The Strain on China’s Beauty Market: Navigating a Challenging Consumer Climate

China’s beauty market, once a beacon of rapid growth and innovation, is now grappling with a challenging consumer climate that has led to a notable decline in sales. According to the National Bureau of Statistics, cosmetic sales in July fell by 6.1 percent, totaling 24.5 billion renminbi (approximately $3.35 billion). This downturn is indicative of a broader trend, as total sales in the cosmetics category from January to July saw only a marginal increase of 0.3 percent year-over-year, amounting to $241 billion.

Economic Challenges and Brand Closures

The current economic environment in China has forced beauty conglomerates like L’Oréal, LVMH Moët Hennessy Louis Vuitton, and Shiseido to reevaluate their strategies. With online sales stalling, many brands have opted to cut ties with underperforming labels. In the first half of 2024, several brands, including Baum, Benefit, Philosophy, Aube, and Kose, have closed their official stores on Alibaba’s Tmall e-commerce platform, signaling a significant shift in the market landscape.

Jefferies, a global investment firm, anticipates that the growth rate for the beauty industry in China will stabilize in the mid-single digits annually, a stark contrast to the double-digit growth rates seen before the COVID-19 pandemic. This shift aligns with trends observed in more mature beauty markets, where growth has also slowed.

Market Fragmentation: A New Reality

The beauty market in China is undergoing a fragmentation that poses challenges for established global players. In 2019 alone, approximately 1,000 new brands launched on Tmall, while the U.S. saw a similar influx of new brands between 2014 and 2018. This saturation has led to market fragmentation and a loss of market share for larger beauty brands.

Liu Yin, a beauty expert and founder of FBeauty, explains that the fragmentation of retail channels is a significant factor in this trend. “Back in the day, everyone shopped at department stores; now the traffic has moved online, creating evolving challenges for established players,” she notes.

The Digital Shift: Adapting to New Platforms

China’s beauty landscape is hyper-digital, with consumer behavior rapidly evolving. Platforms like Weibo and WeChat, which were once dominant, have given way to newer platforms such as Douyin (the Chinese version of TikTok) and Xiaohongshu. Franklin Chu, managing director of Azoya, emphasizes that online sales channels are cycling through platforms quickly, making it challenging for major players to keep pace.

As Douyin continues to capture market share from Tmall, brands must adapt to this new reality. Douyin’s gross merchandise volume has already surpassed Tmall in the first half of 2024, but the platform’s marketing strategies are more expensive and target a price-sensitive customer base. Stefan Huang, head of strategy at Joy Group, warns that while Douyin can boost sales volume, brands cannot rely solely on it, as it may erode profit margins.

Consumer Discerningness: Value and Efficacy

As economic conditions fluctuate, Chinese consumers are becoming increasingly discerning, seeking better value for their money. Brands that offer scientific formulations and high-efficacy products are emerging as winners in this competitive landscape. According to Azoya’s Chu, products that are priced competitively yet deliver strong functionality claims are also gaining traction.

The demand for bioactive ingredients and high-efficacy formulas is driving growth in the industry. In 2022, out of 69 new beauty ingredients or formulations registered in China, 50 were from local beauty companies, including top players like Proya, Botanee, and Bloomage. Euromonitor International reports that consumers in the Asia-Pacific region are willing to pay up to 50 percent more for beauty products with scientifically backed formulations.

The Rise of Dermacosmetics

The dermacosmetics market in China has experienced robust growth, registering a 20 percent increase from 2018 to 2023. As the lines between health and beauty blur, there is a growing interest in health-related ingredients that can enhance beauty products. Yang Hu, insights manager of health and beauty in Asia at Euromonitor International, notes that Chinese consumers are increasingly discerning about the scientific evidence behind skincare products.

International premium brands are responding by actively communicating their research achievements both online and offline, recognizing the importance of transparency and scientific validation in building consumer trust.

Conclusion: A Transformative Era for China’s Beauty Market

The challenges facing China’s beauty market are multifaceted, driven by economic fluctuations, market fragmentation, and evolving consumer preferences. As brands navigate this transformative era, those that prioritize scientific formulations, adapt to new digital platforms, and understand the discerning nature of Chinese consumers will be best positioned to thrive. The future of beauty in China may be uncertain, but it also presents opportunities for innovation and growth in a rapidly changing landscape.