china's cosmetics market, 2011 final - fung · pdf file− other distribution, ......

China’s cosmetics market, 2011February 2012

Li & Fung Research CentreLi & Fung Research Centre

I. Industry overview p. 3

II. Competitive landscape p.18

In this issue:

2

III. Latest developments p.30

IV. Snapshots of sub-sector performance p.45

I. Industry Overview

(1) Market Size

3

(2) Retail price of cosmetics

(3) Distribution channels

Growth of China’s cosmetics retail value accelerated in 2011

� According to the National Bureau of Statistics of China (NBS), retail sales ofcosmetics of enterprises above designated size* reached 110.3 billion yuanin 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 e nterprises above designated size*: 2007 -2011

4

Exhibit 1. Retail value of cosmetics by wholesale and retail e nterprises above designated size*: 2007 -2011

* Designated size: with annual sales of 5 million yuan or above and with an employment of or over 60.

yoy growth (%) FY10 1Q11 1H11 FY11

Cosmetics 16.6 17.8 20.0 18.7

48.8

59.7

74.0

88.9

110.3

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

2007 2008 2009 2010 2011

Sales value Growth

Source: National Bureau of Statistics of China (NBS)

� According to China National Commercial Information Centre (CNCIC),cosmetics retail sales rose by 28.2% yoy in third-tier cities in 2010, fasterthan 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 stillcapture 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,

Cosmetics retail sales in lower-tier cities are fast growing; yet first- and second-tier cities captured a bigger share of the market

(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 retailsales of cosmetics, stood at 12%, followed by Beijing, Jiangsu and Guangdong,representing 11%, 9% and 9% respectively.

5

*Source: Cosmetics market in China, HKTDC, 2011


(1) Market Size

6



Retail price of cosmetics has been rising in 2011

� Retail price index of cosmetics in China has been rising. The index roseabove 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 ofmany imported cosmetics products remains high.

Exhibit 2. Retail price index of cosmetics in China , January 2010-December 2011 (Same month of precedi ng

7

year = 100)

Source: National Bureau of Statistics of China (NBS)

99.0

99.5

100.0

100.5

101.0

101.5

102.0

Escalating cost pressure on cosmetics retailers

� Although retail price has been on a rising trend, most industry players stillbelieved that it had lagged behind the cost increase.

− Labor cost constitutes a large cost component for cosmetics companies. Localgovernments in over 20 provinces/municipalities, such as Beijing, Shanghai,Guangdong, Zhejiang, etc. and one special economic zone (i.e. Shenzhen) havelifted the monthly minimum wage in their jurisdictions in 2011.

− Rents, especially those in prime locations, have risen substantially over the pastfew years.

− Other distribution, logistics, packaging and marketing costs have also increased− Other distribution, logistics, packaging and marketing costs have also increasedrapidly in recent years, posing great challenges to cosmetics companies.

� In order to curb the climbing costs, some cosmetics companies try to passthe 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 underL'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


(1) Market Size

9



Department stores, supermarkets/hypermarkets are the major distribution channels for cosmetics

� According to Access Asia, department stores, supermarket/hypermarketsand the Internet were the three most popular sales channels for cosmeticsproducts in 2010.

� Characteristics of selected retail formats are examined:− Department stores− Supermarkets/hypermarkets− Professional stores− Professional stores− Specialty stores− Internet retailing− Pharmacies− Beauty parlors

10

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

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). Thatbeing said, more high-end cosmetics brands, especially foreign-ownedones, are sold in supermarkets/hypermarkets.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 costchallenges.

12

Characteristics of selected distribution channels –professional stores

� Professional stores

− Professional stores are “one-stop shop” for customers to shop forcosmetics and accessories. Examples include Hong Kong-basedWatsons 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− Professional stores offer a wide variety of cosmetics brands in differentquality and price tiers, catering to different needs of customers.

− However, quality of products available in professional stores is lessassured as there may be other substandard parallel imports and evencounterfeit 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 servicesand standardized prices.

− Moreover, cosmetics brand owners can achieve autonomy over storeoperation through opening specialty stores.

− Korean brands such as Skin Food, Etude House and Missha areespecially interested in distributing their products through specialtystores and department stores to avoid high distribution cost inhypermarkets.

