Beauty & Balance

China’s Beauty Market Reconfigures in Post-Pandemic World

LONDON — While the world is still disrupted by the virus, China has been largely COVID-19 free for almost a year. With global traveling a no-go, and mask-wearing here to stay, the nation’s beauty market has adjusted to this new reality with major developments in sales-driven online initiatives, clean and cruelty-free beauty, domestic duty-free shopping and niche brand acquisitions.

“Because of the wearing of masks, the demand for clean beauty has grown, and the need for facial cleansing and maintenance has also increased,” said Mao Geping, one of China’s most celebrated makeup artists.

During the pandemic, like many others, he began to work with influencers and vloggers to share makeup skills or promote his label via livestreaming. A video of him transforming the face of China’s most-followed fashion vlogger Teacher Xu has near 1 million views on China streaming site Bilibili and half million on YouTube so far.

Mao made a name for himself in the early ’90s for a series of magical makeup tutorial videos in which he turned ordinary Chinese women into glamorous starlets. At that time, when most of China was still grasping the idea of capitalism, his visionary approach to beauty inspired a generation of Chinese women.

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Also benefiting from the livestreaming trend is the Shanghai-based clean beauty brand Forest Cabin, or Lin Qin Xuan in Chinese.

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During the pandemic, the company’s cofounder Sun Fuchun was among the first to sell via livestreaming in an attempt to save the company from bankruptcy, as half of its points of sales across China were shut due to government regulations and safety concerns.

Its best-known organic camellia oil was later marketed as a product that can repair the damage to nurse’s skin after they wear masks for a long period of time. The brand is now one of the bestselling skin care brands on Tmall.

Another hot topic that has emerged during 2020 was the revision to China’s cosmetics animal testing rules.

Earlier this month, China’s National Medical Products Administration announced that imported ordinary cosmetics will not be required to undergo animal testing from May 1, opening the way for a wave of new beauty brands to enter the country that had previously avoided the world’s second-largest beauty market — the U.S. is the largest — over ethical values.

For example, Brazilian beauty conglomerate and cruelty-free beauty leader, Natura & Co., the parent company of Aesop and The Body Shop announced days later that both brands are eyeing for China market entry.

Roberto Marques, chairman of Natura & Co., said Aesop is expected to open its first store in Shanghai in the fourth quarter of 2021, and The Body Shop’s first store in China is set to open in 2022.

The Body Shop was once available at duty-free shops in Chinese airports, but the brand exited the market in 2014 due to animal testing regulations.

No brand will probably say no to duty-free shops in China nowadays, as this sector has seen exponential growth since China’s tightened its broader control.

Cities such as Shenzhen, Shanghai, Beijing and Hainan Island’s capital Haikou and tourist hotspot Sanya have all made strategic moves in order to take a bigger share of this lucrative market, where beauty and fragrances are the biggest sellers. In fact, both L’Oréal and Estée Lauder cited spectacular growth in China during their latest earning calls.

Not long after the central government loosened regulations on this lucrative sector last June, DFS Group, the Moët Hennessy Louis Vuitton-owned travel retail operator, acquired a 22 percent stake in Shenzhen Duty Free Ecommerce Co., which is majority-owned by Shenzhen Duty Free Group. The two recently unveiled the first phase of their new downtown duty-free shopping complex in Haikou Mission Hills.

China Duty Free Group, the largest duty-free operator in China, also announced expansion plans with Sanya Phoenix International Airport to open duty-free shops in the airport to further capture the influx of tourists.

In January, Dufry unveiled a cooperative agreement with Hainan Development Holdings and opened its first shop on Jan. 31, at the Global Duty Free Plaza at the Mova Mall in Haikou. At the same time, Lagardère formed a partnership with the Hainan Tourism Investment Development to open the second-largest downtown duty-free store in Sanya.

Driven by attractive discounts and the warm weather, over the Chinese New Year holiday, which ran from Feb. 11 to 17, duty-free stores on Hainan Island saw sales exceed 1.5 billion yuan, or $231.2 million, doubling the amount recorded in the same period for 2019.

Building on this momentum, Haikou will also host the first China International Consumer Products Expo from May 7 to 10. Confirmed participants include Galeries Lafayette, DFS Group, Tapestry Inc., Swatch Group, L’Oréal Group, Shiseido and Kao.

While international beauty companies fight to enter the market and go after China’s affluent shoppers, some of the largest Chinese beauty groups with high mass market shares were dealing with a different set of challenges.

Shanghai Jahwa, which relies heavily on traditional sales channels, saw its revenue down by 7.43 percent in 2020 due to the pandemic. But Jahwa’s premium and specialist offerings like Vive, Gaofu, Dr. Yu and Herborist Derma, still managed to achieve healthy growth in the second half.

In the third quarter, the company also adjusted its e-commerce business structure, optimizing the frequency and proportion of livestreaming and cultivating streaming talents within the company to improve profitability.

For the more digitally savvy Proya Cosmetic, its 2020 beauty sales are estimated to increase by more than 10 percent. The company cited e-commerce as the main driver of that growth. Its gross merchandise value on Alibaba’s platforms alone grew 40 percent and surpassed 1.89 billion renminbi, or $292 million. The company also set up an incubation program with Alibaba’s Tmall to forester start-ups in the beauty sector.

The newly listed Yatsen Holding Ltd., the parent company of cosmetics and skin care brands Perfect Diary, Little Ondine, Abby’s Choice and Galénic, posted an increase of 72.6 percent on revenue in 2020. A pioneer of the direct-to-consumer model in China, Perfect Diary was also the bestselling Chinese beauty brand during last year’s Singles’ Day shopping festival on Tmall.

The company recently doubled down on niche brand investments to future-proof its profitability. In March, it announced plans to acquire the London-based beauty brand Eve Lom that has accumulated a cult-like following over the years for its botanical cleanser cream. Last year, it acquired the premium skin care brand Galénic from Pierre Fabre.

Omnichannel brand partner Ushopal, which announced the close of a $100 million round of funding in early March, is another Chinese player that has been active in niche beauty brand acquisitions.

The group has already invested in several of its brand partners, such as Natura Bissé from Spain and perfume label Juliette Has a Gun, which was created by Nina Ricci’s great-grandson Romano.

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