With the increase in consumer spending power and the rapid development of online channels, especially social commerce channels, the Chinese beauty market has shown extraordinary growth potential in recent years – a trend that has not been hampered by the pandemic. According to the National Bureau of Statistics of China, total retail sales of consumer goods grew by 4.6 per cent year-on-year in December 2020, with sales of beauty products (including skincare and makeup) increasing by 9.0 per cent, outperforming the broader market.
Demand for this category is expected to keep up as life returns to normal in the country. In fact, Deloitte estimates that the Chinese beauty market will expand at a CARG of 17.6 per cent to be worth 124.3 billion RMB by 2024. And it doesn’t stop there – as favourable policies continue to come into effect, the market is likely to flourish even more.
New policies in the “Measures for the Administration of the Registration and Filing of Cosmetics” and “Provisions on the Administration of the Registration and Filing of New Cosmetics Raw Materials” issued this year saw the revision of China's animal testing policy on imported general cosmetics. Cosmetics that fall within this category (not inclusive of “special” cosmetics such as hair dye, skin whitening and sun protection products) can be exempted from toxicological testing – i.e., animal testing, if they meet the requirements. The exemption, however, does not apply to products for infants and children, products with new ingredients, or products from companies that are already under supervision by the authorities. The revised policy came into effect on 1 May 2021.
Due to rising global consumer awareness and interest in cruelty-free and clean beauty products, many international beauty brands have held back from entering the Chinese market in order to maintain their stand against animal testing. The relaxation of this policy will likely result in an influx of these brands in the market – which will undoubtedly shake up the local beauty industry.
A few years ago, the only way for Chinese consumers to purchase beauty products from brands like Hourglass or Laura Mercier was through the grey market – essentially, Daigous. Such a purchasing channel not only made it difficult to guarantee the consumer experience, but also often created doubt regarding the authenticity of products. With the launch of cross-border e-commerce platforms like Tmall Global in recent years, a wider range of beauty brands have since managed to bypass the animal testing requirement to enter China and sell directly to Chinese consumers.
In April 2020, Tmall Global launched its “Zaoxin” programme, which will constantly introduce overseas brands to its platform in coming years, in co-operation with beauty conglomerates such as Estée Lauder, L’Oréal and LVMH and other independent brands. Over the years, Tmall Global has gradually built up its beauty portfolio and now offers shoppers a wide range of global brands across all price points – including social media friendly brands like Fenty Beauty and Jeffree Star Cosmetics – to choose from.
However, the e-commerce channel has its limitations. For one, the offline experience serves as a significant purchase driver in the beauty sector. Additionally, the cross-border e-commerce channel that many of these international brands are tapping on is only available to Chinese consumers (foreigners in China are unable to purchase through this channel), with each consumer limited to an annual quota of 26,000 RMB worth of purchases – which inevitably caps the growth potential of this channel. Changes to the animal testing policy will now allow brands to access major e-commerce playgrounds (without relying on cross-border channels) and even establish an offline presence in China’s major cities, gaining direct access to over 1.4 billion Chinese consumers.
But acquiring traffic for these channels comes at a cost – investing in Tmall, launching offline points-of-sale, and ramping up marketing within the market all require significant investment. It is important to understand the current state of a brand, as that plays an important role in prioritising the many options of entering in such a diverse market like China, says Iris Chan, Partner & Head of International Client Development at DLG (Digital Luxury Group). “To assess a brand’s current brand equity, we look online for organic word-of-mouth through channels like RED,” she adds.
Given the hefty investment, brands backed by a conglomerate are more likely to gain a stronger foothold in this market, especially since these brands are also typically the ones that started expanding their footprint in China earlier than others.
In April 2020, high-end makeup brand Urban Decay (under the L’Oréal group) unveiled its Tmall Global flagship store with a Tmall Super Brand Day activation to mark its official entrance to the Chinese market. At the same time, it also announced top Hong Kong singer G.E.M. Ziqi Deng as its global spokesperson. Prior to its official Chinese debut, the brand had been consistently investing in China through events and activations, like its pop-up exhibition in collaboration with local lifestyle label The Beast in 2018 to launch the Naked Cherry collection. Following years of brand building, the brand’s success in China is to be expected. Its best seller on Tmall now is the Moondust eyeshadow collection – over 9,000 units from this range are sold per month, translating to over 1 million RMB in revenue for a single product line alone.
