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The Olympics may be over, but China is still taking center stage for international beauty industry eager to solidify its position with the country’s population.
This story first appeared in the September 12, 2008 issue of WWD. Subscribe Today.
China’s beauty industry, like so much else here, has been marked by Chinese consumers rediscovering and embracing their traditional roots as part of an expression of national and ethnic pride. “For beauty trends, the past 20 years have seen big changes,” says Li Chen, a spokeswoman for Proctor & Gamble China. “From the early Nineties to 2000, Chinese women followed Western beauty trends, viewing them as more up-to-date and copying them. From 2000 to 2005 or 2006, they followed Japanese and Korean fashion in makeup, clothing, hair color and styles. However, in the past two years, as China has seen rapid [national] development, Chinese women have been discovering their own position in beauty, and are proud to be Chinese…. China is hot both internationally and in China.”
For beauty, that’s meant a growing exploration by international brands of the potential applications of traditional Chinese medicine, or TCM, an ancient holistic regime, as a way to appeal to China’s immense but complex market.
Says Paolo Gasparrini, president and managing director of L’Oréal China, “Many Chinese ask us, ‘Why do you think you can sell to the Chinese?’ And we answer because we’re here, we study Chinese skin and hair.”
L’Oréal, like many of its fellow market leaders, maintains a research center in China and offers products specific to consumers, particularly under its locally acquired brands Yue-Sai Kan and Mini Nurse.
No surprise that companies are devoting significant resources here: Beauty is booming in China. Procter & Gamble, L’Oréal, Unilever, Amway and Shiseido occupy the top five positions with a combined market share of 39 percent, according to Michelle Huang of Euromonitor International.
The exact size of the Chinese cosmetics and toiletries industry is debated. Thierry Jaugeas, China president and Asia regional director for Sephora, estimates it at $9.7 billion in 2005, and roughly $10.1 billion in 2007, with prestige items rising from 21 to 25 percent of the total, and reaching $4.3 billion in sales by 2010. Euromonitor pegs the total value in 2007 at $15.7 billion, up from $14.1 billion in 2006. It forecasts growth to $18.6 billion this year, $21.3 billion in 2009 and $24.4 billion in 2010.
Access Asia offers yet other numbers for beauty revenue in China—$16.9 billion in 2007. Access Asia director Matthew Crabbe says that market statistics are unreliable in every industry in China. An amalgamation of corporate, government, trade association and consultancy figures, each with agendas and without transparency or clear sector delineation, creates conflicting numbers with margins of error around 50 percent, he explains. Whatever the figures, the market seems likely to continue to grow exponentially in the foreseeable future. Skin care dominates sales, with makeup a distant second. Jaugeas estimates that skin care represents 60 percent, color cosmetics 30 percent and fragrance 10 percent or less.
Of the more largely defined cosmetics and toiletries sector, which also includes categories such as oral hygiene and baby care, skin care is dominant but by a smaller percentage. Euromonitor estimates the category to ring up $5.8 billion in retail sales or 37 percent of total sales in 2007; Access Asia quantified it at $4.4 billion. Makeup contributed $1.5 billion according to Euromonitor, and 1.7 billion according to Access Asia.
“There is clearly greater education regarding skin care, and then it’s the first generation regarding makeup and perfume. [Consumers] don’t get educated at home, so we have to educate them,” Jaugeas says. “But for skin care they already have good training, and know how to look for the quality of product.”
Skin care’s strength, says Huang, derives from Chinese women’s viewing it as an investment, as clear and youthful skin is believed crucial to their social and economic standing. “Most believe that an attractive appearance helps to gain success in both career and social life,” she says, “hence they are well-prepared to accept products which could help them look young.”
That’s helped fuel the popularity of antiaging products, which according to Euromonitor grew 18 percent from 2006 to 2007, ahead of the overall market growth of 12 percent. Still, antiaging lags behind whitening creams: According to a P&G survey, 80 percent of Asian consumers cited whitening as a priority, compared with 50 percent for antiaging. “Traditionally whitening is strong, and what we’re also seeing is antiaging, even for young clients, who want to anticipate and prevent,” Jaugeas says. “In order of sales, first is whitening, second is antiaging and third is various in-between subcategories. The trend is moving toward more natural products, but that is worldwide. Whitening remains the biggest seller in China.”
“My experience of the Chinese standard of beauty is to be natural, transparent, porcelain,” agrees Gasparrini, adding that in beauty, women “go for what they are not. In Brazil, they all want straight hair like the Chinese,” he says, “while in China the girls are crazy to have curls.”
Fragrance is considered a category to watch. At Sephora, customers have gone from buying scents as gifts to buying for themselves, said Jaugeas. Euromonitor predicts that the category will grow 13.5 percent annually until 2012, driven largely by the burgeoning middle class. However, scent remains a cultural anomaly and, combined with the limited purchasing power of the middle class, Crabbe deems it unlikely that the category will displace investment in skin care.
Other subcategories forecast for growth are herbal and TCM ingredients. L’Oréal, P&G and the Estée Lauder Cos. all have research facilities here with a focus on adapting TCM. In addition to its facility in Shanghai, L’Oréal has a botanical center in the Yunnan Province, and is aggressively marketing its TCM line under the Yue-Sai Kan brand.
China’s vast size and diversity—in terms of climate, culture, city size, purchasing power and physical phenotypes—presents a challenge though, as do staffing issues. “Seeing China as a single market is the single biggest mistake anyone can make,” says P&G’s Charles Zhang. “You have to see it as the different tiers” that China’s cities get divided into, based on their size, per capita GDP and retail sophistication, although variation within each tier is immense. Jaugeas says that heavy moisturizers sell well in the cold, dry north, while lighter products are preferred for oily southern skin.
Diversity is also found in China’s unique retail distribution structure. Prestige and luxury brands sell through specialty counters on the first and second floors of malls and malllike department stores. They’re also carried by Sephora, which launched in April 2005 and to date remains the only high-end specialty beauty store. Sephora currently has 40 doors in 13 cities, and is looking to expand at a rate of 30 more a year. The other specialty personal care chain is Watsons, which sells prestige and mass brands and is owned by Hong Kong’s Hutchinson Whampoa Group. Mass products sell through grocery and convenience stores and hypermarkets. Monobrand boutiques have begun to appear, too, such as The Face Shop from South Korea and Herborist by domestic conglomerate Jahwa, as well as L’Oréal’s Maybelline New York and Lancôme brands, but they remain few.
Although issues like human resources and regional disparities aren’t easily solved, continued growth for China’s beauty sector is universally forecast. The only constant, it seems, is change. “The challenge of operating in China is China, in all its diversity, complexity and fast-moving [pace],” says Gasparrini. “China is different from every other country in the world. Experience elsewhere in the world we cannot use here. China is China, and it requires a lot of diversity to understand.”