Chinese Market: Growth Engine for Global Beauty Giants
- Chaileedo Press
- Aug 11, 2023
- 10 min read
Updated: Aug 14, 2023
According to a recent report by Yomiuri Shimbun, in 2022, South Korea surpassed France to become the largest importer of cosmetics in Japan. At the same time, after a gap of five years, France once again replaced Japan as the largest importer of cosmetics in China. In 2022, French cosmetics exports to China reached 4.551 billion US dollars, surpassing Japan's 4.506 billion US dollars, accounting for 25.37% of the total import value of cosmetics in mainland China.
As the influence of Japanese and South Korean cosmetics has waned in the Chinese market, domestic brands and European and American beauty companies such as L'Oréal and Estée Lauder have flourished. The Chinese market is characterized by its dynamic nature and constant evolution, making it intriguing to observe the future development of the cosmetics industry in the years to come.
France has once again become the largest importing country of cosmetics in China in 5 years
According to data from the General Administration of Customs of the People's Republic of China, in the first half of this year, the value of cosmetics imported from France to mainland China reached 2.123 billion US dollars, making it the largest importer of cosmetics in mainland China. Japan ranked second with 1.956 billion US dollars, followed by South Korea in third place with 1.051 billion yuan in cosmetics exports to mainland China.
In fact, in 2022, France had already surpassed Japan to become the largest importer of cosmetics in mainland China, with cosmetic exports to China reaching 4.551 billion US dollars, exceeding Japan's 4.506 billion US dollars, accounting for 25.37% of the total import value of cosmetics in mainland China.
According to data from the General Administration of Customs of China from 2016 to 2022, the main exporting countries of cosmetics to mainland China include France, South Korea, Japan, the United States, and the United Kingdom. The top three positions have been held by South Korea, Japan, and France in rotation over the past seven years.
Specifically, in 2016, France ranked first with cosmetic exports to mainland China just exceeding 1 billion US dollars, while Japan ranked third with 673 million US dollars. However, in the following years 2017 and 2018, South Korea became the largest importer of cosmetics in China, with France ranking second and Japan ranking third.
From 2019 to 2021, Japan replaced France as the largest importer of cosmetics in mainland China. In 2019, Japan's cosmetic exports to mainland China exceeded 3 billion US dollars for the first time, reaching 3.134 billion US dollars. In 2020, the amount exceeded 4 billion, reaching 4.292 billion US dollars. Since 2020, France has firmly held the second position, with cosmetic exports to mainland China totaling 3.887 billion US dollars. In 2021, China imported 4.997 billion US dollars' worth of cosmetics from Japan, close to 5 billion, which was the highest in history for imports of cosmetics from a single country.
From 2019 to 2021, the Chinese imported cosmetics market has grown rapidly. Japan's cosmetic exports to mainland China increased from 3.134 billion US dollars to 4.987 billion US dollars, with a growth rate of 59.13%. France's exports increased from 2.858 billion US dollars to 4.577 billion US dollars, with a growth rate of 60.15%. Meanwhile, South Korea began to lag, with its cosmetics exports to mainland China increasing from 3.041 billion US dollars to 3.896 billion US dollars, with a growth rate of 8.55%, which was less than 10%, further widening the gap between France and Japan.
In 2022, French cosmetic exports to China reached 4.551 billion US dollars, surpassing Japan's 4.506 billion US dollars, reclaiming the position of the largest exporter of cosmetics to mainland China after a five-year gap. South Korea continued to decline, further widening the gap with Japan and France. In 2022, China imported 2.571 billion US dollars worth of cosmetics from South Korea, falling below 3 billion for the first time since 2017. Meanwhile, the United States reached 2.03 billion US dollars, showing a trend of surpassing South Korea.
On April 7th this year, China and France issued a series of cooperative statements, specifically mentioning the facilitation of cooperation between enterprises in the cosmetics industry and the entry of Sino-French cosmetics cooperation into a new field. Additionally, French beauty giant L'Oréal has signed a series of cooperation agreements with Chinese enterprises, including the joint construction of a "digital circular economy model for beauty" with Alibaba. Furthermore, on July 28th, it was reported that France is seeking cooperation and discussions with China on shared standards for cosmetics.
It is evident that in recent years, the positions of Japanese and South Korean cosmetics in the domestic market have declined, especially South Korean cosmetics, which are facing the threat of being surpassed by other beauty products. Alongside the upgraded cooperation between France and China in the cosmetics field, French cosmetics are expected to experience a surge in popularity in China.