Apart from Urban Decay, many cult makeup brands have been quietly waiting in the wings for their big break in China: Estée Lauder’s Too Faced, which targets Gen-Z consumers; Milanese mass makeup brand Kiko; and Dubai-based Instagram favourite Huda Beauty – just to name a few. All of these brands have been receiving a great deal of attention in China and will realise their huge potential once they are able to move away from cross-border channels and the grey market.
According to Li Ang, Analyst at Chinese brokerage and investment bank China Galaxy Securities, specialised beauty retail channels like Sephora should be the first channel for brands consider. “Most brands, especially mass makeup brands, have long been retailing in overseas Sephora offline storefronts and its online store, and have already forged stable brand partnerships. If the Chinese market opens up, it may be easier for the aforementioned brands to sell through the existing Sephora points-of-sale in China, which is less costly than directly operated shops and counters.” Department stores, he adds, should not be ignored as well. The “first store economy” that comes with overseas brands entering China and opening their first flagship store in the market, combined with their brand equity, can also drive significant traffic, he adds.
While these international brands enjoy growing awareness, their success in the market is not guaranteed. They will still have to contend with challenges in dealing with a completely different consumer compared to that in the West, and competition from existing local brands in the market that are more competitively priced and attuned to the local landscape.
That said, Chinese consumers appear to have more mixed feelings about these brands than Western consumers who are far more conscious when it comes to concepts like “cruelty-free”, “vegan”, and “clean beauty”. Estée Lauder subsidiary Smashbox was boycotted by Chinese consumers for its commitment to cruelty-free products and its anti-animal testing stance – in the form of an Instagram description noting, “We don’t sell in China”. As Chinese netizens’ patriotic fervour continues to be on the rise, brands have to be cautious in the decisions they make in the market.
As such, brands that have been met with controversy in the Chinese market must first consider whether its entry or re-entry into the Chinese market will come under scrutiny, again. In addition, these consumer reactions and social media discourse indicate that such “conscious” concepts do not significantly impact the purchase decision-making of Chinese consumers – or at least, are not a top priority.
Brands competing in the domestic market will be looking at a different kind of landscape, and distinct from the landscape within China’s cross-border beauty market, says Chan. They will not be able to rely on the same USPs (such as cruelty-free or vegan), because they will not be speaking to the same group of consumers, she adds. These days, popular local makeup brands such as Florasis (Huaxizi) or Perfect Diary, rarely communicate about the environmental responsibility of their products. In addition, Chinese consumers have a very different focus on ingredients compared to the West. Still, Chan remains optimistic: “I think diversity is going to provide the space and opportunity for different brands. It is important for brands to recognise the diversity in consumer needs and profiles, and respond with diversity in the brand and product offerings to meet the market demands across the China market.”
But Chinese consumers as a whole are becoming more aware of sustainability and environmental issues. On Chinese social media platform RED, there are over 200,000 user-generated notes (post) that include the term “sustainability”, with users sharing their sustainable lifestyles and the “sustainable” products they bought. In the apparel industry, both top luxury brands and independent brands are beginning to leverage their products as a channel to educate consumers on what it means to create a responsible supply chain. Likewise, Western beauty brands can take this as an opportunity to educate Chinese consumers more about sustainable beauty, promote it, and inspire change in the way consumers view these issues in order to shape a more responsible industry as a whole.
In the long term, the changes taking place in this country will eventually reshape the global beauty landscape. Brands like NARS and Bobbi Brown were once criticised by Western consumers for having double standards and acquiescing to China’s animal testing policies in order to enter the world’s largest consumer market. But with changes to this policy in the horizon, especially in a market of this size, abandoning the practice of animal testing may very well become the global industry standard. And when that happens, the beauty industry might just be able to take one large step forward in terms of sustainability and responsibility, setting the tone for decades to come.