Xiaoying Liu, Chuanxin Wang

China Research Institute of Daily Chemical Industry, China

With the increase of China’s national income and improvement in living standard and purchasing power,the demand of consumers for beauty and personal care products is getting higher and higher. Chinese beauty and personal care market is continuously expanding.Table 1 shows the market analysis data from Euromonitor International.

Tabel 1. Sales situation of China beauty & personal care market in 2013 and 2014

In 2013, the total value of the Chinese personal care market was approximately 44 billion USD, including 21.21 billion USD for skin care, 8.74 billion USD for oral care, and 7.28 billion USD for hair care. By 2018, the total value of the market will reach to 65.24 billion USD, and the annual average growth rate from 2013 to 2018 will reach 8%.

China’s expanding beauty and personal care market attracted companies from all over the world to invest, and intensified the competition among companies at the same time. This paper analyzed the major competitors in the Chinese market, and differences between local Chinese companies and foreign international companies. The share of foreign companies in the Chinese market is much greater than that of local companies, due to their long history,exquisite packaging, diversified product display platform, big advertising investment, as well as their advantages in terms of product quality, safety and reputation. It is estimated that the competition in the Chinese cosmetics market will become more intense in the future.

Leading foreign brands

For many years, foreign brands have dominated the Chinese cosmetics and personal care market. In recent years, Korean brands have quietly take position of Western brands, especially in the high-end market. The statistics from the research department of CNAEC show that the Top 4 bestselling brands in the Chinese highend cosmetic market in the first half of 2014 were Estée Lauder, Lanc?me, L’Oreal Paris and Dior.

China is one of the major sales markets for many big brands including L’Oreal Paris, Maybelline New York,and Estée Launder. For example, China has become the third largest sales market for L’Oreal. In 2014, the sales of L’Oreal in China increased by 7.7% on a year-on-year basis to 2.3 billion USD, contributing around 8% to the group’s annual sales revenue. China is also its market with the highest development potential. In order to maintain its leadership in the Chinese market, L’Oreal has taken a series of measures to reinforce competitiveness.In 2014, the company reached cooperation agreements with several large Chinese web portals to display its products on websites. The company has also opened online stores for its brands on several websites including yhd.com (an online retailer under Wal-Mart) and Tmall(an e-commerce platform under Alibaba). According to relevant statistics, online sales accounted for 10% of the company’s total sales in 2014.

The sales of Estée Lauder has always taken the lead in China. In the first half of 2014, its total retail sales in the Chinese market amounted to 2.33 billion USD, up 3.6%year on year. The main reasons for its success include:providing products at multiple price levels to meet different consumer needs; investing a lot in expansion small and mediumsized cities to increase the influence power of its products.

According to Dior’s financial statements from January to June, 2014, its sales volume in the Chinese market increased by 13% compared to the same period of 2013,while there was a 23% increase in 2013 compared to the same period of 2012, which means that there was a reduction in its sales growth in the Chinese market.Dior believed that the slowdown in the growth of the Chinese economy and the national enterprise protection policy were the main reasons for the reduction in its sales growth. Certainly, the company is actively taking various measures to increase its sales, for example, by opening international-standard shopping centers in undersaturated small and medium-sized cities and launching its first boutique shop on WeChat.

With the increasingly intense competition among big brands in the high-end market, the demand for men’s beauty products in China also brings huge business opportunities. For example, the competition between the men’s grooming of L’Oreal Paris and Mentholatum is highly intense in the Chinese market. According to the statistics of L’Oreal, its sales of men’s grooming in China accounts for 22% of its total sales.

With the improvement of the consumption level,Chinese consumers require cosmetics with high perfor man-ce, especially skin care products. Large multinational companies mostly with high-end brands take up 75% of market share in China, with 25% of brands, which means they are dominating the Chinese cosmetic market. With the changes in the consumption concept, the market share of high-end brands will continue to increase. According to the data from Euromonitor International, the sales of high-end beauty and personal care products will grow at a annual rate of 10.1% from 2013 to 2018. Even though facing competition, international brands serve the highend market still have considerable advantages as the market leaders.

Fast-growing Korean brands

Korean cosmetic brands occupy a considerable market share in China, and maintain a rapid growth trend.AmorePacific Group is the most typical example. According to the statistics of the Korea International Trade Association,the company’s turnover in China increased by 30% and 50%year on year in the second and third quarters of 2014, which made it the fastest growth company in market share among personal care product suppliers in China.

The success of AmorePacific in the Chinese market is attributable to a number of factors. Firstly, AmorePacific actively set up physical retail outlets, and opened 87 retail stores in China for its sub-brand-Innifree since 2012.Secondly, the company actively enhances the influence of its brands in China via TV, the Internet and other means,for example, inviting the actress of the popular TV drama to be the spokesperson for its brand. Furthermore, some professionals think that Korean cosmetics are mainly designed for Asian women, and are more suitable for Chinese women than European and American cosmetics.The Korean cosmetics industry is well known for wellrecognized quality, efficacy and safety. Moreover, the Chinese tourists are fuelling a boost in the sales of Korean cosmetics. According to the statistics, the stockmarket value of AmorePacific experienced an average annual growth of 31.5%, and the exports grew by an annual average of 22% from 2008 to 2013.

The success of Korean brands in China has intensified the competition with major companies such as L’Oreal,especially in the high-end market. The Korean popular culture has successfully translated into a direct influence on cosmetic purchasing. Korean high-end brands have been warmly welcomed by Chinese consumers.

