China’s cosmetics market, 2011 February 2012 Li & Fung Research Centre
In this issue: I. Industry overview p. 3 II. Competitive landscape p.18 III. Latest developments p.30 IV. Snapshots of sub-sector performance p.45 2
I. Industry Overview (1) Market Size (2) Retail price of cosmetics (3) Distribution channels 3
Growth of China’s cosmetics retail value accelerated in2011 According to the National Bureau of Statistics of China (NBS), retail sales of cosmetics of enterprises above designated size* reached 110.3 billion yuan in 2011, up nominally by 18.7% year-on-year (yoy). China’s cosmetics market has demonstrated faster growth in 2011 (18.7% yoy) than that in 2010 (16.6% yoy). Exhibit 1. Retail value of cosmetics by wholesale and retail enterprises above designated size*: 2007-2011 120 110.3 30% 100 88.9 25% 80 74.0 20% 59.7 60 48.8 15% 40 10% yoy growth (%) FY10 1Q11 1H11 FY11 20 5% Cosmetics 16.6 17.8 20.0 18.7 0 0% 2007 2008 2009 2010 2011 Sales value Growth Source: National Bureau of Statistics of China (NBS) 4* Designated size: with annual sales of 5 million yuan or above and with an employment of or over 60.
Cosmetics retail sales in lower-tier cities are fast growing; yet first- andsecond-tier cities captured a bigger share of the market According to China National Commercial Information Centre (CNCIC), cosmetics retail sales rose by 28.2% yoy in third-tier cities in 2010, faster than those realized in the first- (15.8%) and second-tier cities (17.0%). Although cosmetics sales in lower-tier cities are growing fast, big cities still capture a larger share of the market. − According to a report* by the Hong Kong Trade and Development Coucil (HKTDC), retail sales of cosmetics in Shanghai, Beijing, Jiangsu, Guangzhou, Zhejiang and Shandong accounted for more than 55% of the national total. Among these cities, Shanghai made up the largest proportion of the total retail sales of cosmetics, stood at 12%, followed by Beijing, Jiangsu and Guangdong, representing 11%, 9% and 9% respectively. *Source: Cosmetics market in China, HKTDC, 2011 5
I. Industry Overview (1) Market Size (2) Retail price of cosmetics (3) Distribution channels 6
Retail price of cosmetics has been rising in 2011 Retail price index of cosmetics in China has been rising. The index rose above 101.6 starting from August 2011. Although the tax levied on imported cosmetics has been reduced from 6.5% to 5% since 1 January 2012, market experts observe that retail price of many imported cosmetics products remains high. Exhibit 2. Retail price index of cosmetics in China, January 2010-December 2011 (Same month of preceding year = 100) 102.0 101.5 101.0 100.5 100.0 99.5 99.0Source: National Bureau of Statistics of China (NBS) 7
Escalating cost pressure on cosmetics retailers Although retail price has been on a rising trend, most industry players still believed that it had lagged behind the cost increase. − Labor cost constitutes a large cost component for cosmetics companies. Local governments in over 20 provinces/municipalities, such as Beijing, Shanghai, Guangdong, Zhejiang, etc. and one special economic zone (i.e. Shenzhen) have lifted the monthly minimum wage in their jurisdictions in 2011. − Rents, especially those in prime locations, have risen substantially over the past few years. − Other distribution, logistics, packaging and marketing costs have also increased rapidly in recent years, posing great challenges to cosmetics companies. In order to curb the climbing costs, some cosmetics companies try to pass the costs on to their consumers by raising the retail prices. − At the end of 2010, Lancôme (蘭蔻) and Biotherm (碧歐泉), which are under LOréal Group, announced to raise the retail prices of their products by 20-30% starting from 1st January 2011. − In July 2011, Estée Lauder and Clinique increased the retail prices by 8-10%. 8
I. Industry Overview (1) Market Size (2) Retail price of cosmetics (3) Distribution channels 9