− It is expected that specialty stores will become another key retailchannel for cosmetics as large shopping complexes spring up in theseyears.

− Nevertheless, some specialty stores are small-scaled, scattered anddisordered.

14

Characteristics of selected distribution channels –Internet retailing

� Internet retailing

− There are many types of B2C online retailing portal in China. Below aresome 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 asthey 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 inpharmacies.

16

Characteristics of selected distribution channels –beauty parlors

� Beauty parlors

− According to a survey* conducted by HKTDC, the average spending ofthe respondents at beauty parlors was 2,832 yuan in 2010.Respondents from Shanghai spent the most (4,951 yuan) at beautyparlors, followed by Beijing (3,528 yuan), Guangzhou (3,078 yuan) andChengdu (2,458 yuan).Chengdu (2,458 yuan).

− In fact, many beauty parlors sell their own brands or act as agents todistribute 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

II. Competitive landscape

(1) Foreign cosmetics companies

18

(2) Domestics cosmetics companies

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 marketof China’s cosmetics market.

− For example, it is reported that L'Oréal would expand into 600 second-tier citiesto reach untapped customer base.

− US cosmetics firm Mary Kay planned to invest 25 million USD in building adistribution centre in China, which is poised to surpass the US to be its largestmarket by 2013, according to media reports.market by 2013, according to media reports.

− Another US cosmetics company Avon opened a R&D center in China in August2011, 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 inthe next three years.

19

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 marketof China’s cosmetics market. (cont’d)

− In September 2011, Samsung Group’s subsidiary Shilla Hotel opened acosmetics specialty store Sweetmay in Macau, selling 16 types of popularKorean cosmetics brands such as Hanskin, VOV, Banilaco and Danahan. Thecompany 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− Watsons, with 1,000 stores covering 150 cities of China, is planning to expand itspresence 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: itslarge-scale cosmetics retail store in Shanghai, first ever in mainland China,opened in October 2011.

20

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-endand 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, foreignbrands now expand beyond the high-end market, aiming to penetrate thebrands now expand beyond the high-end market, aiming to penetrate themass market in China.

− For example, L'Oréal introduced several middle-range cosmetics brands such asGarnier, L'Oréal Paris, Maybelline New York, etc. to target the mass market.

21

Foreign cosmetics enterprises and their major brands in China

� Exhibit 3 shows the major foreign cosmetics groups and their major brandsin China.

Exhibit 3. Foreign cosmetics groups and their major brands in China Enterprise BrandsL’Oréal歐萊雅

L’Oréal Paris 巴黎歐萊雅Garnier 卡尼爾Maybelline New York 美寶蓮紐約L’Oréal Professional 歐萊雅專業美髮Kérastase 卡詩Lancôme 蘭蔻

shu uemura 植村秀Giorgio Armani 喬治阿瑪尼LA ROCHE-POSAY理膚泉Mininurse 小護士Yue Sai 羽西Vichy 薇姿

Biotherm 碧歐泉Helena Rubinstein HR 赫蓮娜Kiehl’s Matrix 美奇絲Skinceuticals

22

P&G寶潔

Head & Shoulders 海飛絲Rejoice 飄柔SK-II

Vidal Sasson 沙宣Clairol Herbal Essences 伊卡璐Wella 威娜

Camay 卡玫爾Pantene 潘婷Olay 玉蘭油

Shiseido資生堂

Shiseido 資生堂Shiseido Men資生堂男士Clé de peau beauté 珂麗柏蒂Revital 悅薇UV White 優白Anessa 安熱沙Aupres 歐珀萊Supreme Aupres 思魅歐珀萊Urara 悠萊Elixir 怡麗絲爾Elixir Superieur 怡麗絲爾優悅活顏Melanreduce 臻白無瑕Asplir 愛泊麗Whitia白娣顔Selfit 珊妃

UNO 吾諾PF-Cover 無瑕修顏DQ 蒂珂The Skincare 水活煥妍Beneflance盼麗風姿Pureness 飄爾麗思White Lucent 透白美肌Soi Pure & Mile 泊美舒亞Shanghai Bouquet 上海花漪Qi 綺怡Zen 世紀禈香氛Bio Performance 百優Future Solution LX 時光硫璃御藏Body Creator 美體造型Dicila 蒂思嵐