Hong Kong brands in transformation

According to the data analysis by China Economic Information Company, the sales growth rate of the overall retailing in Hong Kong declined. The sales in the first two months of 2014 increased by only 1% compared to the same period of 2013, while the sales growth rate of cosmetics in the first two months of 2012 also decreased from 17% to 10% in the same period of 2014. Some analysts insisted that the slow growth economy of the Hong Kong, as well as the expensive real estate prices and high rental and labour costs, restricted Hong Kong’s cosmetic retail industry to a large extent .

Phoebe Tse, an analyst at Barclays Bank, suggested that Hong Kong exporters such as Sasa should carry out strategic transformation as soon as possible. For example,they can sell their own brands to increase profitability.Phoebe Tse also pointed out that the high cost of sales promotion (an attempt to attract more customers with low prices) and the rapidly rising real estate prices and rental in Hong Kong will become the potential burden that hinders the company’s development. Sasa is a top leading cosmetics retailing group in Asia. It offers various kinds of brand-name cosmetics for ordinary people.

Despite the slow sales growth, opportunities and challenges coexist. A market analyst at Goldman Sachs pointed out that, about 22% of the Sasa retail stores aiming at mainland tourists.

Beauty personal care current value growth declined strongly in 2015. Due to political, economic and social reasons, mainland Chinese tourists reduced their spending on beauty and personal care products in Hong Kong—a development which had a major negative impact on the market. On the other hand, the local market continues to grow steadily via the introduction of mass products, smaller brands and Korean cosmetics.In 2015, both the number of mainland Chinese tourists coming to Hong Kong and the amount they spent in the city declined. The image of Hong Kong as a shopping paradise has diminished in recent years. In addition,various economic factors such as the strong Hong Kong currency, cheaper beauty products in mainland China due to a change in government pricing strategy, as well as lower taxation on beauty products in mainland China also negatively impacted mainland tourists’ incentive to buy beauty products in Hong Kong during 2015.

Local brands

The Chinese cosmetic market has opened to international companies since the 1980s. Big foreign brands have always held dominant positions in the market. However, due to the improved competiveness of domestic companies, and the changes of brand image and people’s attitude towards domestic products in recent years, the market share of domestic brands gradually increase. Most local brands take aim at the mass market. Facing with the increase of consumption level and transference of the consumption attitudes, local companies must upgrade their brand image and thereby enhance the competitiveness of their brands in the high-end market.

After the success of mass-market brands such as Liushen and Maxam, Shanghai Jahwa, a Chinese local company, successively lanuched high-end brands including Herborist, Shanghai Vive, and Dr. Yu. The company also set an annual sales growth goal of 20%.Meanwhile, the new management of Shanghai Jahwa focused on increasing the number of distributors.Shanghai Jahwa lanuched its own men’s care brand “gf”long ago, which is the first domestic men’s cosmetic brand in China. With the rapid growth of demand for men care products, there will be more local men care brands.

With the improvement of product quality, local companies represented by Shanghai Jahwa will hopefully play important roles in the Chinese cosmetic and personal care market.

Prospect of online marketing

In addition to physical stores, brands sell products via the Internet, Microblog and other channels. Due to the convenience of online shopping, more and more young people prefer to purchase the products on line,including cosmetics and personal care products, etc. A survey shows that professional women spend 20% of their monthly income on cosmetics, even higher than the money spending on clothes for some women. Moreover,they generally choose to buy international brand-name products.

The online sales channel is very important. Take Amore Pacific Group for example. It has only 87 physical stores in 20 overseas cities, which means a large part of its products are sold online. The group has its own franchised store on Tmall, and joined some websites such as Jumei. com which specializes in cosmetics sales.L’Oreal not only has its own online stores in major e-commerce websites, but also advertises its produsts on its official microblog, and provides Chinese consumers with skin care advice and shopping guide, etc.

The rapidly increasing demand of Chinese consumers for international high-end brands leads to the popularity of overseas purchasing and e-shopping. Cosmetics e-commerce companies have discovered great business opportunities in this respect. It promotes the rapid development of online cosmetics shopping platform such as Jumei.com and Vipshop. In the meantime, online sales has intensified the competition among manufacturers.Due to the intense competition, some e-commerce companies have to attract more customers with low prices,and even selling smuggled and counterfeit goods. The counterfeit goods weakens the confidence of consumers,and seriously influences the healthy development of the Chinese cosmetics e-commerce market. In the long run,e-commerce will play a more and more important role in the sales of cosmetics and personal care products, but the prevalence of counterfeit and smuggled goods has a great impact on domestic consumers. Every brand and e-commerce company must devote more efforts to the healthy development of e-commerce.

Prospect

China’s urbanization policy increased people’s income and purchasing power. Data from the Economist Intelligence Unit (EIU) shows that in 2018, the average monthly salary in Mainland China will reach to 1,250 USD, which is higher than that of Malaysia (900 USD), Taiwan (550 USD), Indonesia (400 USD), Vietnam (350 USD) and the Philippines (200 USD); meanwhile, per-capita income will also increase from 6,291 USD in 2012 to 10,791 in 2017, and to 32,682 in 2030. The annual household income of middleclass families will increase from 7,401 USD in 2012 to 9,811 USD in 2017, and to 39,917 USD in 2030. The number of families with an annual household income exceeding 50,000 USD will increase from 2.76 million in 2012 to 9.81 million in 2017, and to 16.95 million in 2030.

As the number of the Chinese affluent population grows larger and the consumer demand for cosmeics increases, competition among cosmetics brands will become increasingly fierce.