Department stores, supermarkets/hypermarkets are themajor distribution channels for cosmetics According to Access Asia, department stores, supermarket/hypermarkets and the Internet were the three most popular sales channels for cosmetics products in 2010. Characteristics of selected retail formats are examined: − Department stores − Supermarkets/hypermarkets − Professional stores − Specialty stores − Internet retailing − Pharmacies − Beauty parlors 10
Characteristics of selected distribution channels –department stores Department storesPros − Department stores offer a wide range of merchandises and provide one- stop shopping experiences for consumers. − Department stores play an important role in brand building.Cons − Competition for counter spaces is fierce, many lesser-known brands are forced to phase out. − Department stores may gradually lose appeal to Chinese consumers due to poor differentiation. 11
Characteristics of selected distribution channels –supermarkets/hypermarkets Supermarkets/hypermarketsPros − Supermarkets/hypermarkets are important channels particularly for low- to mid-range cosmetics products (e.g. shampoo, facial cleanser). That being said, more high-end cosmetics brands, especially foreign-owned ones, are sold in supermarkets/hypermarkets.Cons − The entry costs of supermarkets/hypermarkets have been escalating over the past years; some weaker local brands are facing tough cost challenges. 12
Characteristics of selected distribution channels –professional stores Professional stores − Professional stores are “one-stop shop” for customers to shop for cosmetics and accessories. Examples include Hong Kong-based Watsons and Sasa, France-based Sephora, and China-based Gialen (嬌蘭佳人) and Cosmart (歌詩瑪). − Professional stores offer a wide variety of cosmetics brands in different quality and price tiers, catering to different needs of customers. − However, quality of products available in professional stores is less assured as there may be other substandard parallel imports and even counterfeit products being sold in the professional stores. 13
Characteristics of selected distribution channels –specialty stores Specialty stores − Specialty stores help promote brand image, ensure high quality services and standardized prices. − Moreover, cosmetics brand owners can achieve autonomy over store operation through opening specialty stores. − Korean brands such as Skin Food, Etude House and Missha are especially interested in distributing their products through specialty stores and department stores to avoid high distribution cost in hypermarkets. − It is expected that specialty stores will become another key retail channel for cosmetics as large shopping complexes spring up in these years. − Nevertheless, some specialty stores are small-scaled, scattered and disordered. 14
Characteristics of selected distribution channels –Internet retailing Internet retailing − There are many types of B2C online retailing portal in China. Below are some of the examples. Brands operating their own online stores: • Lancôme (http://www.lancome.com.cn) • Biotherm (http://www.biotherm.com.cn) B2C online platform operators that provide a wide range of cosmetics brands in different price tiers: • Strawberrynet.com (草莓網) • Sasa.com (香港莎莎網) Group purchase websites that offer cosmetics products at discounted price: • Gaopeng.com (高朋網) • Meituan.com (美團網) Online agents that help Chinese customers buy foreign cosmetics brands. 15
Characteristics of selected distribution channels –pharmacies Pharmacies − Selling cosmetics products in pharmacies facilitates repeat purchases. Many pharmacies in China are keen to introduce cosmetics products as they can generate better profit margins. − Many branded cosmeceuticals are distributed via pharmacies. France- based Vichy, La Roche-Posay, China-based Longliqi (隆力奇) and Cortry (可采) are some of the commonly found brands in pharmacies. 16
Characteristics of selected distribution channels –beauty parlors Beauty parlors − According to a survey* conducted by HKTDC, the average spending of the respondents at beauty parlors was 2,832 yuan in 2010. Respondents from Shanghai spent the most (4,951 yuan) at beauty parlors, followed by Beijing (3,528 yuan), Guangzhou (3,078 yuan) and Chengdu (2,458 yuan). − In fact, many beauty parlors sell their own brands or act as agents to distribute other brands in Asia. − Examples of beauty parlors in China include Herborist SPA (佰草集漢方 SPA) and Natural Beauty SPA (自然美SPA生活舘). 17 *Source: At your service: a rising sector for the Mainland middle class, HKTDC, 2011
