China Cosmetics Industry Review | April 2020

Market updates

1.       On April 1, a top KOL in the technology industry, Luo Yonghao, started his first live stream on Douyin (Chinese version of Tik Tok). This live stream lasted for three hours. Its turnover reached 110 billion yuan, and it attracted more than 48 million audiences. At the same time, the top live streamer on Taobao Live stream, Viya, started to sell rockets.  Another top live stream team on Kuaishou, Xinba Team, also joined the competition. Their final result was a 480-million-yuan turnover, refreshing the record of live stream e-commerce. The night of April 1 has witnessed the more and more severe competition between top live streamers and live stream platforms.

2.       On April 15, MEGVII, one of the top AI companies in China, launched its FaceStyle Solution online. This technology can provide a virtual makeup function for consumers.

3.       On April 23, Tmall Global launched the “MAKE NEW” plan for imported beauty products: it will introduce 800 new overseas beauty brands, incubating more than 50 new brands with an annual turnover of over 10 million Yuan.

FaceStyle

Regulatory compliance

1.       In the first quarter of 2020, the number of imported non-special use cosmetics filing cases decreased by 20% quarter-on-quarter, and the adoption rate was 58%.

2.       On April 7, the Executive Meeting of the State Council decided that on the basis of the establishment of 59 cross-border e-commerce comprehensive pilot zones, 46 cross-border e-commerce comprehensive pilot zones were newly established.

3.       On April 7, 2020, Shanghai Pudong New Area Administration for Market Regulation issued a notice on the implementation of the 2020 random inspection of commodity packaging, including cosmetics sold in the area. The inspection basis is GB 23350-2009 Restrictions on Commodity Excessive Packaging Requirements for Food and Cosmetics, JJF 1244-2010 Rules for Measurement and Inspection of Food and Cosmetic Packaging, and SHSPBZGF 001-2015 Shanghai Technical Specification for Supervision and Random Inspection of Commodity Excessive Packaging.

4.       On April 10, China National Development and Reform Commission (NDRC) issued a Catalogue of Plastic Products Prohibited or Restricted from Production, Sale, and Use (Draft) for public consultation, further specifying the specifics of China’s pending microbead ban. Rinse-off cosmetics containing microbeads will be subject to a manufacturing ban starting on December 31, 2020. A sales ban will become effective on December 31, 2022.

5.       On April 13, China NMPA made a significant change to the modification application of imported non-special use cosmetics license. Previously, only after passing the technical review that usually takes at least three months can RP apply for the modification of filing through the online filing system of imported non-special use cosmetics. Starting from April 13, stakeholders do not need to wait for the approval of technical review and can submit a modification application as soon as obtaining the filing certificate. Currently, the items that can be changed in the system include product name (Chinese), shelf life, use method, precautions, original product packaging, packaging designed for the Chinese market, Chinese label, actual production enterprise.

6.       On April 16, Zhejiang Province unveiled eight batches of unqualified cosmetics, involving skin care, facial mask, shower gel, and other products. Reasons for rejections include illegal addition of prohibited ingredients and excessive use of restricted substances.

7.       On April 20, China NMPA unveils 31 batches of unqualified cosmetics and 44 batches of counterfeit cosmetics. Among those cosmetics, most of which are hair dye products. NMPA ordered the relevant companies to recall or stop marketing those products instantly and bear legal liability.

Company dynamics

1.       On April 1, Perfect Diary, the most popular domestic makeup brand in China now, announced to gain a new round financing of $100 million, and its valuation has reached $2 billion. On April 8, this brand launched its new logo to celebrate its three-year-old birthday. In the meantime, it launched its overseas official website. This website supports multiple languages, and multi-currency payment, including Hong Kong dollars, dollar, Singapore dollars, Malaysian Ringgit, and Thai Baht. This move is a signal representing this brand's confidence to compete for overseas’ markets.

Perfect Diary’s new logo

2.       On April 1, Space NK, a famous English cosmetic collection store, announced that it would exit from China’s market. At present, Space NK has 8 stores in China.

3.       On April 3, Meishang, a China’s domestic cosmetic company, announced to get A round financing of 200 million yuan. This company has three brands, including Colorkey, Superface and Lab101. Colorkey now is one of the top5 domestic makeup brands on Tmall.

4.       Dior launched a virtual beauty boutique which is a virtual 3D version of its Parisian flagship located on Avenue des Champs-Élysées. Shoppers are able to virtually wander around the store to learn more about products by clicking the black spots linked to product introduction, promotion videos, and purchase links. Dior Beauty will also alternate the decor of its virtual shop in accordance with each season. In honor of spring, it is currently decorated by a flurry of flowers.

5.       On April 6, Urban Decay, a makeup brand from L’Oreal Group, opened its official flagship store on Tmall Global and announced a Chinese singer, Deng Ziqi, as its global spokeswoman, meaning this brand officially entering China’s market.