Shiseido Eudermine 紅色蜜露Za 姬芮Aqua Label 水之印Be 彼嘉Aquair 水之密語Perfect 洗顔專科Kuyura 可悠然Super Mild 惠潤Maquillage 心機彩妝Tessera欣香Hand Cream 美潤護手霜Handasui 肌水Tsubaki絲蓓綺Pure & Mild 泊美

Source: Li & Fung Research Centre and respective company websites

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 BrandsUnilever聯合利華

Vaseline 凡士林Lux 力士Dove 多芬Hazeline 夏士蓮

Pond’s 旁氏Clear 清揚Rexona 舒耐LYNX 凌仕

Johnson & Johnson強生

Clean & Clear 可伶可俐Neutrogena 露得清Johnson’s Baby 強生嬰兒

Dabao 大寶*Johnson’s Body Care 強生美肌

Estée Lauder雅詩蘭黛

Estée Lauder 雅詩蘭黛Aramis 雅男士Clinique 倩碧

魅可

La Mer 海藍之謎Bobbi Brown 芭比波朗Tommy Hilfiger 唐美希緋格

唐娜凱倫

23

倩碧M.A.C. 魅可

唐美希緋格Donna Karan Cosmetics 唐娜凱倫

Beiersdorf拜爾斯道夫

NIVEA 妮維雅Nivea for menFlorena

La Prairie 莱珀妮Eucerin

C-Bons Hair Care** Slek 舒雷Sdew 風影iSPA Home 悅美芳達

Hairsong 順爽Maestro 美濤Costyle 珂絲美

Kanebo佳麗寶

Impress 印象之美Lunasol 日月晶采Sui sai 水之璨Coffret D’or 金炫光燦Blanchir Superior 馥蘭哲兒極致系列Dew Superior 潤活極致系列

Aqua 雅呵雅Aqua Sprina雅呵雅絲睿Aqua Lunash 潤希Freeplus 芙麗芳絲Kate


*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.

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 BrandsKao花王

Kao 花王Bioré 碧柔Men’s Bioré 碧柔男士Sofina 蘇菲娜Est

Asience 亞羨姿Sifoné 詩芬Feather 花王飛逸Curél 珂潤

Kosé高絲

Kosé 高絲Beauté de Kosé美諦高絲Prédia 貝締雅Sekkisei雪肌精Sekkisei Supreme雪肌精 SupremeRefine 萊菲

Avenir 艾文莉Recipe-O 蘭哲歐Junkisei 潤肌精White St 妍哲Nature & 娜蔻Moisture Skin Repair

24

Refine 萊菲EspriqueJunkisui 純肌粋Seikisho清肌晶白澄

Moisture Skin Repair AstalutionGrandaine葛倫黛娜Infinity

Avon Products, Inc.美国雅芳产品有限公司

Avon 雅芳

Amore Pacific Corp愛茉莉太平洋集團

Laneige 蘭芝Mamode 夢妝

Amore 爱茉莉Sulwhasoo 雪花秀

Nu Skin Enterprise Inc.如新集團

Nu Skin 如新

LVMH Group Guerlain 嬌蘭

DHC Corp DHC


II. Competitive landscape

(1) Foreign cosmetics companies

25

(2) Domestics cosmetics companies

Domestic brands are more competitive in the mass market

� Generally, domestic players focus on second- and third-tier cities, offeringvalue-for-money products.

� In recent years, a number of local cosmetics brands have caught up withtheir international counterparts. Some local brands that have gainedincreasing 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 in China

� Exhibit 4 shows some major domestic cosmetics groups and their majorbrands in China.

Exhibit 4. Domestic cosmetics groups and their majo r brands in China Enterprise BrandsShanghai Jahwa Co., Ltd.*上海家化集團

Maxam 美加淨Chinfié清妃Herborist 佰草集ShanghaiVive雙妹

Gf 高夫Liushen 六神Cocool 珂珂

Sichuan Jahwa Cortry Cosmetics Co. Ltd**四川家化可采化妝品股份有限公司

Cortry 可采 LiveliCutee 伶采

27

* Ping An Group has acquired 100% of share in Shanghai Jahwa in 2011.**Shanghai Jahwa has acquired 51% stake in Cortry in 2008.

