It’s been well reported that China is experiencing an economic slowdown, but that doesn’t mean companies should pull up their tents and run for the hills. That’s where the beauty industry comes in: a market that historically fares better than others when times get tough. Think recession-proof cosmetics, dubbed the “Lipstick Effect,” which happens “when consumers still spend on small indulgences during recessions…”
How then will beauty companies adjust their China strategies in these more challenging times?
Jing Daily caught up with three beauty industry gurus, each groomed to share their expertise about the slowing Chinese economy: Cedric Roget (CR), North American CEO at Valmont Cosmetics, a family-run business based in Lake Geneva, Switzerland; Jeff Unze (JU), president of strategic partnerships at BorderX Lab, an e-commerce tech company based in Silicon Valley with a mission to connect global brands with Chinese consumers; and Ivy Shen (IS), VP of international business at Azoya Group, a Shenzhen-headquartered company that, according to the company, “specializes in planning, identifying and executing China market entry and e-commerce localization strategy for international retailers.”
What important overall trends are you seeing in a softer market?
“The cosmetics industry is fragmenting, and more subcategories are beginning to emerge. In the past, consumers tended to purchase “entry-level” items such as lipstick and BB cream, but now they are experimenting with more advanced color cosmetics products, many of which require multi-step makeup routines. Like in the U.S., KOLs/influencers have been using video tutorials on platforms such as Little Red Book to educate new customers on how to use these products. Huda Beauty is one popular brand that has emerged over the last year or so.” — Ivy Shen
Are you seeing changes in spending patterns?
“In fashion, Indie designers are rising as is street-wear such as Peacebird, which combines traditional styles with new trends. Beauty in China is a bit slower, following suit with mostly lower-priced domestic drug store brands. some quick risers are lipsticks made by China’s Palace Museum (故宫口红), and Marie Dalgar. These brands might be catching up with western cosmetics brands but aren’t there yet.” — Jeff Unze
“Some Chinese brands such as Pechoin, Chando, and One Leaf have emerged in China and are quite popular amongst more budget-conscious consumers. However, the high end of the market will still be dominated by imported brands for the foreseeable future.” — IS
What sectors are the most recession-resistant in China?
“I would imagine more basic items such as lipstick and BB cream are more recession-resistant. Aging creams as well, because some consumers feel that they absolutely must have them. GFK data shows that Laneige, Estée Lauder, and SK-II are the top three brands for this category.” — IS
“Lipstick and nail polish, $20-$30 is a small luxury that makes people feel good and is worth splurging for even in a slowing economy. The high-end skin creams may suffer as people find cheaper alternatives.” — JU
In terms of segments, how are you looking at various age groups now?
“The Asian customer is key. The Asian community spends 50 percent more [on skincare] than Caucasians, regardless of age. Baby boomers [tend to] adopt a brand from A to Z, while millennials are buying products and have no fear of mixing a cleanser from one brand and serum from another.” — Cedric Roget
“Middle-aged women who are more established should still be a good target to go after. Younger Chinese will still buy the less expensive products like lipstick and some may still stretch for La Mer, but I would be a bit worried if I was selling the higher end products at the top price points… that will soften.” — JU
“I would say women in their late 20s/early 30s who haven’t settled down yet but have high disposable income, usually located in tier 1-2 cities. Women who are older probably put their children as their first priority, and women who are younger (college students, fresh grads) have less disposable income. But it’s not as clear-cut because it’s not uncommon for younger generations to ask for spending money from their parents.” — IS
How about men?
“The younger generation [born after ’95] of men are reportedly purchasing more cosmetics products and using Little Red Book to do product research, but it hasn’t made much of an impact on our own cosmetics business thus far, and it’s not much of a priority for us. I believe Euromonitor has mentioned that the male beauty market grew by 6.9 percent in 2017.” — IS
“More men are buying makeup recently because of pop culture and more people paying attention to LGBT rights. Top products are probably brow pencils and of course higher end sunscreen and lip balm.” — JU
Does the new economy make room for organic products?
“Organic beauty is becoming more important in China because there have been issues with fake/shoddy makeup products and their potential impact on one’s skin or health. The issue with fake products is much larger [in China] than it is overseas, so this trend is something to keep in mind.” — IS
“Organic beauty still needs time to rise. It seems like consumers are starting to carefully study product ingredients now for efficacy. Organic, clean and natural product preferences usually grow as an offshoot of the ingredient knowledge.” — JU
What should brands be doing to keep selling in a softened climate?
“[Our, Valmont] customer marketing is two-fold. There’s the department-store market — WeChat for department stores is becoming huge — and the Valmont product ‘spa experience’, marketing it as 60-90 minutes for yourself. [You have to] speak to those [customers] in a different manner, more knowing them than selling them.” — CR
“Figure out a way to expand your customer base through sampling, product demos, beauty boxes, etc. Try to get customers to buy other products in your line, not just the old favorites to better resist the downward price pressure. Companies should work on a global discounting strategy and keep prices the same in China as the US to avoid gray market competition from further eroding sales. Finally, develop some limited-time exclusives that can generate buzz and scarcity to help budget shoppers ignore their frugality.” — JU
What won’t work?
“I suggest that brands experiment with different distribution and sales channels to see what works. Larger marketplaces such as Tmall and JD.com are becoming crowded and it’s getting harder and harder to drive traffic. Getting on smaller platforms such as Secoo (luxury e-commerce platform) or setting up your own WeChat shop with interesting contests or games can be good ways to reach a different subset of customers.” — IS
Are you optimistic about the future?
“I don’t think the economic downturn is as serious as the press is making it out to be. Cosmetics and beauty products are still a must-have for many young Chinese women, and imported brands have a stronghold on the middle-upper segment of the Chinese consumer economy. These customers have more disposable income and are less sensitive to economic downturns.” — IS