Foreign cosmetics companies are keen to capture a largershare of China’s cosmetics market Foreign companies are vying for a larger market share in the mass market of China’s cosmetics market. − For example, it is reported that LOréal would expand into 600 second-tier cities to reach untapped customer base. − US cosmetics firm Mary Kay planned to invest 25 million USD in building a distribution centre in China, which is poised to surpass the US to be its largest market by 2013, according to media reports. − Another US cosmetics company Avon opened a R&D center in China in August 2011, which is the largest facility of its company outside the US. − Estée Lauder unveiled a plan to penetrate more Chinese cities and add more e- commerce channels for some of its brands such as Origin and Bobbi Brown in the next three years. 19
Foreign cosmetics companies are keen to capture a largershare of China’s cosmetics market (cont’d) Foreign companies are vying for a larger market share in the mass market of China’s cosmetics market. (cont’d) − In September 2011, Samsung Group’s subsidiary Shilla Hotel opened a cosmetics specialty store Sweetmay in Macau, selling 16 types of popular Korean cosmetics brands such as Hanskin, VOV, Banilaco and Danahan. The company planned to open similar specialty stores in mainland China soon. − Watsons, with 1,000 stores covering 150 cities of China, is planning to expand its presence to more than 300 cities in China to reach 3,000 stores by 2016. − Hong Kong-based cosmetics retailer Sasa has new moves in mainland China: its large-scale cosmetics retail store in Shanghai, first ever in mainland China, opened in October 2011. 20
Foreign companies are more competitive in the mid- tohigh-end and luxury segments Currently, foreign brands have gained a firm foothold in the mid- to high-end and luxury cosmetics market in China. On the other hand, domestic companies are mainly competing in the low- end market. With solid foundation in high-end cosmetics market operation, foreign brands now expand beyond the high-end market, aiming to penetrate the mass market in China. − For example, LOréal introduced several middle-range cosmetics brands such as Garnier, LOréal Paris, Maybelline New York, etc. to target the mass market. 21
Foreign cosmetics enterprises and their major brands inChina Exhibit 3 shows the major foreign cosmetics groups and their major brands in China. Exhibit 3. Foreign cosmetics groups and their major brands in China Enterprise Brands L’Oréal L’Oréal Paris 巴黎歐萊雅 shu uemura 植村秀 Biotherm 碧歐泉 歐萊雅 Garnier 卡尼爾 Giorgio Armani 喬治 阿瑪尼 Helena Rubinstein HR 赫蓮娜 Maybelline New York 美寶蓮紐約 LA ROCHE-POSAY理膚泉 Kiehl’s Matrix 美奇絲 L’Oréal Professional 歐萊雅專業美髮 Mininurse 小護士 Skinceuticals Kérastase 卡詩 Yue Sai 羽西 Lancôme 蘭蔻 Vichy 薇姿 P&G Head & Shoulders 海飛絲 Vidal Sasson 沙宣 Camay 卡玫爾 寶潔 Rejoice 飄柔 Clairol Herbal Essences 伊卡璐 Pantene 潘婷 SK-II Wella 威娜 Olay 玉蘭油 Shiseido Shiseido 資生堂 UNO 吾諾 Shiseido Eudermine 紅色蜜露 資生堂 Shiseido Men資生堂男士 PF-Cover 無瑕修顏 Za 姬芮 Clé de peau beauté 珂麗柏蒂 DQ 蒂珂 Aqua Label 水之印 Revital 悅薇 The Skincare 水活煥妍 Be 彼嘉 UV White 優白 Beneflance 盼麗風姿 Aquair 水之密語 Anessa 安熱沙 Pureness 飄爾麗思 Perfect 洗顔專科 Aupres 歐珀萊 White Lucent 透白美肌 Kuyura 可悠然 Supreme Aupres 思魅歐珀萊 Soi Pure & Mile 泊美舒亞 Super Mild 惠潤 Urara 悠萊 Shanghai Bouquet 上海花漪 Maquillage 心機彩妝 Elixir 怡麗絲爾 Qi 綺怡 Tessera 欣香 Elixir Superieur 怡麗絲爾優悅活顏 Zen 世紀禈香氛 Hand Cream 美潤護手霜 Melanreduce 臻白無瑕 Bio Performance 百優 Handasui 肌水 Asplir 愛泊麗 Future Solution LX 時光硫璃御藏 Tsubaki 絲蓓綺 Whitia 白娣顔 Body Creator 美體造型 Pure & Mild 泊美 Selfit 珊妃 Dicila 蒂思嵐 22 Source: Li & Fung Research Centre and respective company websites
