Chinese cosmetics industry immune to economic slowdown

A salesgirl arranges products at a L'Oreal store at a shopping mall in Nanjing, Jiangsu. [Photo by An Xin/For China Daily]

In spite of the ups and downs of the economy, it seems people's pursuit of beauty remains unchanged.

Even though the country has been undergoing ups and downs in recent years, the Chinese cosmetics industry has managed to maintain a compound average annual growth rate of 8.2 percent between 2011 and 2015, according to global market consultancy Euromonitor International.

With demographic changes, increased consumer spending as a result of higher incomes, a better understanding of cosmetics consumption and multiple sales channels, the momentum is expected to gather, according to Euromonitor, with the compound average annual growth rate expected to reach 6.7 percent between 2016 and 2020. The value of the Chinese cosmetics market can reach 435.2 billion yuan ($62.6 billion) by 2020.

To pave the way for the faster development of the Chinese cosmetics industry, a new policy was introduced by the finance ministry in September 2016 which abolished the consumption tax for ordinary cosmetic products. The tax for high-end cosmetics was reduced from 30 percent to 15 percent.

While the central government is calling for a supply-side reform, people's consumption habits have been changed accordingly. With the rise of the middle class in China and with more disposable incomes, consumers are now showing a preference for luxury products with higher prices.

According to the 2016 third-quarter fiscal report of South Korean brand LG Care, the high-end brands such as Whoo registered a phenomenal 44 percent increase in sales. Sales of YSL and Giorgio Armani under the umbrella of L'Oreal China increased by a significant 40 percent and 50 percent respectively in the third quarter.

This trend will only increase. More consumers are using their smartphones to go online and order items. Many customers are shopping more frequently for cosmetics and skincare products on the internet.

According to Shenzhen-based ASKCI Consulting Co Ltd, the total online sales volume of cosmetics and skincare products reached 182.3 billion yuan in 2015 and is expected to reach 548.2 billion yuan by 2020, with the compound average annual growth rate at 24.6 percent.

Jason Yu, general manager of market research firm Kantar Worldpanel China, said: "Consumers used to buy more skincare products online three years ago, because the price difference between online and offline channels might be as much as 30 percent. But we have noticed consumers are buying more cosmetics products online in 2016. The products which meet the demand of middle-class consumers, such as cosmetics, have shown robust growth."

The shopping spree which accompanies Singles Day on Nov 11 is evidence of this growth. On that day in 2016, the cosmetics online sales reached 21.2 billion yuan, accounting for 12 percent of the total sales volume on the day. Chinese skincare brand Pechoin recorded sales of 107.8 million yuan on Nov 11 last year, up by 200 percent year-on-year and making it the first store to reach 100 million sales on Tmall in 2016.

Although global market players still take up the leading positions in China, domestic brands are rising rapidly.

Sheng Yongming, senior consultant at international research firm Roland Berger in China, said: "As a rising domestic cosmetics brand, Chando focuses on the low-end market and has been expanding rapidly too. KanS meets the demands of office workers while Pechoin has managed to rebuild its brand image."