There are numerous reasons for cosmetics prime placement on the first floor of all department stores, but foremost among them is cosmetic’s sheer market power. Estimates suggest that the cosmetics market in China will still grow 11% in 2009, just 1% less than 2008’s rate. Clearly, these goods are recession-proof.

In China, the cosmetics industry is not only resilient, but also huge. This author has estimated its size from anywhere between a $5 and $10 billion dollar industry in 2008. Why the range in figures? Different definitions. Viewing the segment from a legal perspective, many would include shampoo, hair dyes and deodorant in the definition of cosmetics. Many others cap their inclusions at just skin care, perfumes, lipsticks, fingernail polishes, eye and facial makeup preparations, items most consumers consider “cosmetics” or the “beauty market.”

At least in China, skin care products are certainly the force behind these figures. In the Mainland, skin care accounts for an incredible 80% of the beauty industry’s product share. Colorful facial makeup, in China, does not command the same attention it does abroad. As anyone who has lived in China understands, skin is big business here.

As with many other markets in the Mainland, the cosmetics market is also highly segmented. P&G and its Olay brand control the biggest share of the market. L’Oreal is a close second with about 10% of the entire market and made a cool $1 billion in revenues in 2008. After these two powerhouses, we see Estee Lauder, Shiseido, China’s Jahwa, Avon and others. But, according to sources, the top 20 cosmetic manufacturers hold only about 50% market share. That means there are hundreds of local brands out there that we won’t have space to detail here

Don’t assume that we are only talking about women consumers. Men’s skincare is a growing segment with cosmetics. L’Oreal reported that men’s products now contribute almost 12 percent of L’Oreal’s sales revenue in China and this figure is expected to dramatically increase. It’s pretty hard to avoid Biotherm ads nowadays and many brands report that their men’s business is their fastest growing segment.

And how are Chinese getting these goods. In fact, the distribution network is fairly similar to other nations’ markets. Specialty retailers and departments stores are the first stops for premium and mass premium cosmetics. Supermarkets, grocery stores and pharmacy chains (Watson’s in particular) provide mostly mass market and a few more premium products.

China, though, remains unique for two reasons: Taobao and direct selling. As enoVate blog readers will know, Taobao is a force to be reckoned with. As our own contacts have told us, many cosmetic brands worry about Taobao. Chinese consumers are smart. Many visit department stores to sample cosmetics and then buy them off Taobao at home and for a discount. Other customers use brands’ websites to do their own research but then Ctrl T over to Taobao.

Direct sellers themselves haven’t yet found the pot o gold in China. In Taiwan, 1 in 4 buy their cosmetics from direct sellers. In China, the figure is 1 in 20. The Chinese government very early on made clear is dislike of these “unscrupulous multilevel marketers” and banned direct selling until 2006. Mary Kay, the first “direct seller” to enter the China market, originally created a network of retail stores. After the lifting of the ban, Mary Kay, Avon and others have reignited their direct selling activities and continue to expand. enoVate will certainly keep an eye on these developments.

From men’s cosmetics to Taobao’s growing clout, enoVate will continue to keep abreast of these cosmetic trends!

People are always curious about the lives of celebrities. How do they live? What do they eat? What products are they using? Because of their reputation, people are always watching their every move. Over the past few years, Chinese celebrity paparazzi shots have been popular. People learn to dress from the stars. Especially for the university students, they try to spend the least money but want to wear the most fashionable clothes. And they are especially concerned about celebrity’s favorite things and what they recommend.

The 大S Phenomenon

Gradually, for many students, the original name of cosmetics are slowly replaced by the “大S Recommended XX product”, or “Teacher Kevin (Kevin老师 －Taiwanese Make-up Artist) recommended XX product” and so on. Many University students begin to trust these celebrities and purchase products that they advertise. Stars like 大S, or Teacher Kevin became the best advertisements for these products, while the students of these networks become the largest shopping group for these recommended products. But, why are celebrity recommended cosmetics so popular right now? Do college students really need these products? Let’s examine.

The Pursuit of Fashion

Much of this marketing phenomenon can be traced to the Taiwanese celebrity, 大S. To put it plainly, she published a beauty book, which students read as THE Chinese cosmetics handbook. In 大S’s childhood, she tried all kinds of cosmetics. This gives her credibility as someone who has been there and done that. This book has a lot of popular products, such as The Body Shop’s Tea Essence to Kiehl’s Cucumber Water Lotion, etc.,

Before reading this book, most girls use the ordinary brands such as Maybelline and L’Oreal . After reading, they move on to more fashionable or trendy products, such as Benefit, M.A.C, Shisedo and so on. And these celebrity recommended products are often trendy and stylish. As long as the students have the ability, they are willing to try all.

Another example showing this strong celebrity influence is from the Taiwan TV Show, “女人我最大”. A few months after the “Magic Stick” appeared in “女人我最大” (where the hair can be fixed but the hair style won’t be changed) many university girls frenzied to purchase this item. The passion and the pursuit of fashion is reflected from buying these “大S” or “女人我最大”  brands. A company with a 大S-like testimonial is similar to the Oprah product bump in the United States.

Cost Effectiveness

It is undeniable that the recommended products by the star have higher quality and price points. And the recommended products are the things always ignored in our daily life. But if the price is reasonable, and the effectiveness is shown to be very high, it has a better chance to become popular for university students. Many university students have no income, and their main source of income comes from their parents, thus it’s particularly important for them to budget their money as much as possible and purchase a product with high quality.

Making The Cosmetics Connection

It is understood that many college students do not know what type of products are suitable for their skin type; do I have dry, mixed, neutral, or oily skin? Many students blindly follow the trend of purchasing”大 S recommended” product. In fact, students’ demands for cosmetics are relatively simple, they don’t have anti-wrinkle and other big skin problems. As long as brands provide better make-up guidance and offer a reasonable price for students, we are willing to buy in the stores and at the sales counters. After all, shopping for cosmetics on Taobao can be quite a risk.

But this week, we are looking at cosmetics in China. Coming in the top 100 are the four familiar cosmetic and skin-care brands, OLAY, Maybelline, L’Oreal, and Amway.

Of these four brands, OLAY, L’Oreal, and Maybelline are globally recognized in the make-up and skincare areas. But Amway’s non-traditional direct sales model and high quality perception has allowed it to increase sales dramatically in China. China is currently Amway’s largest market with gross sales of over 2.5billion USD in 2008.

But why are these brands seeing success and other are not? Well, according to CLSA’s Head of Consumer Research, Robert Bruce, the answer lies in a shift in values from price to quality:

“Consumer emphasis is already shifting from price to quality, which will allow companies who deliver on their brand promise to increase price, in turn increasing profits, and thus providing the ability to innovate and propagate through R&D and distribution.”

Quality is surely becoming more important for older and wealthier Chinese consumers who are attracted to luxury brands, but what about Chinese youth consumers who do not always have high incomes or strong purchasing power?

For our hypothesis that we will testing this week through our primary and secondary research methods, we believe in three key factors that cosmetic brands must keep in mind to attract Chinese youth consumers. These are:

• Cosmetic brands attention to customer service.
• An open forum to discuss cosmetics, whether it is through online BBS’, SNS’, etc, with friends, or with customer representatives.
  
• Cheaper and convenient online shopping methods.

Pay attention to our final analysis report at the end of the week to see if these hold true!