Foreign cosmetics enterprises and their major brands inChina (cont’d) Exhibit 3. Foreign cosmetics groups and their major brands in China (cont’d) Enterprise Brands Unilever Vaseline 凡士林 Pond’s 旁氏 聯合利華 Lux 力士 Clear 清揚 Dove 多芬 Rexona 舒耐 Hazeline 夏士蓮 LYNX 凌仕 Johnson & Johnson Clean & Clear 可伶可俐 Dabao 大寶* 強生 Neutrogena 露得清 Johnson’s Body Care 強生美肌 Johnson’s Baby 強生嬰兒 Estée Lauder Estée Lauder 雅詩蘭黛 La Mer 海藍之謎 雅詩蘭黛 Aramis 雅男士 Bobbi Brown 芭比波朗 Clinique 倩碧 Tommy Hilfiger 唐美希緋格 M.A.C. 魅可 Donna Karan Cosmetics 唐娜凱倫 Beiersdorf NIVEA 妮維雅 La Prairie 莱珀妮 拜爾斯道夫 Nivea for men Eucerin Florena C-Bons Hair Care** Slek 舒雷 Hairsong 順爽 Sdew 風影 Maestro 美濤 iSPA Home 悅美芳達 Costyle 珂絲美 Kanebo Impress 印象之美 Aqua 雅呵雅 佳麗寶 Lunasol 日月晶采 Aqua Sprina雅呵雅絲睿 Sui sai 水之璨 Aqua Lunash 潤希 Coffret D’or 金炫光燦 Freeplus 芙麗芳絲 Blanchir Superior 馥蘭哲兒極致系列 Kate Dew Superior 潤活極致系列 *Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007. ** Johnson & Johnson has completed the acquisition of Beijing Dabao Cosmetics Co. Ltd. in 2008. 23 Source: Li & Fung Research Centre and respective company websites
Foreign cosmetics enterprises and their major brands inChina (cont’d) Exhibit 3. Foreign cosmetics groups and their major brands in China (cont’d) Enterprise Brands Kao Kao 花王 Asience 亞羨姿 花王 Bioré 碧柔 Sifoné 詩芬 Men’s Bioré 碧柔男士 Feather 花王飛逸 Sofina 蘇菲娜 Curél 珂潤 Est Kosé Kosé 高絲 Avenir 艾文莉 高絲 Beauté de Kosé美諦高絲 Recipe-O 蘭哲歐 Prédia 貝締雅 Junkisei 潤肌精 Sekkisei 雪肌精 White St 妍哲 Sekkisei Supreme雪肌精 Supreme Nature & 娜蔻 Refine 萊菲 Moisture Skin Repair Esprique Astalution Junkisui 純肌粋 Grandaine葛倫黛娜 Seikisho清肌晶 Infinity 白澄 Avon Products, Inc. Avon 雅芳 美国雅芳产品有限公司 Amore Pacific Corp Laneige 蘭芝 Amore 爱茉莉 愛茉莉太平洋集團 Mamode 夢妝 Sulwhasoo 雪花秀 Nu Skin Enterprise Inc. Nu Skin 如新 如新集團 LVMH Group Guerlain 嬌蘭 DHC Corp DHC Source: Li & Fung Research Centre and respective company websites 24
Domestic brands are more competitive in the mass market Generally, domestic players focus on second- and third-tier cities, offering value-for-money products. In recent years, a number of local cosmetics brands have caught up with their international counterparts. Some local brands that have gained increasing attention include: Herborist (佰草集), Chcedo (自然堂), Chinfie ( 清妃), Cheng Ming Ming (鄭明明), Caisy (采詩) and Longliqi, etc. 26
Domestic cosmetics enterprises and their major brands inChina Exhibit 4 shows some major domestic cosmetics groups and their major brands in China. Exhibit 4. Domestic cosmetics groups and their major brands in China Enterprise Brands Shanghai Jahwa Co., Ltd.* Maxam 美加淨 Gf 高夫 上海家化集團 Chinfié 清妃 Liushen 六神 Herborist 佰草集 Cocool 珂珂 ShanghaiVive雙妹 Sichuan Jahwa Cortry Cosmetics Co. Ltd** Cortry 可采 LiveliCutee 伶采 四川家化可采化妝品股份有限公司 Jiangsu Longliqi Group Co., Ltd. Longliqi 隆力奇 YaFei 雅妃 江蘇隆力奇集團 Yuzhibao 浴之寶 Evergreen 雅妍 Arche Cosmetics Co., Ltd BNS 繽麗 Effi 玉麗 廣東雅倩化妝品有限公司 Ariar 清逸 Airiny 維鮮 Cathy 佳雪 Zhuhai Sunrana Cosmetics Co., Ltd. Sunrana 姍拉娜 珠海姍拉娜化妝品有限公司 Bawang International Bawang 霸王 Men’s Bawang 霸王男士 霸王國際集團 Herborn 本草堂 Royal Wind 追風 Litao 麗濤 * Ping An Group has acquired 100% of share in Shanghai Jahwa in 2011. **Shanghai Jahwa has acquired 51% stake in Cortry in 2008. Source: Li & Fung Research Centre and respective company websites 27
Domestic cosmetics enterprises and their major brands inChina (cont’d) Exhibit 4. Domestic cosmetics groups and their major brands in China (cont’d) Enterprise Brands Shanghai Huayin Commodity Co., Ltd. Bee & Flower 蜂花 上海華銀日用品有限公司 Guangzhou Houdy Cosmetics Co., Ltd. Houdy 好迪 Coian 可靚 廣州市好迪化妝品有限公司 Sincir 信婷 Tongle 童樂 Decolor Cosmetics Co., Ltd. Decolor 迪彩 Crystal晶彩 廣州市迪彩化妝品有限公司 Luxe-Lotus蓮尚 Lotuses 千蓮薈 Enevous 伊儂華 Nenuph 藍蓮花 Nanjing Jianong Chemical Co., Ltd. TJOY*** 丁家宜 TJOY for men 丁家宜男士 南京珈儂生化有限公司 Lafang Group Lafang 拉芳 Bétrue 繽純 拉芳集團 Raclen 雨潔 Sunfeel 聖峰 Duo Zi 多姿 Mese 美多絲 Guangzhou Tobaby Cosmetics Co., Ltd. Tobaby 丹芭露 廣州露純化妝品有限公司 Huaya Group Co., Ltd. Franic 法蘭琳卡 Meifubao 美膚寶 環亞化妝品科技有限公司 Jala (Group) Co., Ltd. Chcedo 自然堂 Maysu 美素 伽藍(集團)股份有限公司 *** Coty has acquired a majority stake in TJOY in December 2010. 28 Source: Li & Fung Research Centre and respective company websites
Domestic cosmetics enterprises and their major brands inChina (cont’d) Exhibit 4. Domestic cosmetics groups and their major brands in China (cont’d) Enterprise Brands Proya Cosmetics Co., Ltd. Proya 珀萊雅 杭州珀萊雅化妝品有限公司 Shanghai Inoherb Cosmetics Co., Ltd. Inoherb 相宜本草 上海相宜本草化妝品股份有限公司 Softo Co., Ltd. Softo 索芙特 索芙特股份有限公司 Foshan Shunde Modern Health Care Products Co., Xian Dai 現代 Ltd. 佛山市順德現代保健用品有限公司 Shanghai Savol Health & Cosmetics Co., Ltd. Savol 章華 浙江章華保健美髮實業有限公司 Youngrace Cosmetic International Group Limited Youngrace 溫雅 溫雅化妝品國際集團有限公司 Source: Li & Fung Research Centre and respective company websites 29
