The cosmetics industry in China has registered 9.5% CAGR during 2019-2023 period where the fastest growing segment within the market is natural i.e. organic cosmetics which is growing at 14.9% during the same time period.
- Definition / Scope
- Market Overview
- Top Market Opportunities
- Market Trends
- Pricing Trends
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Distribution Chain Analysis
- Competitive Landscape
- Key Market Players
- Strategic Conclusion
Definition / Scope
Cosmetics or cosmetic products are composed of ingredients which enhance or alter the appearance of the face and fragrance or texture of the body.
Generally, cosmetics are designed for application in hair but other segments such as hair, skincare and nails are designed for application across respective body parts.
Cosmetics are composed of chemical compounds derived from natural sources which may be synthetic or artificial. At present, the structure of consumer market of Cosmetics in China is as follows:
- Skincare: The sector is the fastest growing segment and is the largest category in the cosmetics market.
- Shampoos & hair care products: The market is a niche segment in China, however the growth is decelerating.
- Makeup products: It consists mostly of enhancement items such as colour correcting (CC) and blemish balm (BB) cream. Sales of eye make-up products have recorded significant growth in recent years.
- Anti-aging products: Cosmetic products that help consumers stay looking youthful and fight aging are increasingly popular are anti-aging products that include, supplements, serum & creams.
- Cosmeceuticals: While cosmeceuticals have medical properties, they are classified as cosmetics since there is still no official definition for the term “cosmeceuticals” on the mainland Consumers are increasingly aware of products that combine cosmetic and pharmaceutical features, such as spot lightening cream, acne treatment lotion and acne ointment.
- Organic cosmetics: These contain natural or nutritional ingredients, such as aloe and vitamins.
Since past 2-5 years, China’s cosmetics industry has encountered tremendous growth. At present, China is the world’s second largest consumer cosmetics market after the US.
Although the growth is not exponential, China’s cosmetics market is extremely lucrative. Chinese householder’s rising disposable incomes the major factor in the changing trends of local consumers and will be driver in increasing demand across first tier cities such as Shanghai and Beijing.
The industry is one of the most promising field in China where domestic brands account for only 50% of the market and there is clear gap in market for foreign brands.
In addition, Chinese costumers are becoming more particular when choosing cosmetics product not only inters of quality but more importantly in terms of health and safety and this what gives edge to foreign brands in the industry.
Thus, the cosmetics market in China is yet to evolve like in western world.
In China, the cosmetics market has been growing in relation to the growth of entire Chinese economy.
As of 2019, the retail sales of skincare reached $30.07 billion and sales of makeup products reached $5.9 billion dollars respectively. Both segments are increasing at a rate of 13.2% and 24.3% y-o-y.
More lately cosmetics products in China are moving to the high-end spectrum. In this case, high end cosmetics are growing at 32% annually and major foreign brands are favored by consumers and as in this case, consumers are not price-sensitive but rather they value brand and quality.
On the other hand, the domestic cosmetics brands are also performing well where the market size of these brands together has reached 56% and the main reason for the growth in share is expansion to the second and third tier cities.
One segment growing profoundly is men’s cosmetics where the men’s skincare products expanded in the market by 7.8% y-o-y in 2019. As it comes to cosmetics, men are mainly concerned with cleansing and dealing with oily skin. The most of the share in the segment is occupied by facial cleansers.
Cosmeticuticals and especially organic cosmetics which were unexplored markets before are opening up in the sector. Only 20% of the market in the mainland China is cosmeticals which suggests that the segment has huge scope to grow.
In China, the consumers in the sector can be grouped into upper, middle and lower based on their preference for brand, quality and price along with bargaining power.
Most of the imported brands buyers belong to large and medium sized cities. Among the consumer segments, young and middle-aged women prefer famous brands from Europe, the US and Japan.
Another trend which is popular in Cosmetics market of China DIY cosmetics that are becoming increasingly commercialised, mass-produced and sold through e-commerce platforms such as Taobao.com and Tmall.com.
