Future of beauty: Lower tier expansion, hybrid retail

Amid a period of recalibration for luxury retail in China, beauty and fragrance brands are experiencing an offline renaissance. Contrary to the cautious retreat of many luxury players, beauty brands are aggressively rolling out flagship stores, reshaping consumer engagement across the country. According to incomplete statistics from Chinese media outlet Cosmetics Business Online, over 100 new beauty flagship stores have launched in China this year. Fragrance leads the charge, with 42 new fragrance stores, reflecting explosive growth in the category. Global heavyweights are joining the fray, with Valentino Beauty emerging as the most aggressive, opening nine regional first stores year-to-date. “Beauty remains a highly resilient category in China, even amid economic fluctuations. Younger consumers, especially Gen Z and millennials, value brand aesthetics and experiences, making physical spaces an essential tool for engagement. The ‘see-and-touch’ factor reassures consumers about product quality and reinforces loyalty,” says Danni Liu, CEO of Chinese integrated creative agency iBlue Communications Europe office. From a geographic perspective, Wuhan emerged as a “first-store magnet” in 2024, attracting 16 new beauty-related flagship stores, including 15 in the prestigious Wuhan SKP mall. “Wuhan is a major transport and commercial hub in central China, making it an ideal city to target regional markets,” says Liu. “With growing disposable incomes, Wuhan’s consumer base is increasingly drawn to premium and luxury products.” Meanwhile, lower-tier cities such as Shijiazhuang, Harbin, and Jinan have seen an influx of high-profile entries from brands like Valentino Beauty and YSL Beauty, underscoring a strategic pivot toward China’s growing middle class in emerging markets. The lower-tier city opportunity While last year saw a surge in first mega flagship stores across China, 2024 has marked a decisive shift toward regional first stores. This trend highlights the growing importance of cities in the tier 3-to-tier 5 range, where new affluent consumers are fueling demand for premium beauty offerings. Industry leaders are doubling down on these markets. In its FY2024 interim report, L’Occitane revealed plans to open 10 to 15 stores in tier 3 and tier 4 cities, citing untapped growth potential. Similarly, Shiseido has prioritized expanding its high-end offerings into lower-tier cities, targeting the “rising middle-class consumers.” This focus is well-founded: recent data from NielsenIQ shows that while the number of beauty retail counters in major cities contracted, in tier-3 and smaller cities, the number of high-end beauty counters has grown 9.1%, reaching 538 locations in 2023. Olivia Plotnick, founder of Wai Social, tells Jing Daily, “Lower-tier cities represent untapped markets with rising disposable incomes. Early entry allows brands to build loyalty before competition intensifies.” In a recent earnings call, L’Oréal CEO Nicolas Hieronimus emphasized the importance of this approach. “Today, we have approximately 100 million customers who buy our brands in China, and we have to double that,” he says. “We have potential in tier 3 and tier 4 cities where our penetration is half of what we have in tier 1 and tier 2 cities.” Experience-driven retail Whether active in the skincare, makeup, or fragrance categories, brands are increasingly leveraging experiential retail to differentiate themselves. Skincare brands, in particular, are pioneering this shift. C-beauty brand Uniskin’s Shanghai store, for example, integrates facial cleansing stations, product trials, and a private beauty zone for personalized treatments using advanced diagnostic tools. Similarly, homegrown beauty brand Xi Mu Yuan’s flagship combines an art gallery aesthetic with skincare consultations and social media-friendly “check-in” areas. Fragrance brands are also pushing the boundaries of experiential retail. In Chinese fragrance house Fufusu’s flagship, a “Light Corridor” area features interactive scent installations paired with meditative soundscapes, offering a sensory retreat. Also, Estée Lauder Group’s niche fragrance brand Le Labo has opened its first fragrance lab in Hangzhou. The boutique offers a personalized label customization service, allowing customers to print up to 23 characters of their choice on selected products to create unique, bespoke items. “Offline and online touch points serve different roles, but they should be viewed as part of a seamless loop,” says Liu. “Offline stores are crucial for building credibility and offering immersive brand experiences, allowing consumers to physically interact with products and gain deeper brand education. “For premium-priced products, offline stores often serve as the first point of contact, where consumers can build trust in the brand and familiarize themselves with the products. Once that trust is established, repeat purchases tend to shift online due to ease of access.” Hybrid retail: Merging online and offline As online traffic plateaus, beauty brands are investing in hybrid strategies to sustain growth. The emphasis is shifting toward integrating digital channels with offline touch points to create holistic consumer journeys. Armani’s “Armonia” global flagship store in Shenzhen One Avenue Excellence Center provides an illustrative example of hybrid retail. By scanning a QR code at its entrance, shoppers can synchronize their experience with O2O (offline to online). Users will receive a diagnosis on the WeChat mini program that suggests a path to take through the store and a unique piece of digital art. Appointments for in-person Armani “skin labs” analysis can be booked via WeChat, but shoppers learn about their skin, identify their “mood-pairing” fragrances, and try on make-up using AR in store. “Consumers still value immersive, luxury in-person shopping experiences. In the future there will be more and more ‘hybrid stores’ that combine online (technology) and offline experiences, allowing consumers to obtain consistent or similar consumption experiences that are in line with the brand’s genes in physical and virtual spaces,” says Plotnick. Liu concurs. “The concept of hybrid stores that integrate online technology with offline experiences is becoming increasingly essential,” she says. “If a brand has the resources to invest in these, it creates a mutually beneficial synergy, enhancing both consumer engagement and business performance.” For international and domestic brands alike, this hybrid model is essential to capturing China’s increasingly diverse and demanding beauty consumers. Whether through personalized services, immersive retail, or regional expansion, the beauty sector is proving that in the current challenging retail environment, offline expansion remains a potent growth accelerator. “Beauty products bring people instant spiritual pleasure, especially fragrance, and remain recession-proof and aspirational,” says Plotnick.

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