Deng Jing

JALA Group Co.，China

Over the past nearly forty years, China’s economic development has made remarkable achievements through the economic reform. The average annual growth of GDP keeps in 9%, which indicates that many industries in China have achieved sustained and rapid development.Among them, China’s cosmetic industry is shown an outstanding and gradually growth.

China’s cosmetic industry has a long history in ancient society. The modern cosmetic industry in China has been restarted since 1990s. Its industrial scale has increased from about RMB 300 million in 1980 to RMB 333.8 billion in 2016.[1]According to China Food and Drug Administration (CFDA)’s data base, there are 3,993 registered cosmetics production enterprises in China.

the development of cosmetics industry in China

The history of the use of cosmetics by Chinese people lasts more than 3,000 years. China is one of the first countries to produce and use cosmetics. As early as eleventh Century BC, according to literature, in the period of King Zhou of Shang Dynasty, people burnt plumbum to make beauty powder, and ladies will apply plumbum powder on their face. In dynasty of Jin, the literature “Naturalis Historia” records how to make face powder, which called “Gong Fen”. People brunt “Hu Fen”(lead subcarbonate) to make beauty powder. “Chinese ancient and modern notes” is published in the Later Tang Dynasty (AD 923 — AD 936). It recorded “In the period of Xia Dynasty (BC 2100 — BC 1600), Shang Dynasty(BC 1600 — BC 1000), and Zhou Dynasty (BC 1000 — BC 256), people burnt plumbum to make beauty powder”,and “Since King Zhou of Shang Dynasty, people mixed red orchid”s colour into plumbum powder to make blush.The blush got its Chinese name “Yan Zhi”. This makeup style is called “Peach blossom style”.

Brand Xiefuchun is the oldest Chinese cosmetic brand, which was founded in Yangzhou in 1830, and we can buy their products in the market. The history of brand Xiefuchun is 21 years older than brand Kiehl’s, which is the oldest cosmetic brand in the West.

China’s cosmetic industry began to renascence with the economic reform. In 2016, the cosmetic industry scale has reached RMB 333.8 billion, 1,000 times more than that in 1980. The registered manufacturers reaches 3,997. The domestic brands such as CHANDO, Herborist,Liushen, Pechoin, and LaFang, etc. grow up like bamboo shoots after a spring rain, and occupy the market share rapidly in China. Some of them are exported to the West.

From the perspective of the international market, we take the market in the United States and France as an example, we can compare the growth rate of the cosmetics industry and the growth rate of their GDP. We find that the growth of the cosmetic industry is faster than that of the GDP, and the fluctuation in cosmetic industry is more stable. The same as in the China’s market. Since 2008, the cosmetic industry has maintained a high speed growth of 12% per year in China, which is higher than the GDP growth rate in the same period (Figure 1).

Figure 1: Growth rate of cosmetic industry VS. GDP rate

the sales channels for cosmetics in China are more diversified

Accompanied by the development of the society and the demand of the consumers, the sales channel for cosmetics is also expanding and renewing. The most traditional channels are department stores and beauty salons, and then there shown hypermarkets and supermarkets, direct selling channels, cosmetics specialty stores, TV shopping and other sales channels. With the rapid development of the Internet, the e-commerce channel has also developed rapidly in recent years, and it has become one of the most important sales channels in the cosmetic industry.

Department stores

Department store is a comprehensive retail business complex, which operates a large scale of daily industrial products. The department stores have a wide range of commodities, with rich varieties, types and specifications. The first department store in the world was founded in Paris, France, in 1862. In China, the first department store — The Sincere & Co. Ltd. was officially opened at Shanghai Nanjing road on October 20, 1917(Figure 2).

Figure 2. The first department store invested by Chinese?The Sincere & Co. Ltd.

There are more than 6,000 department stores in China. According to Euromonitor’s data statistics, 50.9%of China’s cosmetics is purchased from department stores in 2009. With the diversification of sales channels,the market share of department stores has declined year by year, and it has dropped to 33.6% by 2016. Even if the share of sales continues to decline, the overall scale continues to rise, and department stores are still the main sales channels for the cosmetic industry.

Hypermarkets and supermarkets

Hypermarket and supermarket are self-selected sales format, which is mainly based on sales of popular products, and combines the advantages of supermarkets and discount stores. It has a full range of products to meet customers’ demands at one-stop retail. The first supermarket in the world was founded in New York,United States, in 1930, named King Kullen (Figure 3). In April 12, 1981, the first supermarket in China opened by Guangzhou Friendship Store.

Figure 3. The first supermarket in the world

There are more than 14,000 hypermarkets and supermarkets in China. According to Euromonitor’s data statistics, in 2009, 19.3% of China’s cosmetics is purchased from hypermarkets and supermarkets.With the diversification of sales channels, the share of hypermarkets and supermarkets channels has declined year by year, and it has dropped to 9.8% by 2016. The market share of hypermarkets and supermarkets channels has dropped from second to fifth in 2009, behind e-commerce channels, cosmetics specialty stores and direct sales channels.

