Why China’s Beauty Market May Not Be So Lucrative for All Brands

on January 28 2014 | in Beauty Trends | by | with No Comments

AmorePacific, China, cosmetics, Chinese beauty industry

Some international beauty companies are struggling to gain a foothold in the Chinese market.

Several weeks ago, Revlon Inc. stated that it would pull out of China entirely; meanwhile, L’Oréal announced that it would discontinue its Garnier brand in the country. Recently, Proctor & Gamble Co. stated that its market share in Chinese skin care was on the decline, and Avon Products Inc. is also feeling the pinch as it transitions to retail boutiques from its earlier direct-selling sales model. In Avon’s case, total Asia-Pacific revenues decreased 22 percent to $167.4 million (19 percent in constant currency) during the most recently reported quarter, which ended September 30. In China alone, revenue slid 67 percent.

Statistics like these are reminders that the potentially lucrative Chinese cosmetics market — a $22.8 billion industry with as many as 5,000 brands — can be a tough nut to crack for Western brands.

“The Chinese beauty market has matured, and the competition is stiff,” said Envirosell founding president Paco Underhill, who has helped businesses enter the marketplace. “It’s very important to pay attention. Companies have to focus on what the ground conditions are.”

South Korean brands, such as AmorePacific, are becoming serious competitors on the Chinese market. In many cases, these companies’ advertising campaigns are headed by Korean celebrities, who exert great influence on consumers (and “particularly on women,” according to Underhill).

According to Javier Escalante, an analyst at ConsumerEdge Research, Chinese consumer preference for local brands, constant brand-switching among consumers, online shopping, and specialty retail chains (which tend to promote local companies) also pose challenges to international companies.

In the case of Revlon, many China-based analysts speculate that issues with marketing, product, and retail strategies combined with a lack of reach in the Chinese market led to the brand’s failure in the country. According to WWD, Revlon was only present in 50 Mainland China centers, out of 160 cities in the country with over a million people.

“In China, you need a more diversified mix of channels,” said Jason Yu, general manager of Kantar Worldpanel China data. “Revlon was in the department stores in top-tier cities, but there was a lack of diversification in channel strategy. More online and specialist cosmetics stores should have been brought into that mix.”

Paul French, Mintel’s chief China market strategist, believes that unfocused product offerings “in a society much less multicultural than many of it’s Western counterparts” are to blame for Revlon’s poor performance.

“Part of Revlon’s problem is that the products they are looking to push worldwide are not products that are going to be very popular in China,” French said. “Bringing over Olivia Wilde to China, who no one knows, to promote an age-defying product, is very weird to me.”

By contrast, French views L’Oréal’s discontinuation of Garnier as a tactful and specific business decision that will gain the brand success in the high-end market.

“L’Oréal is going to do fantastically in the high end. Garnier is really like a Revlon-type product. Elsewhere in the world, it’s a supermarket brand and it’s not going to sit well in the high end, so it makes sense for L’Oréal to dump Garnier and concentrate on where there is money to be made,” he said.

image credit: shinichi higashi

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