China cosmetics: the goldrush is on

By Simon Pitman

- Last updated on GMT

Related tags Market Cosmetics Marketing

With spending power growing all the more on the back of huge
economic growth, everyone is now talking about the huge potential
in the China consumer market. And it is the cosmetics sector that
many industry experts are getting particularly excited about right

Having registered 12 per cent growth in 2004, the market is now valued at $7.9 billion, according to the latest report from Euromonitor International​. Sales have almost doubled in the course of the past five years, but with no sign of the economy slowing and several interesting new developments in the retail sector, experts believe that the market will continue to show significant promise in the course of the next few years.

From almost nothing, the market for cosmetics in China has now become the eigth largest in the world and Asia's second largest, only behind that of Japan.

Euromonitor says it has pinpointed two key factors that have led to market growth. The first is the rising affluence amongst consumers, and the second is the development of better distribution channels.

More disposable income means greater category diversification. Generally this trend is moving upwards, with the upper end of the mass market showing the biggest increases as western names such as L'Oreal and P&G make it big thanks to increasing investment. In turn this is being given a further boost by chained retailers such as Wal-Mart and Sa Sa that are expanding aggressively, and now moving outside of the main metropolitan areas.

But things look set to change for the retail landscape, as China readies to repeal the ban on direct sales on December 1, opening the doors to big cosmetic players such as Amway and Oriflame. Euromonitor points out that, considering three of the biggest cosmetics players in the country - Avon, Mary Kay and Alticor - are established direct sales businesses, the potential for this market is set to be huge.

But despite the huge potential, businesses need to be cautious about the China market, Euromonitor warns. Business and cultural procedures are very different to that of the west and have to be observed to ensure success. Also there is a huge difference in the approach needed to gain market share in the rural and urban markets, which means a multi-pronged strategy is essential.

However, despite all the traditions that still exist, Chinese culture is also undergoing a remarkable transition. This has led to a growing preoccupation with personal care and hygiene, together with a voracious appetite for western-style goods - conditions that should ensure further growth for western cosmetic products, Euromonitor believes.

Amongst the categories that have shown the most growth in recent years, both men's grooming products and skin care have been the shining stars. By far the best performance has been men's grooming, which, although developed from a very small base, has seen a plethora of product launches backed by big ad campaigns.

Men's product are even starting to register in the booming skin care sector, showing the first significant sales ever in 2004. Overall skin care is now the most valuable category in the China cosmetics and toiletries market, accounting for 38 per cent of total sales last year, Euromonitor says.

Key to this growth has been the flourishing anti-aging and nourishing facial care product market. Characteristic of the overall evolution of the market, this category has also seen particularly significant growth in the upper-mass market segment, where high prices make it a key target for manufacturers.

The fashion for whiter skin in China has also prompted significant growth in the sunscreen market. Sunscreen products, and skin care product that incorporate SPFs saw a 14 per cent increase in sales, also due to the increasing awareness of the dangers associated with sun exposure.

One category that still has not taken off, and which Euromonitor is tipping for expansion, is that of deodorant. Current consumption is largely limited to urban males who participate in sporting activities, suggesting the potential for diversification is enormous.

Looking at the overall business picture it is clear that the market is still fragmented. For this reason, big western companies have been able to enter the market and quickly establish themselves as the leading players. This situation leaves the domestic players out in the cold. Currently the largest player is Jiangsu Longliqi Group, with an overall market share of less than 2 per cent.

The fact that the western commpanies have such clout is the very reason that western products are shaping the evolution of the cosmetics and toiletries market, and with the huge taste for these products, that is the way it looks set to stay.

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