If analysts are right about movements in the cosmetics market predicting similar trends in GDP growth, then China’s is definitely on the way up. Doubling since 1998 to a current level of US$7.9 billion, the country’s cosmetics industry is expected to climb to US$9.6 billion by 2009, according to market research firm Access Asia. Some 90 million urban women in China spend 10% or more of their income on face cream, lipstick, mascara, and Shanghai women outspend them all fifty-fold.
"The growing number of young females in white-collar jobs will continue to power the market," said Paul French, analyst at Access Asia. "The proportion of their income which they are willing to spend on cosmetics will also increase at a higher rate than the international average." Even Revlon, whose share price has been dragging for years, has done well on the mainland. State media reported it had "enjoyed high growth rates of more than 90%" during 2004.
White ambitions
A recent survey by Madeforchina, a Shanghai-based Internet research company, asked 3,000 women between 21 and 33 in white-collar jobs, earning more than US$250 a month, what they bought most. Half said skin-whitening cream, with 38% of the respondents claiming to have at least three types at home.
"It used to be that just a moisturizer for the entire face would do," said Lillian Yap, ACNielsen’s China cosmetics researcher. "Today the woman is more discerning; it has to be anti-aging, lifting, filling out the wrinkles – products with a specific function. These are the products that will grow the market."
Unsurprisingly, it is the foreign players who dominate in this ultra-competitive market, the stylish cachet of their home bases in Paris and New York scoring big with consumers. First- and second-tier cities have been penetrated by the big players, and all are looking to new frontiers in third-tier cities and the countryside where a less sophisticated down-market sales approach is emerging.
By volume, supermarkets, hypermarkets and department stores move most products and will continue to do so, though as the market expands beyond second-tier cities, branded stand-alone shops and cornerstone outlets may claim a bigger share of sales.
Door-to-door sales, banned in 1998 after many people were cheated by fraudulent pyramid schemes, recently resumed as Avon was given the go-ahead to extend several pilot projects nationwide. Having been forced to sell their goods through stand-alone shops, the likes of Avon and Mary Kay are likely to refocus on direct sales, although it will take time for the now heavily regulated system to be rejuvenated.
Local brands command China’s undeveloped interior. Partly to get a look in, France’s L’Or?al has acquired Yue-Sai as well as another national low-end brand called Mininurse, which has 5% market share. The French cosmetics giant has started targeting women living on monthly household incomes of US$37-50, selling US$2 items through 280,000 outlets nationwide, a direct result of the Mininurse acquisition. This gives L’Or?al the potential to launch low-end shampoos with a view to ascending the quality scale in step with the Chinese population’s rising affluence.
However, the company will do well to match the brand strength of Procter & Gamble, which accounts for more than US$2 billion of the US$7.9 billion annual market, largely thanks to market leader Oil of Olay and a range of cleansers. Cosmetics, including skin cream, together with hair products account for 70% of P&G sales in China, compared to a 50-50 sales split in other countries.
The makeup component of the beauty market in China, while still small against skin creams and cleansers, is forecast to reach US$524 million in sales this year, rising to US$705 million by 2009, Access Asia predicts. L’Oreal’s 2004 sales of US$350 million (including makeup and other beauty products) were up 58% over the previous year, while Shiseido’s sales hit US$204 million last year, up 27%. Entering the China market in 1993, Est?e Lauder has grown from 10 department store counters in 2001 to more than 40 counters nationwide.
Domestic bases
With certain restrictions still applying to the sale of imported cosmetics in China, manufacturers have set up factories inside the country to meet the demands of consumers who want foreign brands. Mary Kay built a plant in Hangzhou, and there are now plans to expand capacity with a view to export sales in addition to domestic business.
The Mininurse acquisition also gave L’Or?al a valuable manufacturing base as the deal included a large factory in Yichang, Hubei province. US-based Est?e Lauder opened its 15-scientist Innovation Institute in Shanghai to adapt and develop new products in line with Asian skin tones.
As 2006 matures, the road ahead is not only filled with promise, but, at least in the short-term, marked with the extraordinary purchase of items that see little use. ACNielsen’s Yap feels this is a period of trial and error for Chinese women, with many dramatic makeup products being sold, but rarely seen in public.
"You might think that they would buy a beige or a brown eye shadow, but the colors they buy are very dark, charcoal, heavy blues," she said. "The interesting thing is that this stuff flies off the shelves, but I do not see it on women’s faces. I think they are experimenting. Dark colors are really selling well compared to the States where the beiges and the browns are moving."
While it is an eternal verity of the industry that the older a woman becomes, the more makeup she applies, there is a caveat in China’s case. Despite its fast-growing aging population, Yap finds that women of the Cultural Revolution generation, those aged 50-65, don’t follow the western pattern of applying more and more cosmetics up to the age of 65. "Makeup came too late for them, they’re past it," she said. "But those who are 45 and below now can be expected to follow global trends as they age. So there will be money in older women, but not just yet."