This document provides an overview of China's cosmetics market in 2011. It discusses the market size reaching 110.3 billion yuan, an 18.7% increase from 2010. It also examines distribution channels like department stores, supermarkets, and the growing popularity of online retailers. Rising costs are putting pressure on retailers as minimum wages and rents increase. Overall the market shows strong growth, especially in lower-tier cities, but first- and second-tier cities still capture over half of sales.

1. China’s cosmetics market, 2011
February 2012
Li & Fung Research Centre

2. 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

3. I. Industry Overview
(1) Market Size
(2) Retail price of cosmetics
(3) Distribution channels
3

4. Growth of China’s cosmetics retail value accelerated in
2011
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.

5. Cosmetics retail sales in lower-tier cities are fast growing; yet first- and
second-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

6. I. Industry Overview
(1) Market Size
(2) Retail price of cosmetics
(3) Distribution channels
6

7. 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
99.0
Source: National Bureau of Statistics of China (NBS)
7

8. 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
L'Oréal 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

9. I. Industry Overview
(1) Market Size
(2) Retail price of cosmetics
(3) Distribution channels
9

10. Department stores, supermarkets/hypermarkets are the
major 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

11. Characteristics of selected distribution channels –
department stores
Department stores
Pros
− 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

12. Characteristics of selected distribution channels –
supermarkets/hypermarkets
Supermarkets/hypermarkets
Pros
− 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. II. Competitive landscape
(1) Foreign cosmetics companies
(2) Domestics cosmetics companies
18

19. Foreign cosmetics companies are keen to capture a larger
share 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 L'Oréal 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

20. Foreign cosmetics companies are keen to capture a larger
share 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

21. Foreign companies are more competitive in the mid- to
high-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, L'Oréal introduced several middle-range cosmetics brands such as
Garnier, L'Oréal Paris, Maybelline New York, etc. to target the mass market.
21

22. Foreign cosmetics enterprises and their major brands in
China
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

23. Foreign cosmetics enterprises and their major brands in
China (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

24. Foreign cosmetics enterprises and their major brands in
China (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

25. II. Competitive landscape
(1) Foreign cosmetics companies
(2) Domestics cosmetics companies
25

26. 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

27. Domestic cosmetics enterprises and their major brands in
China
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

28. Domestic cosmetics enterprises and their major brands in
China (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

29. Domestic cosmetics enterprises and their major brands in
China (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

30. III. Latest developments
30

31. 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 B2C
arm of C2C platforms. Scale of B2C online retailing market has excluded payments of travel expense, air tickets and online bill payment services. 31

32. 1. Cosmetics brands are keen to explore online
opportunities (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)
L'Oréal Paris (loreal.tmall.com)
Herborist (herborist.tmall.com)
32

33. 1. Cosmetics brands are keen to explore online
opportunities (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

34. 2. Cosmetics companies receive growing attention in the
capital 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.

35. 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,
L'Oréal was the biggest spender on advertising in China.
35
*Source: Advertising expenditure in China, 2011, CTR, 2011

36. 4. Social media is becoming an important marketing tool for
cosmetics 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

37. 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 China's health and beauty
products retail sector. It opened up its first pharmaceutical and beauty retail shop in
Xi'an in September 2011.
37

38. 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

39. 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 male's 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).
− Male's 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

40. 7. Children and baby care markets have enormous
potential
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

41. 8. Green cosmetics products are moving into the
mainstream
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

42. 9. Buying cosmetics products abroad is popular; the government
is 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

43. 10. Companies in other industries jump on the bandwagon
to 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

44. 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

45. IV. Snapshots of sub-sector performance
45

46. 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

47. China’s cosmetics market in 2010 was generally less
concentrated 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.

48. Performance of selected product sectors
Exhibits 8-12 show the performance of the top 5 players in selected sub-sectors, including
Shampoos, conditioners and 2-in-1 conditioning shampoos, other hair care products (colorants, hair
mask & styling agents), skincare products, color cosmetics and fragrances.
Exhibit 8. Shampoos, conditioners and 2-in-1 Exhibit 9. Other hair care products (colorants, hair
conditioning 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 20
Head & 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 (L'Oréal ) 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.

49. 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 (L'Oréal ) 25.6
18.0 L'Oréal 歐萊雅 (L'Oréal ) 12.6
L’Oréal 歐萊雅 (L'Oréal )
15.5 11.4
16.2 Aupres 歐珀萊 6.1
Aupres 歐珀萊 (Shiseido)
14.7 (Shiseido) 5.9
8.0 Olay 玉蘭油 (P&G) 4.9
Lancôme 蘭蔻 (L'Oréal ) 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.

50. 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 (L'Oréal ) 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.

51. For more information
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888 Cheung Sha Wan Road,
Kowloon, Hong Kong
Tel: 2300 2470 Fax: 2635 1598
Email: lfdc@lf1937.com
http://www.lifunggroup.com/
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