III. Latest developments 30
1. Cosmetics brands are keen to explore online opportunities In response to changes in customers’ purchasing behavior and significant advancements in the online retail market, many cosmetics brands have been making use of online platforms to reach customers. According to iResearch, the transaction value of China’s online retailing market* was up by 75.3% yoy to reach 461.0 billion yuan in 2010, accounting for 2.98% of the country’s total retail sales. Cosmetics and personal care products ranked 4th among the most popular categories consumer purchased online in 2010. Exhibit 5. The most popular categories consumer purchased online, 2009-2010 Apparel, footwear and bags Books/music/movies and videos Prepaid cards (e.g., top-up cards, etc) Cosmetics and personal care IT/digital/communication Home products Healthcare food 2009 Maternity and baby care products Electronic appliances 2010 Toys and gifts Jewellery Others 0 5 10 15 20 25 30 35 40 45 50 % Source: iResearch: “2010-2011年中国网络购物用户行为研究报告简版”*Accordingto iResearch, scale of online retailing market refers to the total transaction value of consumer-to-consumer (C2C) and business-to-consumer (B2C) online businesses. Scale of C2C online retailing market is calculated by the total value of purchases, excluding that on the B2Carm of C2C platforms. Scale of B2C online retailing market has excluded payments of travel expense, air tickets and online bill payment services. 31
1. Cosmetics brands are keen to explore onlineopportunities (cont’d) Some brands prefer to use B2C online portals to sell their products. − According to Tmall (天貓), the largest online B2C platform in China, the transaction value of cosmetics in 1H2011 already exceeded that of FY 2010. − Tmall is also the B2C platform that offers the largest number of cosmetics brands in China. Currently, around 1,200 cosmetics brands are sold in Tmall. − Examples of cosmetics brands that use B2C platform to sell their products include: Kosé (kose.taobao.com) LOréal Paris (loreal.tmall.com) Herborist (herborist.tmall.com) 32
1. Cosmetics brands are keen to explore onlineopportunities (cont’d) On the other hand, some brands prefer to start their own e-commerce operation to gain autonomy. − To reach more new customers, Shiseido started its own e-commerce operation in September 2011 by launching an exclusive online product line Pure & Mild Soi (http://www.puremild-soi.com/front/contents/top/). − Other cosmetics companies such as Lancôme, Estee Lauder and Clinique, etc. have also developed their own online stores. However, multi-channel retailers should also consider the possible conflicts between online and offline stores in terms of variety of products and prices. To avoid online channels cannibalizing sales of their offline stores and potential conflict of interests with existing distributors and franchisees, retailers have to pay extra attention to pricing strategies and to maintain online and offline consistency. 33
2. Cosmetics companies receive growing attention in thecapital market Recently, cosmetics companies in China have garnered increasing attention in the capital market. − Local cosmetics brands that have received investments from venture capitalists include Guangzhou-based companies Menplus (男性主義), Jimmi (九美子) and Ardme (雅茚), and Shanghai-based Cosmart, etc. An increasing number of cosmetics companies seek to raise capital through IPOs. It is believed that IPOs can generate capital to fund organic growth and support expansion. Furthermore, the brand image will be markedly improved. − Inoherb (相宜本草), Meifubao (美膚寶), Jala* (伽藍集團), Proya (珀萊雅) and MGPIN (毛戈平), etc. are cases in point. In November 2011, a subsidiary of China’s second biggest insurer Ping An Group won a bid for 100% share of Shanghai Jahwa Group, a famous domestic company which have a portfolio of cosmetics brands including Chinfie, GF (高夫), Shanghai Vive (雙妹), Maxam (美加淨) and Herborist. 34*Jala Group owns famous local brands such as Maysu (美素), Chcedo(自然堂), etc.