6.       On April 7, Guangzhou LONKEY, a domestic daily chemical product giant in China, issued an announcement officially launching its cannabis shower gel and hand sanitizer. Another subsidiary of the company, Guangzhou Qihua, is also mass-producing facial creams, essence, and facial masks containing cannabis leaf extract.

7.       On April 10, L'Oreal (China) announced the release of the world's first AI foundation adapter with 360 ° intelligent color selection. This smart beauty technology application was co-created by the L'Oreal Group headquarters and the Chinese team, and was first applied to the group's largest makeup brand Maybelline New York's base makeup products.

8.       Three Squirrels, a DTC snack brand in China, has registered ten sub-companies recently. Among them, four companies’ business range includes cosmetics. This move sends a signal to the market that this snack brand, which is a strong competitor in the snack market now, is going to do something in the cosmetic market.

Urban decay’s new global spokesman

Data browse

1.       Data in March from Jumili has shown that with the gradual relief of the epidemic, the beauty market has gradually begun to recover. The sales of facial makeup increased by over 30%, and the sales of eye makeup increased by 20%.

2.       The customs statistics of Ningbo Free Trade Zone show that, in the first quarter of this year, the value of goods imported through Ningbo Free Trade Zone ’s cross-border e-commerce was 4.4 billion yuan, with a growth of 49.2% year-on-year. Imported commodities in this trade zone were mainly food and health care products, cosmetics and toiletries, and maternal and infant products. Among them, the import value of food & health products and cosmetics & toiletries was over 2.9 billion yuan, accounting for more than 60%.

3.       According to data offered by Kantar on Tmall Beauty Awards, Tmall Beauty now accounts for nearly 30% of all cosmetic sales in China. The beauty and cleansing field took the lead in recovery after the epidemic. In March this year, sales in Tmall ’s body care segment grew by 71% year-on-year, hair perm and dye products increased by 92%, lotion and facial cream increased by 86%, facial essence increased by 108%, and perfume increased by 55%.

4.       According to the data from National Bureau of Statistics, in March, the total retail sales of consumer goods were 2645 billion yuan, a year-on-year decrease of 15.8% while the retail sales of cosmetics were 24.9 billion yuan, a year-on-year decline of 11.6%. And January-March cosmetics fell 13.2%. However, compared with January-February, the decline in March has narrowed.

Financial reports

1.       On April 1, Proya, a China’s domestic cosmetic company, released its 2019 annual report. The report shows that Proya’s operating income reached 3.124 billion yuan in 2019, an increase of 32.28% year-on-year. Due to the active attempts of new media marketing, such as social media, KOL, and live stream, and the success of the annual popular product, bubble mask, the online turnover has achieved a high growth of more than 60%.

2.       On April 14, Johnson & Johnson released its first-quarter results for 2020. During the reporting period, Johnson & Johnson's sales were 20.691 billion US dollars, an increase of 3.3% year-on-year. Among them, Johnson & Johnson Consumer Health Department’s global operating sales increased by 11%.

3.       In the first fiscal quarter ended March 31, LVMH sales fell 15% year-on-year to 10.6 billion euros, which was better than the 20% decline previously expected. Perfume and Sales in the cosmetics sector fell 18% to 1.382 billion euros, and Sephora ’s boutique retail division plunged 25% to 2.626 billion euros.

4.       L'Oréal released the first-quarter financial report for 2020. According to the financial report, in the first fiscal quarter ended March 31, L'Oréal Group sales fell 4.8% year-on-year to 7.22 billion euros, of which the luxury sector fell 9.3% to 2.46 billion euros. The consumer products sector fell 3.6% to 3.17 billion euros, and the active cosmetics sector increased 13.2% to 840 million euros.

5.       On April 22, Jahwa Group, a China’s domestic cosmetic giant, released the first-quarter financial report for 2020. The group achieved operating income of 1.665 billion yuan in the first quarter, down 14.8% year-on-year. One brand from this group, Dr. Yu, benefited from consumers’ online purchasing habits during the epidemic and achieved rapid growth of sales revenue by over 500% in the first quarter.

6.       On April 23, Unilever released its first-quarter financial report. During the period, Unilever's global sales were 12.4 billion euros, which was basically the same as last year. According to the financial report data, Unilever's beauty and personal care department recorded sales of 5.3 billion euros in the first quarter, an increase of 0.3% year-on-year. The skin care category declined due to the epidemic, but the skin cleansing category showed a single-digit increase. Also, Unilever pointed out in its financial report that the Chinese market is already in a state of recovery.

7.       On April 17, Procter & Gamble announced the third quarter of the fiscal year 2020 (January-March 2020) performance report, saying that net sales were $ 17.214 billion, a year-on-year increase of 5%. Net sales of the beauty business were $ 3.033 billion, down 1% year-on-year. In this regard, Procter & Gamble said it was mainly due to the temporary interruption of the Asian retail market and the substantial reduction in travel retail sales, which led to the double-digit decline in sales of its leading high-end cosmetics brand SK-II.