U.S.-Asia Business
Face Value: Opportunities in China's Booming Beauty Market
By Daniel Allen
The burgeoning Chinese beauty market offers increasingly lucrative opportunities for brands that resonate with Gen-Z and millennial consumers.
Today, China's beauty industry is booming. According to German market research company Statista, the Chinese beauty and personal care market will be worth more than $56 billion in 2021 and $78 billion by 2025. This places China's beauty market second in value only to that of the United States, which will be worth an estimated $80 billion in 2021. Within the Asia-Pacific region, China will account for almost 70% of the growth in the regional beauty and personal care market through 2025, according to London-based market research firm Euromonitor International.
"Underpinned by the burgeoning spending power of the country's middle class, China's beauty market is extremely dynamic," says Kris Feng, a project manager with China-based market research and consulting firm Daxue Consulting. "With the market characterised by a number of key trends, there are highly lucrative opportunities for all brands—both domestic and Western—that resonate with increasingly discerning Chinese beauty consumer."
"China's beauty market continues to experience an upsurge in demand due to the country's steadily growing female population, concentrated international brand exposure, highly brand conscious consumers, rapid urbanisation and mature application of social media and online sales platforms," adds Betty Trieu, a luxury retail strategist and founder of China-focused luxury sales training consultancy Eqwiip. "These trends will continue to play out over the short to medium term."
Demographic drivers
The Chinese beauty market is largely driven by female Gen-Z and millennial consumers. In 2020, for example, women under the age of 40 spent more than RMB 1,000 ($156) per capita on cosmetics, accounting for nearly 70% of the total market. This demographic has become highly knowledgeable about skincare and beauty products, which has led to increasing demand for product variety, innovation, and specialisation.
"The pursuit of individuality and rejection of conformity amongst this demographic is pushing beauty brands to launch more personalised products and employ ever more creative marketing methods," says Feng. "Chinese consumers are paying increasing attention to the way beauty products work, and the ingredients they contain."
"Often Chinese beauty consumers won't consider making a purchase until they've been exposed to a brand a number of times," adds Sandra Weiss, a market researcher working for Shanghai-based RedFern Digital, a full-service digital agency which has assisted a number of foreign brands within China's beauty sector. "This makes product seeding, word-of-mouth marketing, and a general focus on increasing brand awareness extremely important to brand success."
Offline to online
While the Chinese economy bounced back rapidly from the impact of Covid-19, the pandemic helped to accentuate a trend toward e-commerce that was already evident in the beauty sector before the virus struck. As Western beauty companies saw home market sales decline during the pandemic, many also doubled down on Chinese e-commerce platforms.
"China's cosmetics, beauty and personal care industry saw a drop in sales during the pandemic because the offline retail channels that many customers had previously relied on were closed," says Weiss. "As a result, many brands began to rapidly develop their online channels, causing a digital transformation and increased reliance on social media and livestreaming to drive e-commerce sales. Offline consumption has generally recovered since shops have reopened, but the growth of beauty-related e-commerce continues unabated."
"E-commerce continues to be a growing sales channel for China-based beauty brands as they try to meet the demands of savvy Chinese online shoppers," adds Trieu. "Courier processes and delivery channels in China are some of the most mature and efficient in the world, making online shopping both reliable and gratifying. Now that the pandemic is largely over, 'experiential' shoppers are researching online and then heading to physical stores for more in-person interaction."
The role of influencers
With Chinese consumers increasingly seeking functional, personalised products, China's Key Opinion Leaders (KOLs)—or so-called wanghong (essentially Chinese influencers)—play a key role in influencing consumption across many sectors. More than 60% of Chinese millennials say they trust bloggers and user reviews when buying a beauty product. Many China-based beauty brands—both domestic and Western—cooperate with female and male wanghong.
"According to data from Analysys, more than 60% of Chinese cosmetics customers follow at least one beauty wanghong," says Tiffany Zhang, an advisor working for Shanghai-based Dr2 Consultants. "KOLs associated with different social media platforms employ different marketing methods."Wanghong are a critical marketing tool in the China beauty industry—and will continue to be critical—because most Chinese consumers get their recommendations from friends, family, and KOLs. However, Chinese consumers are becoming increasingly aware that KOLs are frequently paid to promote brands and products, which has led to a gradual erosion of trust.
"Taken together with China's crackdown on celebrity culture, this means brands should also consider working with Key Opinion Consumers (KOC)," says Weiss. "These everyday consumers, who influence their own circle of friends and family, are becoming a driving force in the Chinese market. They often have less than a thousand followers on their social media platforms, but are considered to be trustworthy and credible product reviewers."
Digital innovation
The fact that China's beauty consumers are extremely tech-savvy means digital innovation is extremely important for long-term brand success. Such innovation can include the creative use of media platforms to build a memorable brand story, the development of mini-programs on WeChat, or the creation of private groups to allow for more interaction and engagement between brands and consumers.