However, DIY cosmetics for online sales tend to have quality problems and they do not meet the conditions mentioned in the Regulations on Cosmetics Hygiene Supervision and have not applied for cosmetics production and sales permits.
|Cosmetics categories||Imports (2019, in million dollars)||Y-o-y change|
|Perfumes & Toilet Waters||404||57.2%|
|Personal deodorants and anti-perspirents||12||92%|
Top Market Opportunities
According to a recent survey of consumers in the cosmetics industry, for the Chinese consumers, effectiveness, brand and price are the most important factors when considering to purchase cosmetics products.
In line with that, 70% consumers look for effectiveness of the product, 61% consider price and 54% consider the brand before purchasing products in the market.
At present, China’s competitive market is clustered with huge presence of domestic and foreign companies launching high-quality products. Online discussion forums are popular among consumers and they use these to make recommendations, while a new consumer would rely on the feedback to purchase.
These online forums include, Zhihu, Weibo and Wechat. In these forums, most asked questions about the product is addressed, advice on picking products based on need, how to use certain products and compare brands, even information about products through pictures and videos are shared.
Thus, cosmetics companies in the market have opportunity to attract customers by paying these online forums to promote their products and plan effective marketing campaigns as well.
Up to 75% of the Chinese consumers in the market have also cited that Chinese skincare and cosmetics products do not fit their needs which also suggests that there is enormous potential for international brands to seek and fulfil unmet demand.
Growing social media and e-commerce use
Out of 802 million internet users in China, 788 million have access to web through mobile devices such as smartphones. Thus, China generates biggest mobile app sales in the world when compared to other country markets.
Brands that understand the most important social platforms and apps and then leverage them are currently successful in the market. For instance, customers in China go to their WeChat groups to seek information and know about reviews and ratings of various cosmetics brands which in turn has bolstered the awareness of cosmetics among consumers.
T-mall and branding
For example, Tmall Global is one such destination launched by Alibaba which has recently announced plans aimed at helping cosmetics brands and retailers of all sizes manage their entry into China to reach and engage with customers.
Some of the international cosmetics companies such as Tom Ford Beauty; Glamglow; P&G’s new beauty line, Oriental Therapy; Japan’s Cosme and d-program; Primera from Korea and Barnängen from Sweden have already made an agreement to open flagship stores at Tmall in 2019.
Platforms such as Tmall is becoming the branding powerhouse for brands and retailers to get popular and shape their success strategies in the China market.
Obstacles for Foreign cosmetic companies to succeed in Chinese market
Previously, China’s top cosmetics retailer market thrived with established international brands accounting almost 60% of the market share in the industry, however more lately the market dominance has skewed towards the domestic brands.
Chinese companies such as Shanghai, Jahwa, Proya and Marubi dominate the mass market consumers and are also improving quality of their products and competing effectively with international brands in the market.
Large incumbents such as Unilever, L’Oreal and P&G are not growing well as they were in the past.
These brands are not able to cater to the tastes and needs of the Chinese consumers which has led the consumers in the market to turn towards popular Korean brands more suited to Asian complexion. As a result, in 2018-19, the best performing brands were not the western brands but Korean cosmetics instead.
Customer experience is driven by the digital transformation of beauty and cosmetics industry in China which include automated retail, virtual makeup try-on and voice-guided mirror.
Mariedalgar, a domestic cosmetic brand in China recently launched its unnamed vending machine at Hangzhou West Lake Yintai. The machine is equipped with QR code through which customers enter the page, they follow the Tmall online store and browse and purchase a mini lipstick for around $2.
The whole shopping experience can be realized in matter of 1 minute. The purpose of the machine was to create brand exposure and engage customers mostly. The first time, machine was launched it sold 1550 lipsticks in 3 days which is almost the same as a week sales in the store.
In near future, Mariendalgar is also working with Tmall to complete docking of its online and offline membership system, analyze customer insights and membership programs.
Another technology trend picking up traction in Chinese cosmetics market is the virtual try-on makeup supported by the AR (Augmented Reality). Customers try on lipstick, eye shadow, blush, eyebrows pencil, false eyelashes and other cosmetics products in less than a second.
In addition, the users also have choice to buy products after digitally trying them on, which reduces costs and expands beauty terminals. Thus, the purchase of products through such means is creating convenient experience for customers.
One of the application of AI in cosmetics was initiated by western brand- Watsons in 2017 where they launched “Style me, Color me”. The feature automatically identifies customers face when they sit in front of the store mirror tablet and provides make-up suggestions which is then virtually applied to customers face on the mirror.