3. Spending on marketing and advertising is huge in China To raise brand awareness, cosmetics players have spent huge sums of money on marketing and advertising in China. Marketing-to-expense ratio for many brands stayed high in 2011. According to “China cosmetics market: Amorepacific vs Shiseido” by Samsung Securities in July 2011, Shiseido’s marketing-to-expense ratio rose from 22% in 2010 to 35% in 2011. According to a CTR survey*, cosmetics/toiletries (1.4%) contributed the most to the growth of 2011’s advertising spending in China (13%). In 2011, LOréal was the biggest spender on advertising in China. 35*Source: Advertising expenditure in China, 2011, CTR, 2011
4. Social media is becoming an important marketing tool forcosmetics companies Today, social media is a very important marketing tool for cosmetics players to connect with their customers. − According to Thindov, a market research agency in China, 80% of the top 100 cosmetics brands in China promoted their brands in Sina Weibo, the most popular Chinese microblog as of end-September 2011. 36
5. Cosmeceutical market is gaining increasing attention Cosmeceuticals are cosmetics products with vitamins, herbs, pharmaceuticals or biologically active ingredients purporting to have medical benefits. According to the aforementioned report by HKTDC, more than 170 enterprises have entered the cosmeceuticals market. It is expected that the cosmeceutical market in China would grow by 10-20% yoy to reach 20 billion yuan in 3 to 5 years. Indeed, many players have entered the cosmeceutical market in recent years. − Chinese supermarket operator Lianhua (聯華) has formed a partnership with Growell Group (a well-known cosmeceutical company in Japan) and Meiribuy (每日通販) (a Shanghai-based online platform selling Japanese products) in September 2011. They planned to open 8 cosmeceutical stores in the central areas of Shanghai in 2012. − China Resources Vanguard is also making inroads into Chinas health and beauty products retail sector. It opened up its first pharmaceutical and beauty retail shop in Xian in September 2011. 37
5. Cosmeceutical market is gaining increasing attention(cont’d) Currently, the cosmeceutical market in China is dominated by foreign brands such as Vichy, La Roche-Posay, Freeplus and Simple. However, cosmeceuticals with Chinese herbal medicine are gaining increasing attention. − For example, domestic brands such as Tongrentang (同仁堂), Herborist, Yunnanbaiyao (雲南白藥), Inoherb, etc. are evolving. 38
6. Male grooming market is growing fast Male grooming market is emerging in the cosmetics industry. − According to a report* by Alibaba Research Centre, the market size of males skincare sector reached 4 billion yuan in 2010 (or 8 billion yuan if other male grooming products such as fragrance and color cosmetics are included). − Males skincare sector grew by 27% yoy in 2009 and 40% yoy in 2010, five times faster than female skincare market. Many foreign and domestic brands have launched product lines for men. − Foreign brands: Garnier, Olay Men, Biotherm, Lancôme, Clique, Shiseido, Clarins, Vichy, Dior, etc. − Domestic brands: Dabao (大寳), Ruvanon (洛華儂),Dewa (蒂娃),Your-life Homme (悠 蘭), Xiawa (夏娃), Chetti Rouge, Chcedo, etc. At the moment, most of the male’s grooming products are just extension of female product lines. Only a few brands concentrate solely on male’s grooming products. Facial cleansing product is the most popular product category for men. According to the report by HKTDC, there is an increasing demand for mask, UV Cream, aftershave moisturiser, deodorants and hair products for male. * Source: Statistics of China’s cosmetics market, 2010, Alibaba Group Research Centre 39
7. Children and baby care markets have enormouspotential According to Euromonitor, retail sales of China’s children care products are anticipated to reach 8.7 billion yuan by 2013, from 5.3 billion yuan in 2010. Euromonitor also forecasts that retail sales of China’s baby care will increase from 3.5 billion yuan in 2010 to 5.8 billion yuan by 2013. − Major players in the sector include Frog Prince (青蛙王子), Coati (小浣熊), Yumeijing (鬱美淨), Mentholatum and Johnson & Johnson. The number of retail stores selling mom and baby products has grown exponentially in recent years. − Retailers such as Redbaby (北京紅孩子), Lijiababy (麗家寶貝), Leyou (樂友), Aiyingshi (上海愛嬰室), etc. have opened massive retail stores providing skincare products for expectant mothers and babies. Some cosmetics brands have introduced skincare products specifically for expectant mothers and babies. − For example, a Chinese time-honored cosmetics brand Kong Fengchun (孔鳳春) has launched a new product line Mamale (媽媽樂) for expectant mothers; local cosmetics company TJOY (丁家宜) has introduced bbjoy (貝倍驕) for babies. 40
8. Green cosmetics products are moving into themainstream Green products are products that have less impact on the environment or are less detrimental to human health. Nowadays, more and more consumers are looking for green cosmetics, as these products are applied directly to the body, excessive chemical substances present in the product may cause skin allergy. According to another report* by HKTDC, the demand for green personal care products has increased significantly in recent years. − 53% of the respondents said that they have bought green personal care products in 2011, most of which are products using plant ingredients and products that are natural and additive-free. − The report* also showed that female consumers concern more about green products, but many brands have started to target men’s market in recent years. − For example, Inoherb, a domestic brand which focuses on products with plant ingredients, has also launched its skin care products for men. 41* Source: Shopping for green products on the Mainland, HKTDC, 2011
