Cosmetics ranks among the top product categories for China’s cross-border, e-commerce shoppers.
As the biggest retail event on the planet, Singles Day, approaches, all eyes are on Alibaba. That’s because China’s e-commerce powerhouse generated $25.3 billion in gross merchandise volume (GMV) last year during this annual event, which falls on Nov. 11.
U.S. and foreign cosmetics retailers and brands pay close attention to this sales holiday because cosmetics consistently ranks among the top product categories for China’s cross-border, e-commerce shoppers. China’s skin-care and cosmetics market is expected to reach $38 billion by the end of 2018, second only to the U.S. at $71 billion, according to the Hong Kong Trade Development Council (HKTDC).
Amid growing affluence and technology sophistication, China’s beauty market is fragmenting from a mass market where consumers buy few, simple cosmetics to a market that desires more diverse, niche products. Based on Azoya Consulting’s recent research, here are a few major trends we expect to see in beauty and cosmetics during Singles Day 2018.
Foreign brands rule premium products
Although competition has intensified among Chinese and international brands, the latter dominates the mid-to-high end of the beauty and cosmetics market.
In the high-end skin-care and cosmetics market (with an average price of $29 or more per item), foreign brands accounted for an astounding 92 percent of the market in 2017. HKTDC reports the high-end segment continues to grow, representing 31 percent of the market, up from 27 percent in 2012, with a growth rate of 25 percent per year.
During Singles Day 2017, major foreign brands like Lancôme, Estée Lauder, SK-II, and Olay topped the sales rankings on Chinese online marketplace Tmall. International beauty brands tend to invest more capital in R&D for product innovation, and strategic branding and marketing to differentiate their offerings.
Notably, domestic brands Pechoin, Chando, and One Leaf also ranked among the top 10 for Singles Day sales last year. Chinese brands accounted for 23 percent of the market for China’s top 30 brands, up from nearly 13 percent in 2012 and 5 percent in 2008, according to Euromonitor. Chinese brands are known for their high quality-to-price ratios and their popularity soars in smaller cities, where they often enjoy strong offline retail networks.
Chinese brands Dr. Plant and Timier House have 2,500 and 1,000 offline stores, respectively, compared to just 400 for Innisfree and 357 for The Face Shop, which are both South Korean retailers.
Chinese cosmetics brands’ expansive brick-and-mortar presences led international brands to acquire Chinese brands to capitalize on their extensive distribution networks. Notably, Johnson & Johnson bought lotion maker Dabao in 2008 and Coty purchased skin-care brand T-Joy in 2010.
Makeup routines mature and grow
Consumer sophistication represents a key opportunity for international skin-care and cosmetics brands, as consumers seek more specialized, niche products. More than a third (36 percent) of Chinese cosmetics consumers have added more steps and products to their makeup routines, according to Ebrun.com.
Consumers are evolving from basic makeup items like lipstick, beauty balm (BB) creams, and perfume — which account for nearly 34 percent of the market, according to Maijia and Ebrun — to more advanced products like foundation, makeup tools and eyeshadow. Greater consumption helped drive 56 percent year-over-year growth in the color cosmetics industry last year, according to Kantar Retail.
Consumers new to the cosmetics category may initially prefer multipurpose BB creams that combine cosmetics and skin care by evening out skin tone and include moisturizers and sunscreen. Asian women who prefer a lighter complexion are most likely to appreciate these product features. However, as consumers advance to more complex, multistep makeup routines, they start buying foundation, eyeshadow and makeup tools.
Although foundation and eyeshadow have lower penetration rates in China, they represent the fastest-growing cosmetics categories on Alibaba’s online platforms, as CBNdata reports. Foreign brands are expected to benefit because they have more experience with designing and selling these types of products.
Influencers as educators
Since these cosmetics products are more complex, marketing influencers, called key opinion leaders (KOLs), like Michelle Phan, have popularized online makeup tutorials on YouTube, which show Chinese consumers how to use the products.
Using KOLs to provide makeup tutorials through live-streaming or short videos are popular ways for cosmetics companies to educate customers. KOL MeililimFU has attracted nearly 900,000 followers on Weibo and her tutorials on short-video platforms Meipai and Douyin showcase an assortment of foreign brands, including YSL (France) and M.A.C. (U.S.). She states China’s beauty market is still in its early stages, as Chinese consumers historically looked toward Japan or Korea for inspiration, and have yet to develop their own distinct style.
Celebrities and media also act as influencers. For instance, specific lipsticks have sold more due to their appearances in TV series. For instance, the popular China drama “The Legend of Fuyao” stars celebrity Yang Mi, who also happens to be a spokeswoman for Estée Lauder, and her new line of lipsticks has been showcased on the series.
Bold beauty products help consumers stand out
A growing number of Chinese consumers seek to express themselves through their cosmetics choices. They deliberately use bold beauty products to differentiate themselves from their peers.
Bold colors are in demand. Although strawberry and bean-paste pink lipstick sold well in China in the past, bold red has emerged as the dominant color of choice for women’s first lipstick purchases in 2018. This year’s popular products include M.A.C.’s Ruby Woo, Dior 999, and Tom Ford’s Ruby Rush #07. Other eclectic colors that sell well include mermaid pink, grapefruit and pumpkin.
Saucy marketing also appeals to Chinese consumers. Beyond its colorful pallet, Nars Cosmetics, owned by Japan-based Shiseido, is known for its provocative products. Nars Cosmetics launched an “Orgasm” makeup line last year that includes the “Do Me Baby” lip pencil and “Sexy Fantasy” blush.
Yet simplicity also sells. Canadian skin-care brand The Ordinary has sold exceptionally well among Chinese audiences. The brand is known for its simple, high-quality products at near-cost prices. On cross-border, e-commerce platform NetEase Kaola, The Ordinary accumulated nearly 100,000 fans and sold thousands of bottles.
In summary, understanding these cosmetics market trends in China can help U.S. and foreign companies stand out and gain a competitive advantage by aligning with Chinese consumer expectations, especially during the strategically critical holiday sales season.
Franklin Chu is managing director of Azoya USA.