"China's domestic beauty brands in particular are very strong in their integration of digital platforms," says Olivier Viejo, head of fine fragrance at Firmenich China. "The digital ecosystem of China allows brand owners to create a brand very easily even from a remote set-up—starting from distribution that can be readily managed by e-commerce, to having co-packers who can help you develop your product, and digital branding companies that can help you make your brand become a reality. Here, it's fast, and that makes a difference. It's all about speed."
"In terms of digital marketing, having a presence on a wide range of channels to increase the number of consumer touchpoints is generally the best strategy," adds Weiss. "Specific Chinese platforms that are popular for the beauty category include Xiaohongshu, Douyin, and WeChat."
With a predominantly young, female user base, Xiaohongshu ("Little Red Book") is an experience-sharing platform where consumers can discuss and comment on each other's reviews of products and brands. Douyin (TikTok in China), which also has a young user base, is a short-video platform that has exploded into popularity and is currently of huge interest in China. Although the power of WeChat is fading slightly in terms of consumer engagement, it is still an essential touchpoint for brands looking to provide first-hand brand and product information to consumers.
One form of digital innovation that has become increasingly popular in recent years is livestreaming. Although livestreaming existed prior to Covid-19, it has now become a form of entertainment shopping among Chinese consumers, with the potential to drive massive sales. China-based beauty brands have the choice of either working with a livestreaming KOL who is already popular, or staging their own livestreams.
Closing the gender gap
Female consumers may still dominate the Chinese beauty market, but their male counterparts are rapidly playing catch-up. With male beauty one of China's fastest-growing consumer product segments, the growth rate of Chinese male beauty product purchasers has now overtaken women.
"Nearly 20% of Chinese beauty customers are male, and this number is increasing every year," says Tiffany Zhang. "At the same time, more and more beauty brands are using male wanghong for their marketing."
These trends have seen Chinese men, particularly those under the age of 30 living in big cities, spend increasing sums on their appearance and male grooming. According to Euromonitor International, the Chinese men's skincare market (excluding post-shave products) is already three times the size of that in the U.S., and more than twice the size of the South Korean market. Valued at $1.9 billion in 2020, it will be worth $2.8 billion by 2025, according to London-based market research firm Mintel.
"Among male netizens, over three-quarters under the age of 25 recently indicated they wanted to buy male grooming products," says Weiss. "And during the Double 11 Festival (Singles' Day) in 2020, Cainiao (Tmall's logistics partner) saw a 3000% increase in male beauty product deliveries compared to the previous year."
Popular Gen-Z platforms such as Douyin and Xiaohongshu are driving the Chinese male grooming trend, as is the popularity of South Korean pop culture, which emphasises a less rugged version of masculinity. With over three-quarters of Chinese men born after the 1990s developing skincare routines during college, the daily use of male beauty products in this demographic is rapidly becoming normalised.
The growth of the Chinese male beauty industry has been partly driven by an increasing number of male KOLs who wear makeup, such as Austin Li Jiaqi. Known as the "Lipstick King," Li tries on various lipsticks and discusses the colour, texture, packaging, and quality during his hugely popular livestreams. In a 12-hour livestream to kick off Alibaba's Singles Day Shopping Festival in October, for example, he is reported to have moved $1.7 billion worth of products. According to Li, 250 million people viewed the broadcast.
The rise of domestic brands
Today, more and more Chinese consumers are seeking organic and chemically reduced skincare and beauty products to counter ageing, dryness, acne, and pollution-caused rashes and allergies. With masks being the permanent facial accessory, there is a growing demand for eye creams, eye make-up, serums, foundations and loose powders. An ongoing fascination with Korean pop culture is also boosting the popularity of K-cosmetics.
Catering to these trends, previously dominant international brands are facing growing competition from their domestic counterparts.
"Chinese beauty brands are rising in popularity over shorter periods because of their understanding of the market and their ability to quickly capitalise on trends," says Weiss. "Many create a contemporary image directed at younger generations, who are a driving force in the beauty industry. Most foreign brands are not quite as flexible and have decision-making processes that take too long for them to take full advantage of shifting trends."
"We are witnessing rapidly growing pool of young Chinese brand owners who are bold, entrepreneurial and extremely dynamic," adds Viejo. "Launching a new campaign or range of products every couple of months, they are digital natives and social media experts who understand and meet the changing demands of young Chinese consumers through both offline and online touchpoints. They are quick to scale up with stores or pop-ups in Tier 1 and Tier 2 Chinese cities and actively leverage social media and e-commerce platforms."
Future focus
Over the next five to 10 years, the Chinese beauty market will continue its trend toward diversification and digitalization, with a growing emphasis on natural and organic products. Chinese brands will likely grow their market share, as they become more sophisticated and catch up with their international counterparts in terms of product development, consumer trust, and loyalty.
"Personalization and digitalization encapsulate the future of the Chinese beauty market," says Trieu. "Even though the market is already developed, it still has huge potential for further growth. From being a place where Western beauty brands once imposed their ideas, I think more and more people will look to the Chinese market for inspiration and innovation."