四川家化可采化妝品股份有限公司

Jiangsu Longliqi Group Co., Ltd.江蘇隆力奇集團

Longliqi 隆力奇Yuzhibao 浴之寶

YaFei 雅妃Evergreen 雅妍

Arche Cosmetics Co., Ltd廣東雅倩化妝品有限公司

BNS繽麗Ariar 清逸Cathy 佳雪

Effi玉麗Airiny 維鮮

Zhuhai Sunrana Cosmetics Co., Ltd.珠海姍拉娜化妝品有限公司

Sunrana 姍拉娜

Bawang International霸王國際集團

Bawang 霸王Herborn 本草堂Litao 麗濤

Men’s Bawang 霸王男士Royal Wind追風


Enterprise BrandsShanghai Huayin Commodity Co., Ltd.上海華銀日用品有限公司

Bee & Flower 蜂花

Guangzhou Houdy Cosmetics Co., Ltd.廣州市好迪化妝品有限公司

Houdy 好迪Sincir 信婷

Coian 可靚Tongle 童樂

Decolor Cosmetics Co., Ltd.廣州市迪彩化妝品有限公司

Decolor 迪彩Luxe-Lotus蓮尚Enevous 伊儂華

Crystal晶彩Lotuses 千蓮薈Nenuph 藍蓮花

Domestic cosmetics enterprises and their major brands in China (cont’d)

Exhibit 4. Domestic cosmetics groups and their majo r brands in China (cont’d)

Nanjing Jianong Chemical Co., Ltd.南京珈儂生化有限公司

TJOY*** 丁家宜 TJOY for men 丁家宜男士

Lafang Group拉芳集團

Lafang 拉芳Raclen 雨潔Duo Zi 多姿

Bétrue 繽純Sunfeel聖峰Mese 美多絲

Guangzhou Tobaby Cosmetics Co., Ltd.廣州露純化妝品有限公司

Tobaby 丹芭露

Huaya Group Co., Ltd.環亞化妝品科技有限公司

Franic 法蘭琳卡 Meifubao美膚寶

Jala (Group) Co., Ltd.伽藍(集團)股份有限公司

Chcedo 自然堂 Maysu 美素

28*** Coty has acquired a majority stake in TJOY in December 2010.


Domestic cosmetics enterprises and their major brands in China (cont’d)

Exhibit 4. Domestic cosmetics groups and their majo r brands in China (cont’d) Enterprise BrandsProya Cosmetics Co., Ltd.杭州珀萊雅化妝品有限公司

Proya 珀萊雅

Shanghai Inoherb Cosmetics Co., Ltd.上海相宜本草化妝品股份有限公司

Inoherb 相宜本草

Softo Co., Ltd.索芙特股份有限公司

Softo索芙特

29


索芙特股份有限公司

Foshan Shunde Modern Health Care Products Co., Ltd.佛山市順德現代保健用品有限公司

Xian Dai 現代

Shanghai Savol Health & Cosmetics Co., Ltd.浙江章華保健美髮實業有限公司

Savol 章華

Youngrace Cosmetic International Group Limited溫雅化妝品國際集團有限公司

Youngrace 溫雅

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 theonline retail market, many cosmetics brands have been making use of online platforms to reachcustomers.

� 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 consumerpurchased online in 2010.

Exhibit 5. The most popular categories consumer purchased o nline, 2009-2010

31

Exhibit 5. The most popular categories consumer purchased o nline, 2009-2010

0 5 10 15 20 25 30 35 40 45 50

OthersJewellery

Toys and giftsElectronic appliances

Maternity and baby care productsHealthcare foodHome products

IT/digital/communicationCosmetics and personal care

Prepaid cards (e.g., top-up cards, etc)Books/music/movies and videos

Apparel, footwear and bags

%

2009

2010

Source: iResearch: “2010-2011年中国网络购物用户行为研究报告简版”*According to 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.

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, thetransaction value of cosmetics in 1H2011 already exceeded that ofFY 2010.

