In June, beauty brands eagerly anticipate the season of sales, driven by the rising demand for summer skincare products and the popular 618-shopping event. However, this year marks a departure from the past few years, as a noticeable shift in consumer behavior has emerged. Despite the allure of astonishing discounts offered by prominent e-commerce platforms like Tmall, JD.com, and Douyin, and their sales are increasing, consumers are displaying a more discerning and rational approach to spending their money.
This trend of cautious spending is not limited to the beauty industry alone; it reflects a broader sentiment among Chinese consumers. Although not entirely optimistic about the predictions of economic recovery, consumers are demonstrating that the potential for consumption remains substantial.
With China gradually recovering from the impact of the COVID-19 pandemic and lifting restrictions, this presents a promising opportunity for international brands to delve into one of the world's largest e-commerce markets and establish a strong presence within it.
China is currently experiencing a consumption-led recovery
China now is going through a consumption-led recovery. This means the primary driving force behind it is the proportion of consumer spending in relation to the total Gross Domestic Product (GDP), rather than relying heavily on other significant components such as domestic investment, government spending, and the balance between imports and exports.
The consumption-led recovery will be firm support to entity economy. The circulation of commodities can drive the development of raw materials generation, production, advertisement, logistics and import & export trades in relative industries. Different from investing on capital construction, property, financial bubbles, consumption-led economy has a virtuous circle: it encourages research and development (R&D), innovation of raw materials and products, improving manufacturing techniques.
Linghun Fu, the Director of National Bureau of Statistics of China said that the consumption expenditure contributes to 77.2% of the whole economy increase with a much higher rising rate than the previous year.
Among the expenditure that mentioned above, online channels in China have experienced an obvious increase in sales. The major driven factor is the pandemic that accelerated the digitization of China. Consumers are getting used to shopping online with for both products & service, which had also led to a surge of 1-hour real-time retail. Shopping online and receiving the parcel within a short time, which is like offline stores but lowers the risk of getting infected. According to National Bureau of Statistics of China, the GMV of retail commodities rose to reached 22.8 trillion Yuan ($3.26 trillion Dollars) with 8.2% increase rate while the online channels was 13.1%.
However, it may take some time for consumer confidence to return to pre-covid situation. Nevertheless, we believe that this will be a short-term impact because during the pandemic, people saved a lot of money (saving money for uncertainties is a tradition in China over a long period of time), while the overall middle class citizen size is still expanding, and urbanization is an ongoing process. Lower confidence may have suppressed short-term demand, but there will be a quick rebound on retail sales once regaining confidence. So various industries can regain dynamic again.
“Over the next decade, China may add more consumption than any other country, and is expected to generate more than one-quarter of all global consumption growth, based on our baseline scenario.” According to McKinsey Global Institute (MGI).
China has multiple cost-efficient e-commerce platforms
Online shopping demonstrates the stability of consumer demand and serves as a catalyst, encouraging consumers to increasingly utilize these digital channels for their shopping needs.
Chinese e-commerce platforms play a significant role in the sales of international brands. Platforms like Tmall Global, JD Worldwide, WeChat Mini-program, Douyin, and Pinduoduo provide access to a vast customer base. Setting up official flagship stores on these platforms allows brands to reach Chinese consumers directly and leverage the platforms' marketing tools and logistics infrastructure.
Tmall has the biggest market share of e-commerce in China, and it’s the go-to-place for many customers looking to find solution for their personal need. JD.com is growing fast in recent years and changing its perception of a male-focused platform - women now accounts for over 50% of customer base who buy cross-border in JD.com, while luxury fashion sector is also growing above 140% YOY. Douyin (Chinese parent of Tik Tok) had emerged as an interest-commerce platform, where people discover new brands in a fun & entertainment approach.
However, there is no one-size-fit-all strategy for all the brands. Depending on the industry, price point, target audience and competition, brands can wisely choose between platforms to launch their China business. Each platform has its own Pros and Cons when it comes to building sales and awareness. As an example, Douyin is good at generating awareness and building first impressions, but consumers like to make recurring purchase on Tmall and JD.com because service also matters. WeChat can be important to multi-brand retailers because it allow retailers to build a community-led business, and more cost-efficient to build loyalty.
China is in great demand in various industries
During the entire process of consumption recovery, there has been a structural change in consumer demand for goods. Different industries are witnessing new consumer trends. In this section, we will discuss some intriguing changes happening in these industries.
