How AI technology is reshaping beauty retail in China

Subscribe to our Jing Beauty newsletter to get the latest news on China's world of beauty and wellness. AI technology is gradually infiltrating Chinese beauty retail shops, making skincare and cosmetics shopping a more personalized experience. According to Euromonitor International, the e-commerce penetration rate of beauty and personal care products in China was 43 percent in 2022. Yet, despite an increase in online purchases, brick-and-mortar spaces remain a key channel for new customer acquisition, product discovery, and customer engagement. In light of this, innovative store experiences offer something irreplaceable. In June, LVMH-owned multi-brand beauty retailer Sephora opened its second global Store of the Future on Shanghai’s East Nanjing Road. The first of its kind in China, the new concept retail space boasts seven digital touchpoints: an advanced skin analysis device powered by big data; a product recommendation feature based on AI-generated makeup trends; product labels equipped with radio frequency identification (RFID) that unlock a detailed breakdown of ingredients; mobile POS, which allows customers to check out anywhere with a beauty advisor and avoid long queues; and personalized gift packages with the option to add scents and voice messages. Meanwhile, Shanghai Municipal Medical Products Administration has granted SkinCeuticals, Estée Lauder, L’Oréal, and Shanghai Chuangyuan Cosmetics stores in Shanghai a license for personalized on-site services. With this license, retail stores can act as mini cosmetics factories, creating products tailored to individual skin types. Here, Jing Daily unpacks how these AI-driven retail innovations can efficiently boost business performance as well as their potential hurdles. Data tech boosts consumer trust Traditional beauty multi-brand shops stock hundreds of brands and thousands of products, making the selection process overwhelming to shoppers. Typically, consumers seek the advice of sales assistants, or search for product reviews by influencers. However, skepticism persists, given each buyer’s different skin type and needs, plus the fact that KOLs and personal shoppers may have other motives for recommending certain items (e.g. brand sponsorships). In light of this, AI-diagnostic tools can validate a consumer’s decision to purchase a product. Lucas Nanini, former Coty innovation director and currently head of Europe & Asia at ingredient tech platform Good Face Project, believes that AI diagnostic tools can not only optimize the conversion funnel, but also increase a brand’s position of authority. “The tool allows consumers to converge to the same conclusion thanks to the use of data that are unique and personal to them,” Nanini says. AI technology can also make the discovery process more pleasant and seamless for shoppers, reducing the cost of trial and error. As a result, it boosts consumer loyalty. Major players generally have a bigger advantage in this field as they have enough resources to invest in this costly equipment in-house. For example, L’Oréal has been able to create professional-grade scanners that are difficult for others to replicate. However, Nanini highlights the possibility of relying on third-party device companies. “South Korean Chowis builds best-in-class diagnostic software and hardware that they plug into known brands like Dior, for example,” he says. O2O: from offline to online Tom Griffiths, managing director China at Stink Studios, a creative advertising and digital experience company, recently popped by Sephora’s Store of the Future in Shanghai to share the tech-powered retail experience with Jing Daily. When stepping into the futuristic concept store, customers are asked to use their WeChat account to sign into the AI experience. Users are then connected personally to a salesperson who helps them through their purchase journey in person and can stay in touch with them once they leave the store. Griffiths describes the experience as very personal and intimate. “You come away feeling that attention has been paid to you. Following the experience by connecting with the WeChat account of the salesperson feels very natural, breaking down the hard sales feel of the interaction,” he says. Homegrown shoppers are used to purchasing beauty products online. To attract young consumers, offline businesses are increasingly investing in pop-up stores, coffee shops, and libraries. But these are mainly for one-off visits, where retail stores are a discovery point to connect with shoppers. By keeping in touch with consumers online, retailers can facilitate transactions over the long term. In-store personalized cosmetics products In November 2022, the National Medical Products Administration (NMPA) announced the launch of a one-year pilot project for personalized cosmetics services in five cities: Beijing, Shanghai, Zhejiang, Shandong, and Guangdong. Some major players like Estée Lauder, SkinCeuticals, and L’Oréal have been granted the license. SkinCeuticals now offers eight pre-prepared formulas that can be made into dozens of unique formulations customized to each customer’s skin condition. Data is imputed into the blending instruments, which then mixes the formula at a speed of 1,200 times per minute. “More personalization makes complete sense for beauty brands. It’s such an intimate product. It’s quite literally next to the skin,” says Griffiths. “The industry has recently built itself on solving an individual’s unique problems. From different skin types to different lifestyle solutions.” Challenges implied with tech-powered retail Although the possibilities seem endless, Nanini points out the challenges that come with AI-powered personalized skincare: “China is one of the strictest countries regarding ingredient regulation relating to ingredient concentration in the product. Customized products that vary the various concentrations of each ingredient fall outside the regulated zone following the standard qualification process, and safety concerns persist.” Sephora’s Store of the Future, equipped with seven digital touchpoints, is what the future of beauty retail could look like. However, the industry is not heading towards full automation. Human touch remains crucial. “Recently, there’s been more of a push towards immersive experiences, or in-store digital experiences than online only. This is probably a reaction to lockdowns limiting in-store experiences,” says Griffiths. As shoppers still desire in-person experiences, it will be essential to have a beauty consultant’s expertise available to support machine creation. “Tech is using models, and by definition, 100 percent of the models are inaccurate,” Nanini says.

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How AI technology is reshaping beauty retail in China