Monthly Digest: China Cosmetics Industry Review | August 2020

Market updates

1. Douyin Live Stream announced its new e-commerce policy: From October 9, shopping links from the third e-commerce platforms (i.e. Tmall, JD, Pinduoduo) will be prohibited on Douyin live stream. The inner stores on Douyin won’t be affected by this new policy.

2. Little Red Book opened its vlog function for public tests. This update involves opening the data center for users, opening the collection function, and extending the maximum time limit of a video to 15 minutes.

3. On August 10, the 2020 Fortune Global 500 list was announced. There are 6 beauty-related companies in the list, including Johnson & Johnson, Procter & Gamble, Dior, Unilever, Changjiang Hutchison, and L' Oreal.

Company dynamics

1. The IPO process of KAYTUNE, a beauty-brand e-commerce company, has been updated again. If its IPO succeeds, it will become the third beauty-brand e-commerce operating company in the Chinese stock market.

2. On August 4, KK Group, THE COLORIST’s parent company, announced another round of financing with one billion yuan, which gives hints to the confidence of capital market for the cosmetic retail market.

3. Shiseido and YA-MAN have cooperated in establishing a new company, Effectim. Shiseido will combine its own advantages in cutting-edge skin technology and Yameng's beauty instrument expertise to provide new products to consumers.

4. Supreme and Pat McGrath will cooperate to launch a new lipstick. The shade of this lipstick will be named Supreme. This will be the first time that Supreme collaborates with a beauty brand.

5. On August 18, Tatcha opened its official flagship store on Tmall Global, meaning its entry to Chinese market. Tatcha is a natural beauty brand acquired by Unilever in 2019.

6. MECCA, an Australian cosmetic retail brand, has opened its flagship store on Tmall Global. It introduced more than 200 products from 22 brands, including Frank Body and Lanolips, to Chinese market.

YA-MAN beauty device

Data browsing

1. Affected by the COVID19 outbreak, China's import of non-special use cosmetics has slowed down in the first half of this year. As of June 30, 9,633 imported non-special use cosmetics have been filed, a decrease of 8%. Among all cases, 416 are imported perfumes (including colognes), exceeding the number of filed perfume cases in 2019.

2. After the excellent rebound of the total retail sales in May and June, cosmetic consumption stabilized in July. The total retail sales of cosmetics were 23 billion yuan, with a YoY increase of 9.2% in July (20.5% increase in June). Its growth rate ranked fourth among all consumer categories.

3. On August 20, Little Red Book (RED) released 2020 Little Red Book (RED) H1 Cosmetics Insight Report, which analyzes the beauty industry trends. In the first half of 2020, domestic brands’ sales on the RED increased by 65.9% YoY. The beauty spending of under-18s increased by 158%, while male consumers’ beauty spending grew by 46%. Mid-twenties male consumers who live in top-tier cities are the new consumption power for skincare products.

4. On August 20, Alibaba Group released its first-quarter financial report. The GMV of Tmall Global, the Cross-Border E-Commerce platform in the group, increased by 40% YoY. Because the COVID19 outbreak has limited overseas traveling and shopping, more consumers have put their enthusiasm for shopping into CBEC platforms. In the first half of this year, the growth rate of new brands introduced by Tmall Global increased by over 60% YoY; during the 618 period, overseas brands’ sales increased by 43% YoY.

THE COLORIST

Regulatory compliance

1. On August 7, the Hainan government announced the "China (Sanya) Cross-border E-commerce Comprehensive Pilot Zone Implementation Plan", clarifying that the zone will be a global supply chain procurement center, a modern economic development engine, and a cross-border e-commerce International e-commerce service center.

2. On August 10, the Zhejiang Medical Product Administration released Measures for the Administration of Credit Evaluation of Cosmetic Manufacturers in Zhejiang Province for public consultation.

3. On August 11, the Guangdong Administration for Market Regulation released Standardization Regulations of Guangdong Province. The regulations will be implemented from October 1 2020.

4. On August 13, the State Administration for Market Regulation released Provisions on the Administrative Law Enforcement Responsibility System for Market Supervision and Administration for public consultation.

5. From August 14, the filing system for domestic non special-use cosmetics has changed its website. The new website is http://ftba.nmpa.gov.cn:8080/ftba/

6. On August 19, the General Administration of Customs announced the information about rejected food and cosmetic products. 12 batches of cosmetics were rejected by the customs, including the famous high-end brand, La Prairie. The reasons for rejection include “expired products,” (La Prairie) “product mildew,” “the consignee has not filed,” and “illegal labels.”

Financial results

Many beauty-related companies released their financial reports in August.

Company

Financial Results

Highlights

International Companies

LVMH

Decrease

In the first half of 2020, LVMH sales fell 28% to 18.393 billion euros (approximately RMB 149.715 billion).

In the second quarter ending on June 30, LVMH sales fell 38% year-on-year to 7.797 billion euros (approximately RMB 63.466 billion).

In the second quarter, the US and European businesses recorded a decline of 39% and 54%, respectively. The Asian market improved significantly due to China’s strong rebound, with the decrease rate narrowed to 13%.

Perfume and cosmetics revenue fell 40% to 922 million euros (approximately RMB 7.504 billion) in the second quarter, and fell 29% to 2.304 billion euros (approximately RMB 18.7541 billion) in the first half of the year.

Kao

Decrease

In the first half of 2020 ending June 30, Kao reached sales of 667.158 billion yen (approximately RMB 44.571 billion), a decrease of 7.5% compared to the same period last year.

