Western cosmetics brands should proceed with caution in the Chinese market. With the 2013 departure of L’Oreal’s Garnier brand and Revlon from the country, many speculated that Western cosmetics would eventually disappear from China. Of course this is unlikely as many Western companies still have a strong market presence in China. However, the pulling out of Garnier and Revlon demonstrated a deep need for Western brands to innovate and adapt in a rapidly changing market that is becoming increasingly dependent on e-commerce. With sales of personal care products in China dropping from $24 billion in 2012 to $21.9 billion in 2013, the competition is particularly fierce.
“Brands exiting from China has nothing to do with lack of market growth, but rather their failure to beat the competition in making their brands relevant to the notoriously fickle local consumers,” said Matthew Crabbe, Director of Research at Asia-Mintel Pacific.
Market competition is increasingly coming from Asian as well as other Western companies. The South Korean brands Sulwhasoo, Missha, and AmorePacific, and the Chinese brands Houdy, Caisy, Longrich, CMM, Herborist, and Chinfie, now “pose the long-term threat” to the profits of Western cosmetics companies.
“Both Chinese and Western companies have good understanding of Chinese women, but local brands are comparatively more flexible and faster in execution,” says Cindy Yang, Director of Nielsen China. “Western brands are not necessarily regarded as better quality. Some local brands are preferred among consumers because they have leveraged traditional Asian ingredients well and made their products very convincing.”
One particularly successful Chinese company, Shanghai Jahwa United Co., Ltd, maintains 10 brands on the domestic market, and are even taking steps to expand their presence into the international market by acquiring foreign brands. In South Korea, AmorePacific dominates, with a market share that increased from 1.2 percent in 2007 to 2.6 percent in 2012.
Despite the fierce competition, some international cosmetics companies are holding their own in China. By market share, the major foreign companies in China are Procter & Gamble, L’Oreal and Shiseido. According to data from Euromonitor, L’Oreal was especially successful in 2012, with a 41 percent value share in men’s skincare and a 22 percent value share in men’s grooming.
“Chinese men are more open to use products these days,” Yang says. “Male skincare products have expanded from hydration and oil control segments to new categories like facial masks. In male personal care categories, lots of purchasers are actually women, as men trust their girlfriends or wives to select products for them.”
“Reportedly, foreign cosmetics brands jointly grabbed 57.9% of the mainland Chinese market as of May 2009, but their market share fell to 44.5% as of May 2012. Procter & Gamble and Avon both lost market share in the six years through 2012, according to Euromonitor,” CKGSB Knowledge adds.
Foreign companies must also take China’s changing consumer behavior and growing e-commerce sector into account.
“Consumers are not as loyal as before, especially younger consumers from the post 80s and 90s,” Yang says. “The market share of the top 10 skin moisturizing brands dropped by 5% from 2011 to 2013. This is partially because consumers have more choices, plus e-commerce’s and cosmetic store channels’ fast development has made products more available to consumers.”
According to Euromonitor, online cosmetics sales grew from 4 percent in 2010 to 9 percent in 2011, while “sales in the actual retail stores” declined from 83 percent to 74 percent. While purchasing cosmetics on online platforms, such as Taobao, can be unreliable, e-commerce provides numerous opportunities for innovation and can even increase sales, especially among consumers in lower-tier cities, where retail locations may not be present.
Leo Chen, founder and Chief Executive of Jumei.com, a “huge online beauty discount e-tailer,” claims that his company generated $400 million in revenue in 2012, up from $100 million in 2011. Esteé Lauder also saw a sales increase in 2012, with online sales rising by 40 percent.
Furthermore, online retailers don’t need to hire as many employees, and wage savings can translate to considerable discounts for customers — up to 20 percent savings on premium items.
Crabbe stresses that Western companies must always stay attuned to local tastes and form relationships with their customers through social media.
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