The AI technology is creating an entertaining shopping experience for customers. Also, the Watson store is also enabled with self-checkout counters, so customers can pay online with their mobile phone and could choose to pick up the bought item from store or get it delivered within 4 hours.
Tmall Etf queen is another magical mirror which also received Gold Makeup Award in 2019. It is a voice guided mirror that can chat with people, tell stories, play music and control electrical appliances at the home. This multifunction mirror is 8-inch in diameter surrounded with LED lamp beads that can provide light while applying makeup.
Further, the mirror is enabled with AI technology where it can simulate the illumination under different whether conditions to make sure the makeup is suitable while the user moves outdoor.
This smart beauty mirror is way ahead of all other technology products in cosmetics & beauty retail. It is developed by Alibaba AI Laboratory and further, in second phase the mirror will also be equipped with skin testing, sunscreen index inquiry, beauty reminders and information about various cosmetics products.
In China, high-end cosmetic brands such as Estee Lauder and Amorepacefic have announced price cuts in Chinese market in the 2018 New Year in response to lowered consumption tax.
Amorepacefic offered retail prices of 327 items under four major brands will be slashed by 3-30%. Esetee Lauder on other hand announced to lower retail prices of few makeup and perfume products by 7-18%.
The major reason for price cuts was the elimination of consumption taxes on ordinary cosmetics and lowering of tax rate i.e. 15% to high-end products. In addition to tax reduction, rapid development of e-commerce, increase of high-end products have pushed these products to adjust price of their products in China.
Also, slow growth in domestic consumption has led consumers to seek affordable mass products which has led to contraction in high-end cosmetics in China. Thus in response to that, the luxury brands are lowering prices to retain more consumers.
Regulatory standards for Cosmetics industry
When a cosmetic product is imported into China for the first time, its foreign manufacturer or agent needs to gain and complete an application form called ‘Hygiene License of Imported Cosmetics’ from the relevant hygiene administration department under State Council.
Once the application is filled and received, the hygiene administration department will devise a cosmetics safety panel to inspect the product in question. Products that pass the inspection will be issued with an Approval document for Hygiene License of Imported Cosmetics which is valid for 4 years.
In addition, application for renewal can be submitted 4-6 months before approval documents’ expiry date, and attachment of relevant information is not required.
Under the Standardization Law of People’s Republic of China (Revised on 2017), standards are classified into 5 levels, national, trade, local, organization and enterprise standards.
As cosmetics sector falls under the category of light industry, it is represented by standard codes of QB and QB/T. Industry players should refer to websites such as www.standardcn.com and the Standardisation Administration of China (SAC) to understand the standards relevant to them.
Some of the other important regulations for cosmetics in China include:
- Instructions for Consumer Goods – General Labelling of Cosmetics (2008)
- Naming Requirements for Cosmetics,(2010)
- Cosmetics Naming Guidelines (revised 2015)
- Administrative Measures on the Inspection, Quarantine and Supervision of Import and Export of Cosmetics (revised in 2018)
Recently imposed regulations
- In July 1 2017, the China Food and Drug Administration (CFDA)’s Circular on Matters Related to Cosmetics Production Permit, created a new criteria whereby cosmetics brands must use new packaging logos labelled with information on the corresponding cosmetics production permit.
- In July 1 2018, the State Council announced cuts on tariffs on 1,499 items of imported daily consumer goods including, garment, shoes and hats as well as cosmetics and household appliances, among others. The average tariff rate for cosmetics such as skincare and haircare products was slashed from 8.4% to 2.9%.
- Since November 10 2018, the pre-approval process for the first-time import of non-special-use cosmetics has been wholly replaced by a unified system of record-filing management across the mainland. Administrative approval applications related to any such products.
- In January 2019, the cosmetics imported via cross-border e-commerce retailing channels, such as some lip and eye make-up preparations was considered to be treated as goods imported for personal use if they are on the List of Cross-Border E-Commerce Retail Imports (2018 version) and meet the conditions stipulated in the policies and regulations for cross-border e-commerce retail import.