The popularity of Japanese and South Korean cosmetics in China has gradually declined
Japan is one of the major exporting countries in the global cosmetics trade and has consistently been among the top three importers of cosmetics to China. However, between 2012 and 2013, Japanese cosmetics experienced a decline in exports to mainland China for two consecutive years due to strained Sino-Japanese relations and the negative impact of the controversial Kanebo Blanchir skin whitening product causing skin discoloration. Eventually, with the easing of bilateral relations between China and Japan, bilateral trade resumed, and in 2017, China's imports of Japanese cosmetics increased from $673 million in 2016 to $1.208 billion, representing a nearly 80% year-on-year growth. In 2018, the visit of the Japanese Prime Minister to China further promoted trade cooperation between the two countries. The demand for Japanese cosmetics in the Chinese market continued to rise, leading to Japan surpassing France for the first time and becoming the second-largest importer of cosmetics in China. Subsequently, from 2019 to 2021, Japan maintained its position as the top importer of cosmetics to China.
Taking Shiseido, a representative Japanese beauty company, as an example, in 2017, Shiseido's sales reached 1.0051 trillion yen, with a year-on-year growth of 18.2% in the Japanese yen. Meanwhile, its sales in China amounted to 144.3 billion yen, representing a 20.1% year-on-year growth, making China its second-largest market at that time.
In 2018 and 2019, Shiseido's performance in China continued to soar, with sales reaching 190.8 billion yen and 216.2 billion yen, representing year-on-year growth of 32.3% and 13.3%, respectively. It maintained its position as the second-largest market while widening the gap with the third-largest market, the Americas. However, in 2020, due to the impact of the pandemic, Shiseido experienced its first decline in total sales in the past five years, dropping from 1.1315 trillion yen to 920.9 billion yen, a year-on-year decline of 18.6%. In contrast, the Chinese market defied the trend with a 9% year-on-year growth, becoming the only region where Shiseido's performance increased. In 2021, sales in the Chinese market saw a 16.5% year-on-year growth, once again achieving double-digit growth. Additionally, the Chinese market officially surpassed Japan to become Shiseido's largest market, a position it maintained in 2022.
Although the Chinese market holds significant importance for Shiseido, the growth rate and operational efficiency of the company have shown signs of decline. In 2022, Shiseido's annual sales in the Chinese market amounted to 258.2 billion yen, a 6% decline compared to the previous year (18% decline in terms of constant currency basis). Its core operating profit also dropped by 8 billion yen, with a loss of 3.941 billion yen in the Chinese market. Both the performance and operational efficiency of Shiseido in China have shown signs of decline.
As for the development of South Korean cosmetics in the Chinese market, it has experienced rapid rise and fall.
The rise of South Korean cosmetics in China can be attributed to two main factors. Firstly, the popularity of the South Korean Wave, refers to the export of South Korean culture through various forms such as variety shows and TV dramas. This accelerated the growth of the South Korean cosmetics industry. The endorsement effect of South Korean celebrities, in particular, has brought tremendous appeal to Korean cosmetics.
The second factor is tourism and cross-border consumption. Chinese tourists visiting Korea consider South Korean cosmetics as their preferred shopping item. During peak periods, millions of Chinese tourists travel to Korea and enthusiastically purchase South Korean cosmetics in duty-free shops. As a result, South Korean cosmetics surpassed other countries from 2017 to 2018, becoming the primary importer of cosmetics in China and consistently maintaining a top-three position in terms of cosmetics imports.
However, the decline in the popularity of South Korean cosmetics in China can be attributed to a series of diplomatic events leading to boycotts of South Korean products and restrictions on South Korean entertainment in mainland China. Additionally, after the pandemic, there was a significant decrease in Chinese tourists traveling to South Korea, resulting in a sharp 34% decline in South Korean cosmetics exports to China in 2022.
Taking Amorepacific, a representative South Korean company, as an example, its revenue reached 5.645 trillion Korean won in 2016, marking a new high in nearly a decade. Due to the growth in China's performance, its overseas business experienced a substantial 35% year-on-year increase. However, in the subsequent years, Amorepacific's growth rate in the Chinese market slowed down, leading to an overall slowdown in performance. It experienced a decline of 9.2% in 2017, followed by growth of only 3% and 5.7% in 2018 and 2019, respectively.
In 2020, Amorepacific's revenue plunged by 20% to 4.4322 trillion Korean won, falling below 50 trillion Korean won for the first time since 2016. Its revenue showed some recovery in 2021, with a 9.7% year-on-year growth compared to 2020. However, the Asian region, where China's business accounts for 70% of the revenue, only saw a 2% increase. In 2022, Amorepacific's performance declined by 15% to 4.1349 trillion Korean won, with a significant 24% drop in revenue from its Chinese business, which accounts for 60% of the Asian region's revenue.
It is evident that the declining influence of Japanese and South Korean beauty brands in Chinese culture, coupled with the strong performance of European and American brands like L'Oréal and Estée Lauder, as well as the rise of domestic Chinese brands, has gradually led to a decline in the prominence of Japanese and South Korean cosmetics in China.
