Learn which trends are fueling the rise of local Chinese beauty brands, how influencers are growing sales by encouraging shoppers to add steps to their makeup routines, and why smart beauty stores are taking off.
U.S. and global retailers and brands selling to China should be aware of these trends to stay relevant in this increasingly competitive and lucrative market.
Chinese beauty brands are gaining market share, and foreign brands should watch out
In 2017, local Chinese brands occupied 46 percent of the skin-care market and 44 percent of the cosmetics market, according to data from HKTDC. Top Chinese brands include Pechoin (skin care), Chando (skin care), and One Leaf (facial masks), who all ranked among the top 10 for Singles Day sales in 2017, despite a lack of brand recognition in Western markets.
Chinese brands are known for providing impressive value at affordable prices, and are particularly popular in smaller cities where they benefit from strong off-line retail and distribution networks.
Popular Chinese brands Dr. Plant (skin care) and Timier House (skin care and cosmetics) operate roughly 2,500 and 1,000 off-line stores, respectively, compared to just 400 Innisfree stores and 357 The Face Shop stores. Both Innisfree and The Face Shop are South Korean brands.
Many international brands have even partnered with or acquired Chinese brands to capitalize on their extensive distribution networks. Johnson & Johnson bought lotion-maker Dabao in 2008 for $300 million and Coty purchased a majority stake in skin-care brand T-Joy in 2010 for $400 million.
Lastly, Chinese brands are better at localizing their products for domestic consumers. Skin-care brand Pechoin focuses on Chinese traditional packaging and linking content to historical Chinese legends. The content speaks to many Chinese consumers because TV drama shows about imperial Chinese history are quite popular.
Pechoin product packaging. Source: Digitaling
However, global brands still dominate the mid-to-high end of the beauty and cosmetics market
Foreign brands accounted for an astounding 92 percent of the high-end market in 2017, according to the Hong Kong Trade Development Council. That’s because international beauty brands tend to invest more capital in R&D for product innovation, and have more experience investing in long-term strategic branding and marketing to differentiate their offerings.
Chinese consumers are more likely to perceive them as premium brands, and they can command a price premium over their local peers. HKTDC reports that the high-end segment continues to grow, rising 25 percent in 2017 and now accounting for 31 percent of the market.
Foreign brands entering the China market should focus on targeting the high end of the market in Tier 1 cities like Shanghai before tackling smaller cities.
Influencers are helping to popularize color cosmetics in China
Color cosmetics historically has been an underdeveloped category in China, accounting for just a quarter of the nation’s skin-care and cosmetics sales, according to e-commerce research firm Ebrun. For comparison, the skin-care market is about three-quarters the size of the makeup market in the U.S. In China, consumers prefer whiter skin and look for natural ingredients to improve their skin, as opposed to using makeup to cover up blemishes.
Chinese customers have typically used simple cosmetics products such as lipstick and beauty balm cream, but now they are adding more steps to their makeup routines, thanks to influencers that post video tutorials on how to apply makeup. Mintel research notes that more than 40 percent of Chinese color cosmetics users are persuaded by celebrities and influencers when making purchasing decisions.
In 2017-18, 35 percent of consumers added steps to their makeup procedure. These additional sales helped drive 56 percent year-over-year growth in the color cosmetics industry last year, according to Kantar Retail. Foundation and eye shadow products saw particularly fast growth in 2018.
Compared to other product categories, beauty products are more visually alluring and easier for influencers to market on Chinese social media channels. Popular channels include the Pinterest-like social community platform Xiaohongshu, and short-video platforms such as Douyin. One key opinion leader or influencer, 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 MAC (U.S.).
Brands use smart technology to better engage customers and increase conversions
Brands, retailers and e-commerce platforms alike are using smart beauty technology to personalize product offerings and help customers test products. This approach is now popular because online e-commerce is becoming more competitive and traffic is getting expensive. Brands are realizing that they need to have an integrated online/off-line approach to maximize reach and improve engagement.
For example, in April Alibaba’s Tmall online marketplace rolled out a 699 RMB (U.S. $101) smart mirror that comes equipped with an AI-powered smart speaker. The speaker offers beauty tips, monitors UV levels and enables customers to order cosmetics products on Tmall once they run low on supplies. Voice commands can adjust light settings to ensure that users can see their faces properly.
Alibaba’s Tmall Smart Mirror. Source: Alibaba
Alibaba has also tested smart mirrors to offer makeovers powered by augmented reality to women waiting in line for the restroom. Alibaba has already signed a deal to roll out the mirrors at InTime shopping malls in Hangzhou, where both companies are headquartered. The mirrors are partnered with vending machines filled with cosmetics items so that customers can make on-the-spot purchases.
Sephora has also co-launched a makeup app with selfie app company Meitu to let customers try on virtual makeup, so they don’t have to get their faces dirty at the store. This past September, Sephora opened a new concept store in Shanghai to feature such technology. Also included are Discovery Tables and Magic Mirrors that customers can use to discover and try new products.
Watson’s Colorlab beauty stores. Source: A.S. Watson Group
Hong Kong pharmacy chain Watson’s has also launched Color Lab beauty stores in collaboration with L’Oréal, with stores located in Shenzhen, Guangzhou and Shanghai. The stores offer a full makeup experience with in-store makeup artists and catalogues with makeup trends. YouCam smart mirrors run the ARmakeup app YouCam Makeup, and allow customers to try over 100 types of cosmetics in different colors.
First, Chinese beauty brands are grabbing more market share, but U.S. and foreign brands still dominate the high-end beauty market in China. American and foreign brands new to the market should think carefully about how to position themselves and set themselves apart from local brands.
Secondly, influencers are helping the color cosmetics industry grow in China. Historically Chinese consumers have been averse to using color cosmetics, but now popular influencers are teaching today’s millennials how to apply them through online video tutorials on Chinese social media channels.
Lastly, beauty brands and retailers are turning to smart retail technology to improve the customer experience and better understand their customers. Alibaba, Sephora and Watson’s are just some of the big players who are leading the way.