- The Announcement of the NMPA on Matters Concerning the Implementation of the Commitment-based Examination and Approval System for the Renewal of Administrative Approval for Special-Use Cosmetics came into effect in 30 June 2019 aims at improving the competence of the examination and approval of special-use cosmetics.
- Another regulation that came into action from 1 July 2019, strictly control the uses of raw materials and the whole process of the production of cosmetics and also clearly cite the rules on labels and logos.
|Cosmetics categories||Tariffs (2019, in %)|
|Perfumes & Toilet Waters||3%|
|Manicure and Pedicure||5%|
Other Key Market Trends
China’s cosmetics industry is shifting towards engaging more and more consumers via advanced technologies. The digital arena on the same, offers next-level live streaming which connects beauty lovers to vloggers, industry experts and other audience segments.
Some of the younger consumer segments are on livestreaming platforms such as Douyin, Kuaishou, and DuoYu, where they find peer-to-peer reviews, user-generated content, and influencer interactions.
And since younger demographics are addicted to their mobile devices, luxury cosmetics brands are also integrating livestream marketing into their content marketing plans and this is becoming their core strategy in increasing customer engagement and conversions.
The trend suggest that, in China, consumers are searching for color cosmetics products that are packaged in smaller boxes and are effortless in application. For instance, mini-lip palette or lip gloss sets that are in various shades but sold in smaller packs, travel-size cosmetics kits are the most preferred products.
Thus, the trend of makeup has shifted to minimal in size and in design and color as well. Also, millennials are not loyal to single brand and this: “mini” segment aligns with their demands and habits more than any other consumer segment.
Market Size and Forecast
- As of 2019, the market size of cosmetics industry in China was around $13.2 billion. In global comparison, the number one ranking market in US at $17.3 billion and second country market in China.
- In line with that, per person revenues amounted to $9.2 in the same time.
- There are basically 4 categories of Cosmetics in China and their market size is as follows:
- Face: As of 2019, the Face segment market size amounted to $2.8 billion.
- Lips: In 2019, the Lips segment market size amounted to $3.1 billion.
- Nails: As of 2019, the total market size of the nail segment in China was $1.8 billion.
- Natural Cosmetics: The natural cosmetics segment market size in 2019 is approx. $1.8 billion.
- Other segments: Other segments such as haircare, perfumes and cosmeticals together account market size of $4.2 billion as of 2019.
Between the CAGR periods of 2019-2023, the Chinese cosmetics market has registered a growth rate of 9.5%. Thus, as of 2023, the market size of cosmetics in China will be around $20.4 billion.
Growth across the categories:
- Face: The face segment alone is growing at a slightly higher rate than the overall cosmetics market. Between 2019-2023, the segment is set to grow at 9.9%. Thus, by 2023, the market size of the segment is expected to reach $4.1 billion
- Nails: The segment is growing at 6.6% between 2019-2023, the market size in 2023 is forecasted to reach $2.3 billion.
- Lips: The segment is growing at 8.7% between (2019-2023), the market size in 2023 is forecasted to reach $4.4 billion.
- Natural Cosmetics: The natural cosmetics is the fastest growing segment in China at the rate 14.9% between (2019-2023). By 2023, the market size of the segment is projected to reach $3.1 billion.
Distribution Chain Analysis
The major sales channel for cosmetics in the mainland China are e-commerce platforms, wholesale markets, supermarket and departmental stores, dedicated counters, specialty chain stores, drugstores, beauty parlors and direct selling.
Among these the top 3 channels are integrated e-commerce platforms, departmental & specialty stores.
Dedicated counters: One of the major traditional sales channel in cosmetics are dedicated counters which mostly account for world-renowned brands.
These counters support in building image of the brands. Top global brands such as Lancôme, Estée Lauder, Chanel and Dior dominate the sales of cosmetics through dedicated counters.
Specialty stores: Some cosmetics brands are also expanding their business across the Chinese cosmetics market by operating a specialty store under their brand and some of these are in franchise store formats. Multi-national cosmetics giants opt for this channel.
Direct selling: The channel involves trading customer products via distributors’ personal networks. The direct selling companies provide incentives to distributors depending on the quantity of goods sold through their networks.
Avon was one of the initial brands to launch direct selling pilot programme. Later, the direct selling licenses were also distributed to other brands such as Amway, Perfect and others.