Department stores, hypermarkets, supermarkets channels are built accompanying with the entering of foreign enterprises and foreign brands since 1990s. A modern sales system was established and it occupied the market share rapidly in China. Above mentioned two channels are the main channels for cosmetics in the tier-1 and tier-2 cities of China. In recent years, these two channels have also gradually penetrated into inland cities,and sink to the market of tier-3 and tier-4 cities.

Cosmetics specialty stores

Cosmetics specialty store is a cosmetics retail business format, which is formed with the reform of domestic business channels in recent years. Cosmetics specialty store is based on tier-3, tier-4, and tier-5 cities, and widely distributed in the commercial streets and communities. It is different from the department stores and supermarkets,cosmetics specialty store is featured with parity,convenience, diversification, and professional beauty services.

Confronting there is strong competitive advantage for international brands in tier-1 and tier-2 cities,domestic brands are forced to develop a new method of its own to get customers. Grocery store, which is widely distributed in tier-3 and tier-4 cities is the key.Grocery store is an important part of the big circulation channel in the supply and marketing society era in tier-3 and tier-4 cities. It takes the advantage of making full use of social resources and industry resources, and the formation of retail network. Based on good local operations and specialized operation on cosmetics and personal care products, grocery stores gradually developed and gradually formed the specialized sales channels of cosmetics, named as cosmetics specialty stores.

There are more than 200,000 cosmetics specialty stores in different size, and most of them are distributed in tier-3, tier-4, and tier-5 cities. For example, Gialen and 1,000 colors (Figure 4) are famous. With the continuous growth of the China’s cosmetic market, cosmetics specialty stores start to lay out in tier-1 and tier-2 cities.Right now, cosmetics specialty stores are not only the important channel for domestic cosmetics brands,but also the important channel for foreign cosmetics brands, which is trying to develop their markets in tier-3, tier-4, and tier-5 cities. According to Euromonitor’s data statistics, in 2009, 16% of China’s cosmetics are purchased from cosmetics specialty stores and it is the third biggest channel in China. With the development of domestic business, and the expansion and upgrading of consumption in small and medium-sized cities, the market share of cosmetics specialty stores in cosmetic market increased year by year. In 2015, its market share has risen to 20.9%, and cosmetics specialty stores became the second biggest market in China, just behind department stores. Confronting e-commerce channels’rapid growth, in 2016, cosmetics specialty stores’ market declined slightly, is accounting for 19.4%.

Figure 4. Cosmetics specialty stores

Cosmetics specialty stores developed as the main channels for cosmetics in past ten years, and attracted the attention of both foreign cosmetics brands and domestic cosmetics brands. Most of market players have launched products and brands special for this channel, such as L’Oreal, P&G, Jahwa, and Proya.

E-commerce channel

E-commerce business format is developing with the popularity and development of the Internet. In the open network environment and basing on Browser /server applications, both buyers and sellers can carry out their various business activities without meeting each other. Users can carry out their online shopping,online transactions and online electronic payments in internet.

In China, the most important e-commerce platforms are Taobao, Tmall, JD, and Yihaodian. There are more than 200,000 cosmetics shops in these platforms, including brands’flagship stores and distributions/agencies. The channel of e-commerce is the fastest growing channel in recent years. According to Euromonitor’s statistics, there was only 1.4% cosmetics purchased from online shopping in 2009, but it rised to nearly 20% in 2015, just ranked behind department stores and cosmetics specialty stores.In 2016, e-commerce channel’s sales continued to rise to 20.6%, which was bigger than cosmetics specialty stores’share (19.4%), and e-commerce channel became the second biggest cosmetics’ sales channels.

The potential of e-commerce channel is very huge,and its development speed is fast. Integration and balance between online and offline sales channels is very important for the healthy development of cosmetic industry.

Direct selling

According to the World Direct Selling Association,the definition of direct selling is that salesmen introduce products or services to customers by explaining and demonstrating them, and these activities will always be carried out at a place, like personal residence, place of work or other places, which are not common retail stores.Direct selling has made steady progress in China after“Direct Selling Management Regulations” was published at August 23, 2005. Till August 2013, 37, enterprises got their direct selling licenses from the Ministry of Commerce of PRC.

There are now about 1.5～1.8 million employees working in the direct selling channel for cosmetics. The channel market share is steady about 11%～12%, which is one of the sales channels for cosmetics that can’t be underestimated. Well-known cosmetics brands are like Mary Kay, AVON, Perfect, Nuskin, Amway and Infinitus.