1) Health & Wellness: Health consciousness has seen a significant rise in China, driven by the pandemic and a growing emphasis on personal well-being. We are noticing probiotics at rising trends in China due to the need for a healthy digestive system. Products that boost immunity & daily wellbeing’s are becoming more appealing to Gen-Z consumers and they are looking for innovative products such as gummy multi-vitamin, natural super foods. There’s also a boost of sales in gym & body-building protein, vitamins and nutrients thanks to increasing of bodybuilders and consciousness for sports.
2) Beauty: it is driven by increasing disposable income, growing urbanization, and a focus on self-care. Chinese consumers also prefer international beauty brands because of some dummies in the domestic market. Cosmetics are doing well this year with 30% YOY growth in Q1 of 2023. Cosmetics sales had been long suppressed during the pandemic because of reduced social time and mandatory of wearing masks. We are seeing foundation sales quickly catching up, and innovative products that promote skin nurturing also are highly demanded in China.
3) Fashion: Chinese consumers’ awareness of personal images including clothes, luxuries, fragrances are increasing, and wealthy citizens are looking for alternatives to mass-market available fashion such as Adidas, Zara and Uniqlo. This bring enormous opportunity to designer fashion brands who promotes personality, promotes feminine beauty, and offer exclusive style. Y2K is an uprising trend in China, and we are glad to see a lot of traditional fashion brands trying to turn its image and to court the trend in young Chinese consumers. Luxury consumers in China are much younger than most western countries, and they don’t like to wear what their parents are wearing. Many luxury brands are beginning to innovate on designs to lead the trends in China, even launching their shows in China.
4) Mom & Baby: the Chinese market has a high demand for children's products, including baby care items, toys, educational products, and clothing. Parents in China often prioritize safety, quality, and educational value when selecting products for their children. Made in Germany had always been regarded as high quality, safe and pure because German local authority has a very strict regulation on products for babies. This is a great advantage because it naturally are trusted by the young moms & dads in China.
5) Pet: the number of pets is increasing in recent years because of urbanization so the demand for pet food, medicine, toys etc. rises.
How can brands enter China’s market efficiently
1) Discover your market niche
China can be a large market to crack, but if you look at China market as a big jigsaw puzzle, and the first step you need to do is to locate the first concrete piece. In our experience working with various companies from large to small, we don’t think one company can quickly tackle the whole market in once - therefore finding a niche group of customers and becoming a leader in this niche, is the concrete first step for brands.
When we are advising beauty brands when they launch in China, we carefully select the products to launch - not all products will be successful in the first year, but some of the products that solves customer pain points can be successful. A very simple but effective way to do that - finding the benchmark for the brand, check the competitor’s customer reviews - and then you know where the unfulfilled gaps are. Brands can grow much quicker if their value proposition really resonate with the target audience, and they are your first customers and testimonials. Discover niche, find audience, convert them to a buying customer, and build compelling case studies, this process always works well for China.
2) Localize your brand & services
Localization is another significant element to consider. It would be more acceptable and popular for consumers if international brands, especially the ones from the West, can connect their products or company story with Chinese consumers. Localization does not equal to translation - your message may or may not resonate with your audience unless they are developed in a format and narrative that catches TA’s attention. While we are helping brands to localize for China, a big part of that is to re-discover the value proposition of the brands. A successful localization are fundamental, and contributes to your brand image and reputation.
3) Finding a suitable channel
China has a sophisticated e-commerce ecosystem, with platforms like Alibaba's Tmall, JD.com and WeChat that dominating the market share, while increasingly there are emerging channels such as China’s Tik Tok (Douyin), Little Red Book, Pinduoduo & etc. Different platforms represent different business model. Establishing a strong online presence through these platforms are helpful, but it can also be costly when they are not contributing to your brand awareness or sales.
4) Social media is important
Social media is an important part of customer journey in China as most of the Chinese consumers will look for insight & testimonial of brand from social media channels. Brands need to be adept at leveraging mobile marketing and social media channels such as WeChat and Weibo to build brand awareness and educate customers. Therefore, it would be efficient to choose a qualified agency with a local team to maximize the efficiency of marketing in China. A good marketing agency offers strategy, professional expertise, technology and implementation based on rich experience.
5) Credentials & legal compliance
Finally, understanding and complying with Chinese regulations, policies, and legal requirements is vital for successful market entry. This includes product certifications, intellectual property protection, and data privacy regulations. As marketing is developing all the time, brands should pay attention to the trend and be adaptive & innovative.