Durgstore: Another important channel for selling cosmetics in China is drug-store. Although, cosmeceuticals market is dominated by foreign players, a number of local pharma companies have begun to make use of this sales channel.
Parlors: Different kind of parlors such as pampering and therapeutic beauty parlors, large and medium-sized high-end beauty spas, franchise chain stores, and grooming and hairdressing parlors also distribute cosmetic products in China.
As of 2019, there are around 4,933 enterprises in the industry that are qualified to produce and sell cosmetics in China.
This number includes both domestic and foreign companies where, domestic brands mostly dominate the mid-low end market segments whereas JV’s and foreign multinational companies dominate the high-end or urban area markets.
The domestic companies in the market is increasing every year and their share of market is also gradually increasing.
As domestic brands have increased their image building especially aligned with the needs of consumers in the market, for example, promoting marine-based skincare products, natural plant-based skincare products and modern Chinese herbal skincare products.
Their reputation is on the rise both at home and abroad.
Domestic companies are also applying traditional Chinese medicine concepts nd natural extraction methods in development of skincare products, such as the Tai Ji and Yu Wu Xing series from Herborist.
In the past, domestic brands mostly catered second- and third-tier markets. In contrast, at present some large domestic companies have started to develop high-quality products, aiming to meet the demands of increasingly discerning consumers in the domestic mid- and high-end markets.
The cosmeceuticals sub-segment in China is dominated 90% by foreign brands such as VICHY, La Roche-Posay, Freeplus and Simple. Some domestic brands, including Tongrentang and Herborist, have also ventured into the cosmeceuticals market and are gradually achieving growing recognition from consumers in recent years.
The retail concept of cosmetics supermarket is also becoming very popular in China especially after the entry of players such as Watson’s, Sephora of France and Sasa.
Some of the foreign brands have also acquired domestic brands and are using their networks to expand furthermore in the market. For example, MiniNurse and MG were acquired by L’Oréal, TJoy by Coty and Dabao by J&J etc. While others are also lloking to expand through online platforms and means.
Key Market Players
Top 3 Foreign brands in Chinese cosmetics market:
L’Oréal: The company established its branch in China first time in 1996 with its distribution department in Hong Kong and point of sales around China’s big cities Guanzhou, Shanghai and Beijing.
Some of the domestic brands acquired by the company include “the little nurse” and Yuesai among others. After successful acquisition of Maybelline brand, it was then L’Oréal quickly occupied the Chinese cosmetics market.
In 2019, L’Oréal in China achieved its total sales of about $2 billion, an increase of 7.7% over last year. This is the first time that the huge cosmetic brand in China has a growth below 10%. But L’Oréal still has opportunity to continue its lead in the Chinese beauty cosmetics market with stable sustainable growth.
Shiseido: It is Japan’s largest cosmetics brand that has been able to maintain a steady growth for almost 30 years. As of 2019, the Chinese market sales accounted for 14.8% of Shiseido’s global sales which was $16.2 billion, an increase of only 2.8%.
The company at present is fully focused on its brand remodelling. Shiseido will increase the localization of R&D in China.
Kiehl’s in China: Kiehl’s has become popular among Chinese consumers in matter of five years only. The brand is indeed really present in terms of its brand reputation, its sales, and its digital marketing strategy.
The brand plays a different approach and its strategy is fixated on consumers with simple packaging line and products similar to the high-cost product from the pharmacy. Reference marketing is a major feature of Kiehl’s in China.
Top 3 domestic brands in the Chinese cosmetics market:
- Shanghai CHICMAX: Sub-brands include KANS, One leaf, etc.
- Pechoin: Sub-brands include, Pechoin, Sansen, etc.
- JALA Corporation: Sub brands include, CHANDO, MAYSU etc.
For foreign investors looking to invest in Chinese cosmetics industry, it represents huge opportunity supported by a competitive market which is not just comprised of foreign companies but also other emerging domestic and Asian companies.
For instance, expansion of men’s’ cosmetics in line with rapid changes in consumer spending habits are the key considerations for investment. At a 9.5% rate of forecast value growth the industry will continue to remain profitable and the present is most optimistic point of investment in the industry.