Monthly Digest: China Cosmetics Industry Review | December 2020

Market updates

1.       China’s market regulator announced an antitrust investigation into Alibaba, the country’s biggest tech company, a month after authorities halted sister company Ant’s $37bn initial public offering. For now, the investigation has been finished, but the result remains unknown.

On December 28, 2020, the People’s Bank of China, China’s central bank, held a media conference about Ant’s regulatory talks. In the conference, it said that Ant lacked a sound governance structure, defied regulatory requirements, illegally engaged in arbitrage, excluded competitors using its market advantage and hurt consumer rights, and also announced a plan for the Fintech firm to “rectify” its regulatory violations. Alibaba responded it would comply with any and all necessary requirements by creating a “rectification working group”. 

2.       Suning.com, an E-commerce platform in China, announced its cooperation with Hainan Provincial Tourism Investment, which has an offshore duty-free license, implying that Suning officially entered the duty-free market.

3.       Kuaishou E-commerce announced the ban of Xinba’s account for 60 days because of his false bird nest scandal. Xinba is the top live-streamer on Kuaishou, whose turnover in the double 11, 2020 amounted to 8.8 billion yuan.

4.       Many tech giants, including Meituan, Alibaba, Pinduoduo, JD.com, etc., joined the “Community Group Buying” competition. Community Group Buying, a location-based approach, has gained growing popularity among consumers and typically sees a self-appointed leader who creates a social media account to post product links for neighbors, friends, or family to place their orders together for goods, such as groceries, for bulk delivery to one location.

Meanwhile, China’s market regulator quickly increased the community group buying sector regulation to prevent inappropriate competition and guarantee people’s daily supply.

Community Group Buying: Location to collect goods

Company dynamics

1.       f.I LOVE, a cosmetic brand from Fashion TV, FTV, will enter China’s market at the end of 2020. This brand will launch its four skincare product lines first in China with “high-end tech and ingredients from jewelry” as its main selling point.

2.       On December 4, Dexter, a new baby care brand, completed B-round financing, securing tens of millions of yuan. This was Dexter’s third-round of financing in 2020, implying the capital market’s confidence in this brand and the baby care market.

3.       In December, Innisfree, a Korean brand, announced its cooperation with DaDa Group, an instant delivery platform in China. DaDa will provide an online-offline one-stop solution to Innisfree, meaning that consumers can get their Innisfree product nationwide in one hour after placing their orders.

4.       Chanel announced that they would open three offline beauty stores in the Intime Mall from December 2020 to the beginning of 2021, suggesting Chanel’s confidence in China’s offline cosmetic market.

5.       On December 16, Blue Moon, the laundry liquid giant in China, successfully launched an IPO in HKEx. As of the end of 2019, in terms of retail sales, Blue Moon had the largest market share in the mainland laundry detergent market, concentrated laundry detergent market, and hand sanitizer market, at 24.4%, 27.9%, and 17.4% respectively.

6.       On December 18, EAST WEST BEAUTY, a new cosmetic offline store, completed tens of millions of financing. It is a new entrant in the cosmetic store competition.

7.       On December 22, Yatsen Global, Perfect Diary’s parent company, announced its cooperation with Sensientcolors, a leading color, flavors and fragrances manufacturer. They cooperatively founded three innovative color combination labs in Shanghai, Guangzhou, and Singapore to do cosmetic research and development with a focus on color cosmetic innovation.

8.       On December 23, L’Oreal announced that they acquired Takami, a Japanese skincare brand. Takami, founded by a dermatologist, focuses on home medical skincare and is popular in Japanese and Chinese markets.

Takami

Data browsing

1.       In November 2020, National Consumer Price Index (CPI) decreased by 0.5% YoY in China. It was the first time that this index dropped in 2020. Some analysts are worrying whether China is facing the possibility of deflation.

2.       In November 2020, the total social retail sales amounted to 3.9514 trillion yuan, with a YoY growth rate of 5.0%. The cosmetic category’s retail sales reached 51.1 billion yuan, increasing by 32.2% YoY, which was the second-highest growth rate. The main driver for this growth was the Double 11 shopping festival.

3.       Laundry beads have become a popular product in China. From January to November, this sector’s total sales exceeded 1.28 billion yuan on Tmall. Euromonitor predicted that this sector would keep a 35.8% CAGR in the coming years.

Popular products

Regulatory compliance

1.       At the beginning of December, Chanel and Austin Li, the top live streamer in China, were fined by China regulators because of false claims, implying the increased supervision of regulatory breaches on cosmetics’ false claims on live-streams.

2.       On December 2, 2020, China National Medical Products Administration (NMPA) opened a public consultation on the approval of Ethyl Lauroyl Arginate HCL, Methoxy Peg-23 Methacrylate/Glyceryl Diisostearate Methacrylate Copolymer, Calcium Phosphoryl Oligosaccharides and Steareth-200 as cosmetic ingredients. More details can be found on ChemLinked.

3.       On December 9, 2020, Tmall Global released a new technical standard for CBEC cosmetics, i.e., the Implementation Rules for the Conformity Spot Check on Cosmetics Goods on Tmall Global, which spells out the basic requirements for the platform’s irregular random inspections on cosmetics sold and came into effect as of December 16, 2020. More details can be found on ChemLinked.

4.       On December 10, the State Taxation Administration announced the list of e-commerce merchants required to update their taxation data, implying that regulators will impose a tax on e-commerce in the future to prevent brushing orders. Brushing orders is when e-commerce store owners will generate fake orders in order to boost their own ratings on e-commerce platforms.

5.       On December 16, the National Medical Products Administration notified of 109 batches of false cosmetics. Most were hair dye products and from domestic Guangzhou companies.