9. Buying cosmetics products abroad is popular; the governmentis considering reform of consumption tax on luxury cosmetics Currently, the retail prices for high-end and luxury cosmetics sold in China are generally higher than those in the overseas markets, due largely to the consumption tax (at a rate of 30%) levied on luxury cosmetics in China. Also, with increasing income, Renminbi appreciation against the US dollar and easing travel restrictions, many Chinese consumers shop for cosmetics products abroad. The Ministry of Finance announced that from 1 January 2012 onwards, tariffs on 730 categories of commodities will be lowered to an average of 4.4%. Tariffs on imported skin care products will be reduced by 1.5% from the current 6.5%. Some industry experts believed that the lowered tariff still cannot compensate the recent rise in cost. Market prices of most cosmetic products will not fall. The spokesperson of the Ministry of Commerce said that China would conduct a study on the reform of the consumption tax on mid- and high-end products, but details are still under discussion. 42
10. Companies in other industries jump on the bandwagonto offer cosmetics products Eyeing the huge growth potential of China’s cosmetics industry, other industries are eager to tap the market by offering cosmetics products. − VANCL, one of the leading online apparel companies in China, has launched the online cosmetics platform (pf.com.cn) in 2011. − Fujifilm, a Japanese photographic and imaging company, also officially launched a high-end cosmetics product line called ASTALIFT in China in 2011. However, entering a different industry may require considerable investment. Lacking the expertise in product research and development, and consumer’s recognition may pose challenges to these enterprises. 43
11. Rules and regulations of the cosmetics sector in China Product safety has long been a major concern in China’s cosmetics market. − In the past years, even famous foreign brands were embroiled in scandal of defective cosmetics products. For instance, in November 2011, Johnson & Johnson baby shampoos sold in China are reportedly having cancer-causing chemicals. As Chinese consumers are now more discerning, product safety is expected to gain more attention in the future. More regulations are expected to be launched by the government to better regulate the cosmetics industry. Exhibit 6 shows some latest rules and regulations related to China’s cosmetics sector.Exhibit 6. Selected rules and regulations of cosmetics sector in 2011-2012 Item Effective Highlights Date Guiding Opinions of the Ministry of Commerce 2011-11- The government sets the growth target of 15% on Promoting the Standardized Development of 16 for the beauty and hairdressing Industry in the Beauty and Hairdressing Industry during the next five years. Enterprises in the beauty and 12th Five-year Plan Period hairdressing industry are encouraged to expand 商務部關於“十二五”期間促進美容美髮業規範發 their scale of operations and improve the level of 展的指導意見 services. The Measures for the Inspection, Quarantine, 2012-2-1 The Measures aim to regulate the imported and Supervision and Administration of Imported and exported cosmetics in China and better control Exported Cosmetics by the General the hygienic condition of the cosmetic products. Administration of Quality Supervision, Inspection and Quarantine 進出口化妝品檢驗檢疫監督管理辦法 44 Source: The Ministry of Commerce, the General Administration of Quality Supervision, Inspection and Quarantine
IV. Snapshots of sub-sector performance 45
Background The CNCIC conducts monthly survey to around 200 major department stores* in China to study the performance of different cosmetics sub- sectors. In this newsletter, performance of 5 sub-sectors is examined: − Shampoos and conditioners − Other hair care products − Skincare products − Color cosmetics − Fragrances *Note: It is noteworthy that the CNCIC data covers sales in major department stores only. Retailers of other formats such as professional and specialty stores are growing in popularity. The actual overall market share of cosmetics brands may deviate from the CNCIC data. 46
China’s cosmetics market in 2010 was generally lessconcentrated than the previous year The top 10 players in the 5 major sub-sectors achieved over 65% of the market share in major department stores in 2010. The top 10 players in the shampoos and conditioners sub-sector had the highest market share among other sub-sectors, reaching 94.6% in 2010. The top 10 players in the skincare products sector had a share of 79.2% in 2010. Exhibit 7. Market share of top 10 brands of selected sectors, 2009-2010 100 95.2 94.6 Share of total sales value (%) 90 79.9 79.2 80 71.8 72.1 65.2 70.7 67.7 71.0 70 60 50 40 30 20 10 0 Shampoos and Other hair care Skincare products Color cosmetics Fragrances conditioners products 2009 2010 Source: China National Commercial Information Centre (CNCIC) Note: It is noteworthy that the CNCIC data covers sales in major department stores only. The actual overall market share of 47 cosmetics brands may deviate from the CNCIC data.