And Kao's operating profit decreased by 13.8%, falling to 74.484 billion yen (approximately RMB 4.976 billion).

In the first half of the year, the sales of Kao cosmetics business decreased by 20.7% year-on-year to 109.9 billion yen (approximately RMB 7.342 billion). It was the sector with the largest decline in sales.

Only laundry and household cleaning products achieved year-on-year growth of 5.8%, with 171.7 billion yen (approximately RMB 11.471 billion).

P&G

Increase

In fiscal 2020 (July 1, 2019 to June 30, 2020), P&G achieved net sales of US$71 billion (approximately RMB 497.142 billion), a year-on-year increase of 5%.

In the fourth quarter of the fiscal year 2020 (the second quarter of this year), P&G’s sales were $17.7 billion (approximately RMB 123.935 billion), a year-on-year increase of 4%.

Throughout the fiscal year 2020, P&G's profit level has achieved a YoY growth of 234%, with a total net profit of USD 13.027 billion (approximately RMB 91.215 billion), the highest of the past three years.

The health care sector grew the fastest, reaching 10%, followed by the fabric washing and home care sectors with 7%, while the cosmetics sector and the baby and female care sectors grew by 4% and 3% respectively.

Amore

Pacific

Decrease

In the second quarter, Amore Pacific’s overall sales were 1.18 trillion won (approximately RMB 7 billion), a decrease of 24.7%, while operating profit dropped significantly by 67.2% to 36.2 billion won (approximately RMB 210 million).

The beauty department fell down to sales of 1.23 trillion won (approximately RMB 7.27 billion), a YoY decrease of 25.8%, and net profit dropped by 67.2% to 37.1 billion won (approximately RMB 220 million).

Innisfree and Etude had the biggest decline in sales, with the decrease rates of 40% and 35% respectively.

L’Oreal

Decrease

In the first half of 2020, L'Oréal's sales reached 13.07 billion euros (approximately 108.502 billion yuan), a year-on-year decline of 11.7%; operating profit was 2.357 billion euros (approximately 19.567 billion yuan), a year-on-year decline of 18.4%.

This is the first time in five years that L'Oréal's semi-annual sales performance declined.

Only the active health cosmetics sector recorded a year-on-year growth of 9%. In contrast, three other major sectors, mass cosmetics, high-end cosmetics, and professional products, fell 9.4%, 16.8%, and 21.3% year-on-year respectively.

The Chinese mainland market grew by 17.5% year-on-year.

Estee Lauder

Decrease

Net sales in fiscal 2020 were US$14.29 billion (approximately RMB 98.8 billion), a year-on-year reduction of 4%.

Net sales in the fourth fiscal quarter were US$2.43 billion (approximately RMB 16.8 billion), a year-on-year reduction of 32%.

Sales growth in China and South Korea promoted net sales growth.

In Mainland China, net sales have experienced strong double-digit growth, while online sales contributed more than 40% of the total sales.

South Korea's net sales growth was mainly attributed to the net sales increase brought by the company's acquisition of Dr. Jart+ in December 2019.

Net sales of skincare products and fragrances in the Asia-Pacific region increased by double digits.

Shiseido

Decrease

In the first half of 2020, Shiseido's sales reached 417.812 billion yen (approximately RMB 27.1411 billion), year-on-year decline of 24.5%.

Shiseido China's retail sales in the second quarter achieved year-on-year growth of 9%, of which mainland China achieved year-on-year growth of 19%;

In the second quarter, Shiseido China’s retail sales of high-end cosmetics through e-commerce channels increased by more than 150% year-on-year.

Domestic companies

Jahwa

Decrease

In the first half of 2020, Jahwa reached operating income of 3.684 billion yuan, down 6.07% year-on-year.

Online channels achieved operating income of 1.426 billion yuan, a year-on-year increase of 32.66%; offline channels reached operating income of 2.256 billion yuan, a year-on-year decrease of 20.64%.

PROYA

Increase

In the first half of 2020, PROYA achieved operating income of 1.384 billion yuan, up 4.26% year-on-year.

Online channels achieved operating income of 0.878 billion yuan, a year-on-year increase of 43.85%; offline channels reached operating income of 0.504 billion yuan, a year-on-year decrease of 29.69%.

Color cosmetics sales were 137 million yuan, a year-on-year increase of 251.76%.

BLOOMAGE

BIOTECH (a cosmetic bio-ingredient company mainly producing hyaluronic acid)

Increase

In the first half of 2020, the company's operating income is 947 million yuan, a year-on-year increase of 17.05%.

YUJIAHUI

Increase

In the first half of 2020, the company's operating income is 1.414 billion yuan, a year-on-year increase of 45.39%.

The sales of its smearing masks (i.e. clay masks, cream masks, and gel masks) increased 163.57%.

Cosmetic chain store

SaSa

Decrease

In the 2019/2020 fiscal year ending on March 31, SaSa’s total turnover was 5.39 billion yuan, a year-on-year decrease of 28.83%; total losses reached 465 million yuan.

Sasa International's e-commerce business’ turnover fell 12.0% to 311 million yuan, and the loss expanded to 35.84 million yuan.

WATSONS

Decrease

In the first half of 2020, Watsons’ sales were HK$73.627 billion (approximately RMB 66.01 billion), a year-on-year decrease of 9% in RMB.

The sales in China were HK$8.805 billion (approximately RMB 7.894 billion), a 26% year-on-year decrease.