The Chinese market is the answer
In recent years, the cosmetics market in China has been experiencing unprecedented prosperity. According to Statista, the revenue of the beauty and personal care market in China is projected to reach $60.7 billion (436.5 billion yuan) by 2023, with a compound annual growth rate (CAGR) of 5.03% from 2023 to 2028.
Traditionally, China's cosmetics market has been dominated by foreign brands. But in recent years, domestic emerging brands were on the rise, while foreign brands such as L'Oréal and Estée Lauder began shifting their focus to the Chinese market. Chinese consumers were no longer solely interested in Japanese and South Korean pop culture, and the development of Japanese and South Korean cosmetics reached a bottleneck.
After the implementation of restrictions on South Korean cultural imports in China, South Korea's cultural influence weakened to some extent. Reports indicate that mainstream South Korean media outlets have noted the gradual disappearance of Hyundai, Kia, and South Korean cosmetics in Chinese TV dramas. Similarly, Japanese cosmetics faced similar challenges in their development in China.
Data also confirms this trend, as popular Japanese and South Korean beauty brands reached their peak in terms of popularity between 2015 and 2017 and gradually declined afterward. Meanwhile, domestic brands such as Perfect Diary and Florasis emerged and became popular brands on the internet. These domestic brands not only offer affordable prices and a wide range of products but also cater to the Eastern aesthetic, meeting the demand of young people for new Chinese-style trendy makeup.
Gradually, the influence of South Korean and Japanese brands in the Chinese market has diminished, with domestic brands replacing South Korean brands that were once known for their high cost-effectivenesses, such as Etude House eyebrow pencils, Missha wax crayon lipsticks, and Mamonde cushion compacts, on major sales charts.
Looking at market share data, the survival status of various brands in the Chinese market becomes clear. According to data from Euromonitor International, among the top 20 brands in the Chinese cosmetics market in 2022, six are domestic brands, including Florasis, Perfect Diary, Carslan, Colorkey, Maogeping, and Judydoll. However, there are no Japanese brands on the list, and the only South Korean brand, 3CE, was acquired by L'Oréal Group in 2018.
From the perspective of changes in brand market share, domestic beauty brands have been on the rise in recent years. From 2016 to 2022, the market share of the top five domestic brands increased from 9.5% to 15%. The rise of domestic brands is squeezing the living space of Japanese and South Korean cosmetics.
Unlike Japanese and South Korean beauty brands, European and American beauty brands such as L'Oréal value the Chinese market and have performed well during the pandemic.
As the global leader in the beauty industry, L'Oréal has always been confident in the Chinese market.
In 2015, L'Oréal's sales in China reached 14.96 billion yuan, a year-on-year increase of 4.6% compared to the previous year's 14.3 billion yuan, marking the 19th consecutive year of growth for L'Oréal China. At the same time, China became L'Oréal's second-largest market globally. From 2016 to 2017, L'Oréal's sales in China also achieved double-digit growth.
In 2018, L'Oréal's sales in China increased by 33% year-on-year, reaching a 14-year high at that time. China became the group's largest market for three major brands: Lancôme, Helena Rubinstein, and L'Oréal Men Expert. In 2019, L'Oréal's sales in China continued to grow at a high rate, reaching 35%.
Thanks to the resilience of the Chinese market, L'Oréal entered a phase of rapid growth starting in 2019. After three consecutive years of revenue growth below double digits, L'Oréal's revenue in 2019 increased by 10.9% to 29.874 billion euros. The Asia-Pacific region achieved a growth of 25.5% due to the strong growth in China and became the only region with double-digit growth. The Asia-Pacific region also became L'Oréal's largest market.
In 2020, L'Oréal's sales in China increased by 24%, and the Asia-Pacific region was the only region that achieved growth under the impact of the pandemic, allowing L'Oréal's group sales to decline by only 6.3%. After overcoming the impact of the pandemic, L'Oréal quickly rebounded in 2021 and 2022, with revenue growth of 15.3% and 18.5%, respectively. The North Asia region also maintained its position as the largest market. The outstanding performance of L'Oréal in the Chinese market has helped maintain its strong performance throughout the pandemic.
In addition to L'Oréal, another beauty giant has also benefited from the excellent performance in the Chinese market during the pandemic.
Estée Lauder, a leading American beauty company, has also seen success in the Chinese market. In 2019, Estée Lauder reported strong growth in China, with net sales increasing by 27% compared to the previous year. The company's growth in China continued in 2020, with net sales increasing by 37% in the third quarter alone. Estée Lauder's success in China can be attributed to its strong brand recognition, effective marketing strategies, and focus on the preferences and needs of Chinese consumers.
Overall, while the influence of Japanese and South Korean cosmetics has declined in the Chinese market, domestic brands and European and American beauty companies like L'Oréal and Estée Lauder have been able to thrive. The Chinese market is highly dynamic and constantly evolving, so it will be interesting to see how the cosmetics industry continues to develop in the coming years.
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