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!

佰草集 aka Herborist’s parent company Shanghai Jahwa has a long and rich history dating back to the turn of the 20th century. As testament to Herborist’s strong showing in the domestic market it was awarded the title of “Shanghai famous brand” in 2005 and currently stands alone as the only local player in a highly competitive beauty market. So how has this local Shanghai brand managed to stand up and compete with the Estee Lauders and Sisleys ? Lets explore.

Herborist’s product range is not too dissimilar from it’s competitors, showcasing the usual creams, face packs and moisturisers. Where their strength lies however, is the specifically Chinese niche they have found  in a highly globalised industry whereby nationality and cultural references play a large role in marketing (Shishedo = Japanese purity, MAC = American sexiness, etc).

The brand cleverly distinguishes itself by “intergrating Traditional Chinese Medicine into the latest fruits of modern biotechnology”, as stated on their website. Imagery and even product innovation all make relevant nods to traditional Chinese, such as their nourishing and cleansing ‘Tai Qi Mud’, which promotes the Chinese aesthetic of balance through its yin-yang design and application process.

Their products are also well rounded out by the Herborist Spa, which opened in 2002 offering unique treatments to compliment their product range. These product and brand innovations, when coupled with a rising overall market trend for organic and natural products, have helped Herborist stay ahead of the curve.

Success

Although online consumer satisfaction is hard to guage with opinion differing wildly from person to person, confidence in Herborist products has recently been shown via an online vote of consumers’ favorite cosmetic brands. The brand was voted as having top products in no less than two different catergories.

More conclusive evidence of the brand’s success can be seen through the stock portfolio of Shanghai Jahwa. As the parent enterprise of Herborist, they were the first domestic cosmetic company to go public and over the years have showed consistent signs of improvement.

Other than Herborist, Shanghai Jahwa’s brand profile also includes:

• Chinfie – Luxury cosmetics line
• GF – Male cosmetics range endorsed by HK actor Tony Leung
• Maxam – Skin care for the mature lady
• Cocool -  Make-up for a younger market

With it’s extensive R+D operations and production infrastructures, Shanghai Jahwa, has been able to leverage the license for the complete market operation of Adidas personal care products in mainland China. Furthermore, the company has also established a joint venture with Sephora Cosmetics (part of the LVMH group) within China. Through this agreement Herborist has been able to establish itself as the first Chinese cosmetics brand carried by the Sephora in all it’s overseas markets, earning the brand a small amount of international recognition.

Whilst previous local competitors, Yue Sai, were added to L’oreal’s ever expanding brand list specifically due to Chinese commitment to “local” brands (“I will stick to Yue-Sai, no matter who owns it”), the Herborist brand is unlikely to be bought out anytime soon. The combination of good brand identity and marketing, as well as well nurtured business infrastructure and production are what make this brand successful. All too often local brands can lack one of these vital pieces and even with a small amount of success, they run the risk of being bought out by a larger conglomerate to help bolster one of these ailing factors. The depth of it’s operations and it’s baby steps into an international market are both good indicators of the continued success of the Herborist brand.

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.