The Chinese beauty consumer is migrating to the Internet.
The country is poised to become the largest beauty market in the world by 2020, according to a recent report by L2. On top of that, Chinese consumers are shopping in increasingly digital manners — think e-tail — and makeup sales in the traditionally skin-care dominated region are starting to pick up. Shoppers are also seeking more expensive products than before and gravitating toward the prestige end of the spectrum, according to the report. That combination of factors presents an opportunity for companies who are able to leverage their digital skills to access the Chinese consumer online.
“Beauty is one of the most shopped online categories in China,” said Danielle Bailey, head of Asia-Pacific research for L2. “If you look at look how in the last three to five years the online penetration for beauty has grown, it’s been significant.
“What we find is that consumers prefer to shop for these goods on e-tailer platforms, places like Tmall and JD…they want access to a broad array and selection of products — they are also looking to shop across multiple brands, which these e-tailer platforms supply,” Bailey said. Plus, when Chinese consumers travel, especially to South Korea, they’re finding beauty products there and shopping for them in duty-free retail and online, she noted. “It’s a way for these traveling consumers to purchase the duty-free items before they leave…pay for them and pick them up,” Bailey said. The thirst for South Korean products from Chinese consumers comes as the country’s government has dialed back on South Korean celebrity endorsements for Korean beauty brands selling in China.
By category, 22 percent of color cosmetics, 19 percent of skin care and 11 percent of fragrance sales were generated online in China in 2015, according to the report, versus 4 percent, 3 percent and 3 percent, respectively, for 2010. Prestige beauty brands gained 9 percent in L2’s rankings, while mass brands dipped 16 percent between 2015 and 2017. The share of consumer spending on prestige makeup and skin care has increased since 2014, according to the report, and high-end brands are receiving five times the search volume and 16.5 times growth in brand term searches as mass-market brands. And while some western brands are faring well in the market, Japanese and South Korean brands are faring better — up 30 percent – double that of western brands, according to the report.
“The prominent platform is Tmall,” Bailey said. “It’s the largest, it’s the most sophisticated and it’s where today, more than 80 percent of [brands L2 tracks] are present….JD is another platform that is super important…irrespective of beauty.”
Because there are so many options when it comes to selling online, Bailey said many beauty brands these days are focusing more on e-tail and cutting back on their own branded sites — examples include Benefit Cosmetics and Vichy, according to the report. The direct-to-consumer market in China has high acquisition costs, which has prompted a lot of the movement toward e-tail, according to Bailey. Brands like Anna Sui, Clé de Peau Beaué, Kiehl’s, Sisley and even Sephora have launched on Tmall, while Make Up For Ever, Burberry, Origins, La Mer and others have launched on JD.com.
When it comes to digital prowess in the region, L2 rated Estée Lauder as the “genius” for it’s loyalty program, sampling and live-streaming strategies, among other factors. “They are benefitting from a trend across China with regards to premiumization,” Bailey said. “Chinese consumers are getting more sophisticated and their demand is for higher priced products….Advanced Night Repair continues to be really popular with Chinese consumers.”
Lauder chief executive officer Fabrizio Freda echoed that sentiment on the company’s earnings call, saying that the Lauder brand’s makeup sales increased in every region, calling out China as a particular success for the business’ second fiscal quarter. “We expect the Lauder brand momentum in China to continue,” Freda said, adding that the brand is launching its Double Wear Foundation in a cushion compact that is “coveted by Chinese consumers.” MAC, while struggling in the U.S. market, is making gains in China as well, he noted, and the brand will also launch on Tmall, which is expected to grow sales.
And Lauder isn’t the only company looking to capitalize on e-commerce in China. Elizabeth Arden, now part of Revlon Inc., has a Tmall platform in the region and continues to ramp up its digital presence. The Revlon brand is also likely to reappear in the region, Garcia has said: “Asia and China in particular are important regions for Elizabeth Arden and for Revlon,” Garcia said in November. “These geographies continue to provide significant growth opportunities for both brands in color cosmetics which is experiencing double-digit growth online and at retail. We have just begun a relationship with Revlon and Tmall, which is promising.”