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Beauty Brands Benefit From Consumption Upgrade in China

Heads of top beauty and FMCG brands discussed the consumption upgrade in the country and new retail opportunities at the Tmall Beauty Summit 2019.

SHANGHAI — Leaders of some of the top beauty and FMCG brands in Alibaba’s multifaceted ecosystem of platforms, stores, innovation labs and more met here Monday for the Tmall Beauty Summit 2019. The world’s second tallest building, the Shanghai Tower, played host to the event and epitomized the dizzying heights that the innovative online beauty sector has reached in China.

Sales of beauty products on Alibaba’s Tmall increased by over 60 percent last year, exceeding the industry’s average growth rate, according to a report released by Tmall and market research firm Kantar during the summit. The report showed that online sales of cosmetics and personal care products grew by 37 percent and 36 percent, respectively, in China for the previous year. These two categories came in ahead of the FMCG sector’s 32 percent average.

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Alibaba revealed at the summit that it predicts international and domestic cosmetics brands will open 1,000 shops on Tmall this year alone. Alibaba also said that seven international cosmetics companies have signed agreements to open flagships on Tmall this year, including Tom Ford, Korean brand Primera, and Swedish brand Barnängen.

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Tmall is positioning itself as the “platform of choice” for international beauty brands looking to enter China and immediately connect with Chinese shoppers, much like it has done in the apparel sector. Parent company Alibaba commands a network of almost 700 million customers in China and offers a full service for brands, from concept to market. By managing the entire consumer journey both online and offline, the native e-commerce platform offers an attractive service to foreign brands with no China experience.

As Chinese consumers’ disposable incomes increase and the middle class grows, there is increasing demand for high-quality products, services and technology, and strong consumer spending, which is often referred to as the country’s consumption upgrade. For foreign beauty brands entering the market, developing a growth strategy can be tricky, with brand web sites fraught with issues and brick-and-mortar stores often neglecting the burgeoning middle class in rural areas of the country.

The country’s developing Generation Z consumer group is another untapped market offering opportunities for cosmetics companies. The Tmall and Kantar report highlighted the importance of this consumer segment, with female Chinese consumers aged between 15 to 19 years old being more willing to spend more on high-end lipstick than any other age group in China. As the group becomes more technologically savvy, their appetite for the latest products and understanding of foreign brands will only increase.

Both domestic and foreign beauty brands have gone on Tmall over the past few years, and the synergy of the partnerships between the brands and the platform has only increased Tmall’s understanding of the market, as it gathers consumer insights based on data analytics. “Our partners inject a lot of know-how, experience and expertise, and that is why we are enjoying growth,” said Liu Bo, general manager of Tmall Consumer Platform Business. “With an incubation platform, we can support a lot of new brands. This year we are going to launch more heavyweight campaigns and events, as well as corporations and collaborations. We are aligned with brand and brand owners.”

Many foreign brands are happy to benefit from the collective knowledge when it comes to such an important, and very unique, market. “Powered by Tmall’s strength in big data, our new boutique gives us reach throughout China without compromising our commitment as a luxury brand. We have made sure that our fashion heritage, selective expression and authenticity can be found throughout the experience in the new boutique,” Natsuko Watanabe, APAC regional director at Tom Ford Beauty, said at the event.

It isn’t only foreign beauty brands that are turning to the platform to increase their market share — emerging domestic brands such as Perfect Diary and Home Facial Pro have followed suit. “Home Facial Pro and Perfect Diary joined Tmall less than two years ago, but by 2019 they reached 1 billion transaction volume for each brand,” said Mike Hu, general manager of Tmall FMCG at the event. “Yes, this simple strategy doubled or tripled their consumers.”

These personal care brands also generated sales of 100 million yuan, or $15 million, each during last year’s 11.11 Global Shopping Festival.

Hu also cited technological improvements as a reason why beauty brands now can increase online growth. Pixel enhancement and high-resolution photos give consumers an even closer look at the products before they buy, displaying even minute details such as texture and flecks of coloring.

“As we enter 5G and higher frequency of images, I think about 90 percent of buying will be realized online. Last week, I had this kind of discussion with Bain. How to align big data with A.I. and the expectations of consumers, their needs and the upgrade and change on the supply side. This is a change. In the old days, people thought about the supply side first and then thought of consumers. Now, we are doing our best to enable brand owners to reach a higher ground of realization,” said Hu.

It was also noted at the summit that beauty brands need to consider environmental and social factors when entering China. Mintel’s China manager Lee Ann Thevenet told attendees that they must ask themselves the question, “Will your product make your consumer feel good about their purchase?”

“When Mintel talked to consumers, we found that 68 percent of Chinese consumers felt that companies need to care about the environment,” said Thevenet. “What we are seeing is some really great case studies coming out of China. Innisfree has partnered with a coffee roasters café and what they are doing is they are taking the coffee grounds that would usually be thrown away and incorporating them into their product formulations. They are able to give consumers this real idea of zero waste.”

Home-grown Key Opinion Leaders (KOLs) are also a crucial cog in the wheel of the Alibaba ecosystem. Former model and KOL extraordinaire Zhang Dayi owns one of the top-selling stores on Taobao, selling clothes and beauty products.

“The core of the KOL economy is content, community and retail. Consumers can be attracted by good content to join the community and then transfer onto platforms like Tmall to make cash from this process. Content is the access and then community is the traffic and then retail is the nature of the business,” said Zhang.

Zhang recalled that it was hard for her to initially sell facial products online, so she went to Japan and blogged about the research and development process of her brand, and posted pictures and images of her experience. “With honesty and transparency, we got a very good reaction from our consumer and we enjoyed sales of 100,000 pieces. Other brands have product design, this is a linear or passive process, but social KOL brands have the three metrics [content, community and retail], which is a cofounded ecosystem,” she said.

KOLs are not only selling their own products on Alibaba’s platforms, but are also often employed by larger, traditional brands to help them connect with consumers and drive sales. At the summit, Candy Deng, P&G’s vice president of e-commerce for Greater China, detailed how the group has changed direction in the marketing of some FMCG products.

“KOLs will bring traffic and discounts will bring traffic,” said Deng. “We asked bloggers to promote toothpaste because as you put on lipstick, your teeth become yellow. We no longer ask conventional experts of teeth, we go to the beauty bloggers. This decision was driven by big data and insights into our consumers.”

Alibaba also used the beauty summit as an opportunity to launch the Tmall Genie, an A.I. beauty mirror designed by the artificial-intelligence research division of Alibaba A.I. Labs. The mirror responds to voice commands, plays music via its smart speaker and can adjust lighting for makeup application. Alibaba has worked with 16 beauty brands to program the device with beauty tips and branded content, as well as deliver skin-care assessments. The mirror is another new ecosystem from which beauty brands working with Alibaba can benefit.