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China Personal Care and Cosmetics Products

China is 10th largest market for U.S. personal care and cosmetics exports, with U.S. products exports totaling $345.3 million in 2015, representing 3% of the total U.S. export market. Within the next decade, China has the potential to become the largest market for U.S. products, with U.S. exports to China growing 64% in the period between 2010 and 2015. While China’s rate of economic growth has slowed over the past few years, it has not impacted the growth of U.S. personal care and cosmetics exports. This is likely due to the current low rates of these products consumption in China, which at $24 per person, per annum in 2014, is still far lower than neighboring countries such as South Korea and Japan, which averaged $223 and $174 respectively.

Overview

With an estimated $50 billion in domestic sales in 2015 and 7% to 10% annual growth predicted in 2016 and beyond, China is projected to become the largest market for personal care and cosmetics products globally in the next five to ten years.1 Despite its relatively large market size, merely 10% of the population uses cosmetics regularly.2 Consumption of cosmetics is most prevalent in tier 1 megacities, with increasing penetration in China’s inland tier 2 and tier 3 cities, which are also experiencing the fastest increases in China’s growing middle class and consumption of consumer products. The majority of consumers of these products are 20 to 30 year olds, although there is a robust level of consumption among 30 to 39 year olds who also consume higher percentages of premium products. While the market is predicted to grow at 10% or greater over the next five years, U.S. companies considering exporting to China should be aware of the high levels of competition and complex product registration requirements required to enter China. Although a slice of Chinese cosmetics and personal care products consumers are willing to pay for branded or premium products, consumers tend to be less brand-loyal and more price sensitive than U.S. or European counterparts. As a result, product demand, even among well established brands, can be volatile from year to year.

Multinational companies continue to dominate the personal care products market in China, with nine of the top ten largest sellers across categories being foreign companies. The three largest sellers in China currently are Procter and Gamble, L’Oreal and Shiseido. This trend is also reflected in domestic production, with over 80% of products produced via foreign-owned or joint ventures.3

U.S. companies new to the Chinese market may find the greatest opportunities in premium or niche products, with demand predicted to grow at a faster rate than the demand for traditional products. Chinese consumers grow increasingly suspect of mass market products. In additional, adults born under the one child policy are more inclined to spend on themselves and luxuries. This group travels more frequently abroad than previous generations. The resulting exposure to foreign brands has instilled a cachet and preference for niche products and foreign origins . Chinese consumers are forecasted to buy 44% of the world’s luxury goods by 2020, with the average spend on these items growing 11% year over year per a KPMG consumer survey in 2014.4 This trend is particularly prevalent in cosmetics. For example, via online channels, Chinese consumers ages 30-39 are purchasing 60% of all online cosmetics sales in China, with an average purchase of $275 and a total annual spend of $644 per annum.5

The following section provides a deeper dive on the sales and demand trends in some of the main product categories, as well as identifying categories that may have the highest potential for U.S. companies new to the Chinese market.

Product Demand Trends

Skin products comprise almost half of the domestic market at 47%. The next largest category is hair care products at 15%; followed by oral care at 9.4% percent; color cosmetics at 7%; and bath and shower products at 6%. Table 1 provides an overview of trends in U.S. exports across these and other product categories to China and is discussed in further detail below.

Skin and Sun Care (Sun Care: Top Export Opportunity)

Chinese women, similar to their Asian counterparts, use multiple skin care treatments daily, averaging three products. This focus on skin care is also reflected in U.S. exports, with skin care products comprising 44% of all U.S. exports in the sector. Similar to other Asian countries, there is an emphasis on products that whiten or even skin tone. This consumer preference suggests potential for growing sales of sunscreen products, as well as the inclusion of sunscreens in other products in the future; although currently sunscreens comprise only 1% of domestic sales. Cosmeceuticals, products which combine cosmetic and pharmaceutical features such as acne treatment or anti-aging, are also increasingly popular, growing at an estimated 10% to 20% per annum.

The U.S. is currently the fourth largest exporter of products across this category to China, preceded by France, South Korea and Japan.

Baby and Child Care Products (Top Export Opportunity)

Baby and child specific products are the fastest growing product category with 16.3% growth in 2014. While this category is still relatively small—at only 4% of the total domestic market—it is expected to continue, given both the increasing interest generally of Chinese parents to pamper their children via child-specific products. It also is a highly competitive category for imported products, given consumer sensitivities to the safety of these products, due to concerns over the safety and high levels of adulteration of personal care products. The baby and child care products category is relatively new in China with few players; therefore offering a significant opportunity for U.S. companies new to the Chinese market. Moreover, U.S. branded products also benefit from its strong reputation and track record of safety. However, U.S. companies wishing to enter this product category should be aware that there are stricter product approval levels and standards required for these products.

Hair Products (Top Export Opportunity)

Niche and premium hair products are the fastest growing segment for U.S. exports to China, up 65% over the past three years. Domestically, hair products comprise 15% of the total domestic personal care and cosmetics market, growing at a rate of 3.5% from the prior year. Foreign companies producing locally in China such as Procter and Gamble and L’Oreal dominate the mass market. Imports of U.S. products are growing across all product segments: shampoos, hair preparation and hair spray, with the exception of hair straightening and waving products which are down 215%. Hair spray is the fastest growing segment at 86% followed at shampoo which grew by 71%.