− Tmall is also the B2C platform that offers the largest number of cosmetics brandsin China. Currently, around 1,200 cosmetics brands are sold in Tmall.

− Examples of cosmetics brands that use B2C platform to sell their productsinclude:

� Kosé (kose.taobao.com)� L'Oréal Paris (loreal.tmall.com)� Herborist (herborist.tmall.com)

32

1. Cosmetics brands are keen to explore online opportunities (cont’d)

� On the other hand, some brands prefer to start their own e-commerceoperation to gain autonomy.

− To reach more new customers, Shiseido started its own e-commerce operationin 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.have also developed their own online stores.

� However, multi-channel retailers should also consider the possible conflictsbetween online and offline stores in terms of variety of products and prices.To avoid online channels cannibalizing sales of their offline stores andpotential conflict of interests with existing distributors and franchisees,retailers have to pay extra attention to pricing strategies and to maintainonline and offline consistency.

33

� Recently, cosmetics companies in China have garnered increasing attentionin the capital market.

− Local cosmetics brands that have received investments from venture capitalistsinclude Guangzhou-based companies Menplus (男性主義), Jimmi (九美子) andArdme (雅茚), and Shanghai-based Cosmart, etc.

� An increasing number of cosmetics companies seek to raise capital throughIPOs. It is believed that IPOs can generate capital to fund organic growth

2. Cosmetics companies receive growing attention in the capital market

IPOs. It is believed that IPOs can generate capital to fund organic growthand support expansion. Furthermore, the brand image will be markedlyimproved.

− Inoherb (相宜本草), Meifubao (美膚寶), Jala* (伽藍集團), Proya (珀萊雅) andMGPIN (毛戈平), etc. are cases in point.

� In November 2011, a subsidiary of China’s second biggest insurer Ping AnGroup won a bid for 100% share of Shanghai Jahwa Group, a famousdomestic company which have a portfolio of cosmetics brands includingChinfie, 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 ofmoney on marketing and advertising in China.

� Marketing-to-expense ratio for many brands stayed high in 2011. Accordingto “China cosmetics market: Amorepacific vs Shiseido” by SamsungSecurities in July 2011, Shiseido’s marketing-to-expense ratio rose from22% in 2010 to 35% in 2011.

� According to a CTR survey*, cosmetics/toiletries (1.4%) contributed themost 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

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

� Today, social media is a very important marketing tool for cosmetics playersto connect with their customers.

− According to Thindov, a market research agency in China, 80% of the top 100cosmetics brands in China promoted their brands in Sina Weibo, the mostpopular Chinese microblog as of end-September 2011.

36

5. Cosmeceutical market is gaining increasing attention

� Cosmeceuticals are cosmetics products with vitamins, herbs, pharmaceuticalsor biologically active ingredients purporting to have medical benefits.

� According to the aforementioned report by HKTDC, more than 170 enterpriseshave entered the cosmeceuticals market. It is expected that the cosmeceuticalmarket in China would grow by 10-20% yoy to reach 20 billion yuan in 3 to 5years.

� Indeed, many players have entered the cosmeceutical market in recent years.

− Chinese supermarket operator Lianhua (聯華) has formed a partnership with GrowellGroup (a well-known cosmeceutical company in Japan) and Meiribuy (每日通販) (aShanghai-based online platform selling Japanese products) in September 2011. Theyplanned 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 beautyproducts retail sector. It opened up its first pharmaceutical and beauty retail shop inXi'an in September 2011.

37

5. Cosmeceutical market is gaining increasing attention (cont’d)

� Currently, the cosmeceutical market in China is dominated by foreignbrands such as Vichy, La Roche-Posay, Freeplus and Simple. However,cosmeceuticals with Chinese herbal medicine are gaining increasingattention.

− 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 male's skincare

sector reached 4 billion yuan in 2010 (or 8 billion yuan if other male grooming productssuch as fragrance and color cosmetics are included).

− Male's skincare sector grew by 27% yoy in 2009 and 40% yoy in 2010, five timesfaster 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.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 offemale product lines. Only a few brands concentrate solely on male’s groomingproducts.

� Facial cleansing product is the most popular product category for men.According to the report by HKTDC, there is an increasing demand for mask, UVCream, aftershave moisturiser, deodorants and hair products for male.