Professional line channel (beauty salon)

Professional line has another famous name in China.That is beauty salons. Customers will purchase and use their cosmetics through beauty salons. Beauty salons provide professional skin care services to consumers when they purchase salons’ products. Some of these products rely on the use of beauty instruments to maximize product effectiveness. Therefore, professional beauticians are very important in beauty salons. There are about more than 100,000 professional beauty salons (beauty, nail and body) in China, and more than 500,000 employees. There are some famous professional line brands, such as natural beauty, Chirstina and so on.

the development of sales channels for cosmetics in China

Since 1980s, China’s cosmetic industry has been booming for more than 30 years. The future of cosmetic industry is also closely related to the sales channels.With the development of society and economics,the types and forms of sales channels have become more diversified. The emergence and development of each new sales channel conforms to the consumer’s consumption demand and the result of social progress and technological progress.

the existing channel structure

Department stores will continue to maintain its relative advantages, and become an important channel for the competition between domestic brands and foreign brands. By enhancing the image of the counters, and improving service quality and customers’ purchasing experience, we should strengthen and maintain the advantages of the department stores in cosmetics sales.[2]

In order to increase the market share in hypermarkets and supermarket channels, we should adjust cosmetics category structure, and develop new products suitable for the shelves in this channel.

For cosmetics specialty stores, firstly, stores’image can be upgraded through maximizing customers’ purchasing experience. Secondly, stores’ managers should improve their operation abilities and set the stores’ goal to provide the suitable products and premium services to customers.Thus, the competitive advantages of cosmetics specialty stores will be enhanced in tier-3, tier-4, and tier-5 cities.Thirdly, the employees in cosmetics specialty stores should build and enhance their knowledge about brand.When the employees have brand sense in their mind,and retails skills are improved by standardization and informatization methods, then, cosmetics specialty stores can develop with industry’s development.

E-commerce channels is the latest retail channel,accompanying with the development of internet. For cosmetics retail market, e-commerce channel is a rising and important channel with large growth potential. Therefore,more e-commerce participants will be encouraged in cosmetic industry, and market share of e-commerce channel will increase continuously in forthcoming years.

Professional line channel is a traditional channel for cosmetics. In order to revitalizing and strengthen this channel, it’s a must to have more professional staffs, and provide high quality services, and then improving the reputation of beauty salons. Meanwhile, we should give full play to the advantages of the professional equipment for skin care in beauty salons, in order to meet the needs of consumption upgrading.

Direct selling channel is a new and controversial channel for China’s market. The important things to change customers’ attitude on direct selling through improving the quality of products and services and sellers’ behavior. There is another direct selling mode through Wechat App in China. We should give full play to this advantage that is most close to the consumers,and retailers can establish good customer relationship through high-quality products. Then, it will surely drive the growth of this channel.

Embracing the reforms in sales channels and seizing new breakthroughs on sales

The future world is a new world with an accelerating renewal on global science and technology. If enterprises themselves can’t invent a new sales channel, they should also catch the opportunity of sales channels’ changes.A new sales mode, which combining online and offline sales, may be a new change on traditional sales channels. Obviously, from the decomposition of the current sales channels in the cosmetic industry, offline channels (such as department stores, cosmetics specialty stores, hypermarket and supermarkets, etc.) and online channels (e-commerce channels) are competing against each other, and each channel is competing for sales market.

The e-commerce players have begun to expand the market into offline channels. The famous e-commerce platform Amazon opened its first small supermarket Amazon Go at the end of 2016 at No. 2131 Seventh Avenue in Seattle, United States. This small supermarket is only 170 square meters. It doesn’t have a cashier and doesn’t have a bar code checkout facilities. When customers enter the store, they scan the Amazon Go App on their phones, and they can take commodities from the shelves or put them back. Amazon Go supermarket can control the stocks on the shelves by sensors, and automatically add commodities to the customers’ virtual shopping cart, and then, sensors will trace what the customers take. When customers finish their shopping and leave the supermarket, they will get a printed shopping bill, which will be paid by the customers’Amazon account automatically. It is prudently expected that Amazon may open 2,000 Amazon Go in the next ten years.

As a result, Alibaba group has put forward the concept of “new retail” and began the attempt of opening its offline stores. In February 2017, Bailian Group and Alibaba group announced a strategic cooperation in Shanghai. These two largest commercial leaders in China will cooperate in six fields based on the big data and Internet technology. The six fields include the integration of innovation in all-formats, new technology research and development on retail, supply chain integration,interoperability of membership system, interconnection of financial payment, and collaboration of logistics system.

Summary

With the rapid technology development of Internet and big data, we keep on researching on sales channels,which will be important to cosmetic industry. Cosmetic companies value should reach customers in fast and effective ways, and then, it will increase the sales and upgrade brands’ reputation accordingly.

[1] Euromonitor International. Beauty and Personal Care in China. April 2017:4.

[2] Liu Yuliang; Deng Jing. The present situation and future of Chinese cosmetics industry. Detergent & Cosmetics 2016,1,1-8.