Green or Natural Products (Top Export Opportunity)

Given the number of health scares from adulterated and counterfeit mass market products such as faulty face masks and tainted cosmetics, Chinese consumers are increasingly weary of mass products sold via supermarkets and other local channels. Chinese consumers also tend to believe that mass market products, made from synthetic ingredients are less healthy.6 Green or natural cosmetics, products that contain medicinal, natural or nutritional ingredients such as vitamins, aloe and Chinese traditional medicines are very popular. Market data on the trends in these types of products is not readily available, but inputs for these types of products such as essential oils, grew by an average of 16% over the past three years. Note: U.S. companies seeking to market these types of products in China should seek assistance as to the proper labeling and marketing of these products, as China bans the use of terms such as natural and organic.

Color Cosmetics

Color Cosmetics are the second fastest growing product category, with demand rising by 9.4% in 2014. Hot products continue the focus on evening out skin tone, with color correcting creams and light weight foundations and tinted moisturizers growing in popularity. Color cosmetics comprise approximately 17% of U.S. exports to China in 2015, with lip and eye make-up among the most popular. Manicures and pedicures are increasingly popular especially among Chinese women who prize decorative coatings and artificial nails. There is also increasing interest and growing market for permanent make-up. The U.S. is currently the fourth largest exporter of these products to China, preceded by France, South Korea and Japan.

Perfumes, Toilet Waters and Fragrances

Finished perfumes and toilet waters are a less promising product category, comprising only 5.2% of the total domestic market. It is a shrinking market for U.S. exports, decreasing by 42% in 2015. U.S. exports of fragrances inputs, however, are growing. The U.S. is the third largest exporter of fragrance inputs to China and sales of heavily scented personal care products such as personal toilet (bath washes, deodorants and shampoos) are growing rapidly.

Sales Channels

Market channels for personal care and cosmetics products are changing rapidly, reflecting consumer distrust of mass market channels; the upgrading of Chinese consumer preferences; and the growing middle class in Tier 2 and Tier 3 cities.

Sales of these products via grocery stores is down from 81% in 2011 to 70% in 2014—while sales via non-grocery channels, including beauty specialist, department and pharmacy stores is up approximately two percent to 18% of all cosmetics sales in the same time period. Direct selling is up by two percent during this period to 13.5 percent of all sales. Online retailing is by far the fastest growing channel up from 5.3% in 2011 to 15.5% 2014, with estimates that this channel could grow to 30% or more of total sales in the next five to ten years.7 The increasingly popularity of online channels reflects both the sparser access to retail stores and diversity of brands in Tier 2 and 3 cities. Consumers who shop via this channel are also unique in that they purchase high levels of premium products.

The rise of online sales was also driven in part by the advantageous terms that cross-border, imported products received vis-a-vis domestically produced products as well as products imported via traditional channels. These cross-border products were not subject to these same product registration requirements, which in China can cost $1,000 or more per SKU and take up to 6 months to complete registration. As a result, many products not registered for consumption in China, were available via the online channel. Similarly, these products were also subject to fewer taxes. In April, China introduced new e-commerce cross-border regulations requiring registration for cosmetics as well as for a number of other consumer goods sold through this channel—putting these products on a more equal footing with products sold via traditional outlets. It is not yet clear how these policy changes will impact online product sales.

Another important consideration for companies marketing to Chinese consumers is the importance that consumers place upon recommendations from their family and friends for purchasing decisions compared to television, internet and other advertising. A 2015 market research report cited that sixty nine percent of Chinese consumers reported that they purchased products based upon the recommendation of a friend.8 Additionally, Chinese consumers who are online, on average hold six to eight or more social media accounts and tend to use these channels to research and to inform their cosmetics purchases, with women basing their decisions primarily on information gained via this channel.

Top Trade Shows

China Beauty Expo

May 2017

Shanghai, China

China’s largest trade show in the sector, hosting over 300,000 individual visitors in 2015.

http://www.chinabeautyexpo.com/en

Cosmoprof Asia

November 16-18, 2016

Hong Kong, China

http://www.cosmoprof-asia.com/en-us/

1 Fung Business Intelligence Centre. “China’s Cosmetics Market.” June 2015.

2 Nomura Global Market Research. “K-Beauty names best plays on China cosmetics”, 26 January, 2015

3 HKTDC Research. China’s Cosmetics Market. October, 2015. Link: http://china-trade-research.hktdc.com/business-news/article/China-Consumer-Market/China-s-Cosmetics-Market/ccm/en/1/1X000000/1X002L09.htm

4 KMPG, China’s Connected Consumer. 2015

5 Ibid. KPMG.

6 Masidlover, Nadya. “L'Oréal Pulls Garnier Brand From China; French Cosmetics Firm's Mass-Market Brand Fails to Gain Traction in Key Emerging Market.” Wall Street Journal Online. 08 Jan 2014.

7 Ibid. Fung.

8 Ibid. Nomura.


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