China: A Beauty Destination NEW YORK — No longer just a factory, China is exploding as a destination market for the domestic consumption of beauty products, and not just for toiletries and mass market brands. According to a new study by NPD Beauty, called "The Beauty Market in China," the sales tracking firm contends, "the prestige beauty industry is booming in China."
"I can see double-digit growth for the next five years," observed Lenka Contreras, vice president of Kline Research at Kline & Co. She added that there eventually will be a slowdown as China's booming economy confronts and has to digest a huge rural-based economic sector that will have to be modernized.
The dynamic nature of China is depicted in two studies — the NPD report and another from Kline, called "Global Cosmetics & Toiletries 2004," which includes China. Kline is also preparing to issue "Beauty Retailing China 2005," which probably will be available next year, according to Contreras.
Kline's current report estimates that China's cosmetics and toiletries category grew by 13 percent from 2003 to 2004 to $7.1 billion at the manufacturer wholesale level. That is about 5 percent of the global beauty volume of $147.4 billion. "China's share of the global C&T [cosmetics and toiletries] market may seem small compared to huge markets like the U.S. and Japan, but with a population of over a billion people, the growth potential there is staggering," Contreras said.
She added that a major factor is the emergence over the last decade of a fledgling middle class. Once the market was described as an elite class surrounded by a vast sea of factory workers and peasants with $35 a month in disposable income. Now, there is a class of young MBA graduates earning $10,000 a year. That does not sound like a great deal by Western standards, but it is a very respectable salary in China.
One striking facet of the current scene is a prevalence of service in stores, even hypermarkets, like Carrefour, where four beauty advisers may be waiting on customers. This not only builds sales, but also promotes consumer education, said Contreras.The NPD report focuses squarely on the department store beauty business in major cities of key regions: Beijing and Shenyang in the North; Shanghai, Hangzhou, Guangzhou and Shenyang in the South, and Wuhan and Chengdu in Central China. These regions contain a combined population of 72 million people. In April, an NPD team identified 120 department stores in those eight regions, carrying at least one prestige beauty brand each, with a total volume of $750 million.
"There is a prevalent and seeming obsession with beauty shows and models currently taking hold in China," NPD said. "Beauty pageants were banned in 1949, but have come back with a vengeance and a unique twist." The report noted how one contest, for "Miss Plastic Surgery," required 20 contestants to undergo 10 cosmetic procedures each, which they did, not only to win the contest but also to aid in their careers. The China Daily estimates that the cosmetic surgery market totals $2.4 billion in China.
The NPD report pinpoints skin care as comprising 40 percent of the total cosmetics market in China. There is a divergence of data between the prevalence of merchandise categories in department stores and actual volume in currency. In terms of penetration — meaning the number of doors of distribution — prestige fragrance leads the way, followed by skin care and makeup.
But when businesses are estimated in yuan, the reverse is true, according to Julia McNamara, director of new product development for NPD. Skin care is the largest, followed by makeup and fragrance. Christian Dior and Lancôme are the leaders in fragrance; Shiseido is tops in treatment, and Procter & Gamble's SK-II leads in makeup, she added.
McNamara noted that there are great geographic disparities. Shiseido does well in skin care everywhere, but it excels in the South. Meanwhile, Dior does well in the North and Yves Saint Laurent scores equitably in the North and in the South.
According to the report, across the eight cities in the study, department stores carry an average of 19.8 beauty brands, of which 6.7 are prestige and 13.1 are masstige brands. In the North, where the cities are larger, stores carry an average of eight prestige brands each, while in the South and Central areas, the average is six per door. — Pete Born
L'Oréal Opens Lab in China PARIS — French beauty giant L'Oréal announced Friday it has opened its first research center in China.The 33,330-square-foot unit in Pudong, in the east of the country, houses laboratories for makeup, skin and hair care product development. In 2006, the center will be expanded to contain biology and chemical labs, as well.
Through this facility, L'Oréal said it intends to improve its knowledge of Chinese hair and skin in order to adapt its non-Chinese brands to domestic and other Asian consumers' needs. At the same time, L'Oréal plans to develop its brands of Chinese origin, such as Yue-Sai, which it acquired last year.
L'Oréal invests 3.4 percent of its sales — which reached 14.53 billion euros, or $19 billion at average exchange, last year — in research and development. The company has had a presence in China since 1996. — Ellen Groves
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