39* Source: Statistics of China’s cosmetics market, 2010, Alibaba Group Research Centre

7. Children and baby care markets have enormous potential

� According to Euromonitor, retail sales of China’s children care products areanticipated 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 willincrease 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� The number of retail stores selling mom and baby products has grownexponentially 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 skincareproducts for expectant mothers and babies.

� Some cosmetics brands have introduced skincare products specifically forexpectant 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; localcosmetics company TJOY (丁家宜) has introduced bbjoy (貝倍驕) for babies.

40

8. Green cosmetics products are moving into the mainstream

� Green products are products that have less impact on the environment orare less detrimental to human health. Nowadays, more and moreconsumers are looking for green cosmetics, as these products are applieddirectly to the body, excessive chemical substances present in the productmay cause skin allergy.

� According to another report* by HKTDC, the demand for green personalcare products has increased significantly in recent years.

− 53% of the respondents said that they have bought green personal care productsin 2011, most of which are products using plant ingredients and products that arenatural and additive-free.

− The report* also showed that female consumers concern more about greenproducts, but many brands have started to target men’s market in recent years.

− For example, Inoherb, a domestic brand which focuses on products with plantingredients, 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 government is considering reform of consumption tax on luxury cosmetics

� Currently, the retail prices for high-end and luxury cosmetics sold in Chinaare generally higher than those in the overseas markets, due largely to theconsumption tax (at a rate of 30%) levied on luxury cosmetics in China.

� Also, with increasing income, Renminbi appreciation against the US dollarand easing travel restrictions, many Chinese consumers shop for cosmeticsproducts abroad.

� The Ministry of Finance announced that from 1 January 2012 onwards,� The Ministry of Finance announced that from 1 January 2012 onwards,tariffs on 730 categories of commodities will be lowered to an average of4.4%. Tariffs on imported skin care products will be reduced by 1.5% fromthe current 6.5%. Some industry experts believed that the lowered tariff stillcannot compensate the recent rise in cost. Market prices of most cosmeticproducts will not fall.

� The spokesperson of the Ministry of Commerce said that China wouldconduct a study on the reform of the consumption tax on mid- and high-endproducts, but details are still under discussion.

42

10. Companies in other industries jump on the bandwagon to offer cosmetics products

� Eyeing the huge growth potential of China’s cosmetics industry, otherindustries are eager to tap the market by offering cosmetics products.

− VANCL, one of the leading online apparel companies in China, has launched theonline cosmetics platform (pf.com.cn) in 2011.

− Fujifilm, a Japanese photographic and imaging company, also officially launcheda high-end cosmetics product line called ASTALIFT in China in 2011.

� However, entering a different industry may require considerable investment.� However, entering a different industry may require considerable investment.Lacking the expertise in product research and development, andconsumer’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 soldin China are reportedly having cancer-causing chemicals.

� As Chinese consumers are now more discerning, product safety is expected to gainmore attention in the future. More regulations are expected to be launched by thegovernment 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 cosmet ics sector in 2011 -2012

44

Item EffectiveDate

Highlights

Guiding Opinions of the Ministry of Commerceon Promoting the Standardized Development of Beauty and Hairdressing Industry during the 12th Five-year Plan Period商務部關於“十二五”期間促進美容美髮業規範發展的指導意見

2011-11-16

The government sets the growth target of 15%for the beauty and hairdressing Industry in thenext five years. Enterprises in the beauty andhairdressing industry are encouraged to expandtheir scale of operations and improve the level ofservices.

The Measures for the Inspection, Quarantine, Supervision and Administration of Imported and Exported Cosmetics by the General Administration of Quality Supervision, Inspection and Quarantine 進出口化妝品檢驗檢疫監督管理辦法

2012-2-1 The Measures aim to regulate the imported andexported cosmetics in China and better controlthe hygienic condition of the cosmetic products.

Exhibit 6. Selected rules and regulations of cosmet ics sector in 2011 -2012

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 departmentstores* 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− Skincare products− Color cosmetics− Fragrances

*Note: It is noteworthy that the CNCIC data covers sales in major department storesonly. Retailers of other formats such as professional and specialty stores are growingin popularity. The actual overall market share of cosmetics brands may deviate fromthe CNCIC data.