Performance of selected product sectorsExhibits 8-12 show the performance of the top 5 players in selected sub-sectors, includingShampoos, conditioners and 2-in-1 conditioning shampoos, other hair care products (colorants, hairmask & styling agents), skincare products, color cosmetics and fragrances.Exhibit 8. Shampoos, conditioners and 2-in-1 Exhibit 9. Other hair care products (colorants, hairconditioning shampoos: share of total sales value, mask & styling agents): share of total sales value,2009-2010 2009-2010 Share of total sales value (%) Share of total sales value (%) 0 10 20 30 0 10 20Head & Shoulders 海飛 25.2 Youngrace 溫雅 18.0 絲 (P&G) 27.5 (Youngrace Cosmetics Group) 11.1 Decolor 迪彩 Pantene Pro-V 潘婷 20.4 12.5 (Guangzhou Decolor (P&G) 19.8 11.0 Cosmetics) 17.7 章華(Savol) 6.4 Rejoice 飄柔 (P&G) 10.6 16.3 Slek 舒蕾 (C-Bons 10.1 Maestro 美濤 11.0 Group*) 11.2 (C-Bons Group*) 9.9 5.9 L’Oréal 歐萊雅 (LOréal ) 10.3 Lux 力士 (Unilever) 8.6 6.1 2009 2010 2009 2010 Source: CNCIC Source: CNCIC Note: It is noteworthy that the CNCIC data covers sales in major department stores only. The actual overall market share of 48 cosmetics brands may deviate from the CNCIC data.
Performance of selected product sectors (cont’d) Exhibit 10. Skin care products: share of total sales Exhibit 11. Color cosmetics: share of total sales value, 2009-2010 value, 2009-2010 Share of total sales value (%) Share of total sales value (%) 0 10 20 0 10 20 30 19.0 Maybelline 美寶蓮 27.2 Olay 玉蘭油 (P&G) 15.8 (LOréal ) 25.6 18.0 LOréal 歐萊雅 (LOréal ) 12.6 L’Oréal 歐萊雅 (LOréal ) 15.5 11.4 16.2 Aupres 歐珀萊 6.1Aupres 歐珀萊 (Shiseido) 14.7 (Shiseido) 5.9 8.0 Olay 玉蘭油 (P&G) 4.9 Lancôme 蘭蔻 (LOréal ) 4.5 9.7 Estée Lauder 雅詩蘭黛 5.3 Revlon 露華濃 (Revlon) 3.3 (Estée Lauder) 9.2 4.1 2009 2010 2009 2010 Source: CNCIC Source: CNCIC Note: It is noteworthy that the CNCIC data covers sales in major department stores only. The actual overall market share of 49 cosmetics brands may deviate from the CNCIC data.
Performance of selected product sectors (cont’d) Exhibit 12. Fragrances: share of total sales value, 2009-2010 Share of total sales value (%) 0 10 20 30 Chanel 香奈兒 (Chanel SA) 19.8 24.3 Christian Dior 迪奧 CD 16.1 (Christian Dior (China) Fragrance & Cosmetics) 18.4 BOSS (Hugo Boss AG) 9.2 7.3 Burberry 巴寳莉 (Inter Parfums) 6.8 5.8 Lancôme 蘭蔻 (LOréal ) 5.1 3.9 2009 2010 Source: CNCIC Note: It is noteworthy that the CNCIC data covers sales in major department stores only. The actual overall market share of 50 cosmetics brands may deviate from the CNCIC data.