46

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 themarket share in major department stores in 2010.

� The top 10 players in the shampoos and conditioners sub-sector had thehighest 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% in2010.

Exhibit 7. Market share of top 10 brands of selecte d sectors, 2009 -201095.2

71.8 79.9

70.7 72.1

94.6

65.2

79.2

67.7 71.0

0 10 20 30 40 50 60 70 80 90

100

Shampoos and conditioners

Other hair care products

Skincare products Color cosmetics FragrancesSha

re o

f tot

al s

ales

val

ue (

%)

2009 2010

47

Exhibit 7. Market share of top 10 brands of selecte d sectors, 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 cosmetics brands may deviate from the CNCIC data.

18.0

0 10 20

Youngrace 溫雅

Share of total sales value (%)

Performance of selected product sectors

Exhibit 8. Shampoos, conditioners and 2-in-1 conditioning shampoos: share of total sales value, 2009-2010

Exhibit 9. Other hair care products (colorants, hai r mask & styling agents): share of total sales value, 2009-2010

Exhibits 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.

25.2

0 10 20 30

Head & Shoulders 海飛


18.0

12.5

6.4

11.0

10.3

11.1

11.0

10.6

9.9

8.6

Youngrace 溫雅(Youngrace Cosmetics Group)

Decolor 迪彩(Guangzhou Decolor

Cosmetics)

章華(Savol)

Maestro 美濤(C-Bons Group*)

L’Oréal 歐萊雅 (L'Oréal )

2009 2010

48

Source: CNCIC Source: CNCIC

25.2

20.4

17.7

10.1

5.9

27.5

19.8

16.3

11.2

6.1

絲 (P&G)

Pantene Pro-V 潘婷(P&G)

Rejoice 飄柔 (P&G)

Slek 舒蕾 (C-Bons Group*)

Lux 力士 (Unilever)

2009 2010


Performance of selected product sectors (cont’d)

Exhibit 10. Skin care products: share of total sale s value, 2009-2010

Exhibit 11. Color cosmetics: share of total sales value, 2009-2010

19.0

18.0

15.8

0 10 20

Olay 玉蘭油 (P&G)



27.2

12.6

25.6

0 10 20 30

Maybelline 美寶蓮(L'Oréal )

L'Oréal 歐萊雅 (L'Oréal )


49

Source: CNCIC Source: CNCIC

18.0

16.2

8.0

5.3

15.5

14.7

9.7

9.2


Aupres 歐珀萊 (Shiseido)

Lancôme 蘭蔻 (L'Oréal )

Estée Lauder 雅詩蘭黛(Estée Lauder)

2009 2010

12.6

6.1

4.9

3.3

11.4

5.9

4.5

4.1

L'Oréal 歐萊雅 (L'Oréal )

Aupres 歐珀萊(Shiseido)

Olay 玉蘭油 (P&G)

Revlon 露華濃 (Revlon)

2009 2010


Performance of selected product sectors (cont’d)

Exhibit 12. Fragrances: share of total sales value, 2009-2010

19.8

16.1

24.3

0 10 20 30

Chanel 香奈兒 (Chanel SA)

Christian Dior 迪奧 CD


50

Source: CNCIC

16.1

9.2

6.8

5.1

18.4

7.3

5.8

3.9

Christian Dior 迪奧 CD (Christian Dior (China) Fragrance & Cosmetics)

BOSS (Hugo Boss AG)

Burberry 巴寳莉 (Inter Parfums)

Lancôme 蘭蔻 (L'Oréal )

2009 2010


Li & Fung Research Centre10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong

Tel: 2300 2470 Fax: 2635 1598

For more information

Tel: 2300 2470 Fax: 2635 1598Email: [email protected]://www.lifunggroup.com/

© Copyright 2012 Li & Fung Research Centre. All rights reserved.Though Li & Fung Research Centre endeavours to have information presented in this document as accurate and updated aspossible, it accepts no responsibility for any error, omission or misrepresentation. Li & Fung Research Centre and/or itsassociates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of informationcontained in this document.

china's cosmetics market, 2011 final - fung · pdf file− other distribution, ......

Documents