International cosmetics companies cream the market.
by Megan Shank (Shanghai)
On a recent sunny day, 26-year-old Anne Li and 27-year-old Amy Lei browse Shanghai’s Huaihai Middle Road Sephora store during their lunch break. The two epitomize the Chinese cosmetic market’s coveted consumer–both are highly educated only children born into China’s affluent modern era, products of homes where they are rarely denied little luxuries and members of a work force where competition demands any achievable edge. Not only does it feel good to pamper themselves, they say, giggling into milk teas, good grooming is a way to set oneself apart. “It never hurts to be beautiful,” Lei says. “If you give them a lovely impression, people will remember you.”
They’re not the only ones looking to make an impact. Once the realm of domestic giants like Shanghai Jahwa, China’s oldest and most profitable cosmetics company, the high to mid-end cosmetics market has witnessed foreign companies enter en masse in recent years and form limited partnerships with local companies. By now, foreign brands are estimated by marketing research firms here to dominate as much as 50 to 80% of the market’s profits.
Individual companies have been posting remarkable numbers as well. L’Oreal’s China sales grew more than 30% last year, compared with North America’s 4.8% dollar revenue growth. Its Maybelline lipstick, represented by newly scored spokeswoman Chinese actress Zhang Ziyi, snagged 33% of the market. Competitor Estee Lauder has also seen sustained double-digit growth for the past five years. Sephora, retail chain and cosmetics line, celebrates three years on the mainland market this spring and has opened 33 stores. Today average sales per square meter at its Chinese stores are nearly equivalent to that of its stores in France. If current growth continues, experts estimate the Chinese cosmetics market to value at USD $3.8 billion by 2009, eclipsing even the U.S. market.
However, international cosmetics companies face a challenge on the way to reaping their market share: first they have to create the market.
“These women might know a little about skincare, but nothing about make-up or perfume,” says Thierry Jaugeas, Sephora’s Asia Managing Director and China President. “In the U.S. or in Europe it’s a little easier because girls get the training from mother or grandmother, but in China, this is the first generation so deeply discovering make-up products or skin care products.”
That make-up-ignorant generation also makes up these companies’ hires. Cosmetics companies send their new employees to crash-test beauty schools where they are taught how to entice customers into interacting with the products. Sephora, for example, uses a “beauty bar.” Customers perch on stools and attendants swarm with powder puffs and silkening spritzers. Estee Lauder holds free basic make-up seminars at universities throughout China and gives out samples afterwards. During update training sessions, employees also report customer feedback–a sort of reconnaissance marketing–to their bosses who bring it back to corporate.
Perhaps it’s this attentiveness and adaptability to the market that has allowed these companies to thrive. Company CEOs universally proclaim the adjustment here a radical one. Unlike Europe, where perfume generally makes up 60% of total cosmetics sales or the U.S. where 50% of those sales are generated from make-up, in China, it’s all about what’s already there.
“Skin, skin, skin. It’s an Asian mindset,” says Carol Shen, China’s managing director of Estee Lauder. “Asians believe natural beauty is real beauty–you’ve got to take care of your skin.”
Paying attention to what concepts complement China’s cultural ideology translates to success. So does selling culture itself. “The whole â€˜Chineseness’ is a growing thing,” says Matthew Crabbe, co-founder and director of Access Asia, a marketing research firm that just released the report “Women in China 2008: Women as Consumers”. According to the report, “enhancement”–or how to better something that already exists–is a primary goal for the office ladies to whom cosmetics companies market their products. And, “if you’re marketing a product, if you can make it more Chinese, it will give you an advantage. It used to be that to be like the Western woman was the aspiration — but now women would rather be their best Chinese selves.”
This sense of self-celebration has been picked up by brands that increasingly seek a more “Chinese” look through advertising. Olay and L’Oreal favor actresses who have risen to fame in the West like Maggie Cheung, Gong Li and Zhang Ziyi, whereas Estee Lauder’s MAC brand uses radiant Chinese girl-next-door types. Revlon is also currently considering Chinese models for use in upcoming campaigns.
Using native models makes beauty seem more achievable for Chinese women, but it’s also important to understand the limitations culture places on any market. Shen notes in Japan or Korea a woman’s skincare routine is eight or nine steps, but Chinese women average only three or four steps — and might never push past that. As with skin, it’s vital for companies in the market to work with the natural grain. Estee Lauder’s Clinique products, which incorporate a three-step cleansing and moisturizing process developed by dermatologists, neatly fits within Chinese women’s existing culture and customs.
But it takes more than adaptation to profit in China — it also takes branding strategy. Most aggressively, L’Oreal has worked fast to acquire and create partnerships with local companies and enter new distribution channels. In late 2003, L’Oreal acquired MiniNurse, a domestic skincare company, upgraded existing products and created new ones. Within a few months, the company took a similar tactic with another local brand, Yue Sai,which has become a radiant success. Most recently, L’Oreal has expanded its distribution channel to include pharmacies where it sells its Vichy skin products.
Other companies have approached growth more conservatively. Estee Lauder has ensured each of the brands under its flagship reaches the correct market by carefully hand-selecting retailers and customizing brand awareness approaches. Instead of advertising the benefits of ultra-luxe Lumiere, or even making information widely available about where in China one can find it, Estee Lauder relies on word-of-mouth power among the upper class to bring in more clients while maintaining the brand’s exclusive “DNA,” as Shen puts it. Even more basic in its approach, Revlon tries to entice younger consumers with flashy new Asian skin friendly colors while selling at a higher market level than in the West, where the brand is not considered a luxury product.
Despite these different tactics, one mutual challenge for companies thus far has been the limited range of customers — most brands peg their consumers at ranging from 25 to 35 years old with an average monthly income of 4,000 RMB. Although Chinese cultural standards are relaxing, it’s unlikely teenage girls will start wearing make-up to junior high school, as is found in the West. Instead, it would behoove companies to look at the upper age brackets, say industry analysts.
“Products aimed at older Chinese women would be a great market,” says Crabbe. “Things are starting to slip and sag and wrinkle up a bit. You might adapt the product, the brand and the colors for these women who have savings, whose kids have graduated. These women might want to travel abroad and have some fun.”
Back in the Sephora shop on Huaihai Middle Road, however, 24-year-old Xiao Zhou seems to be enjoying herself much more than her middle-aged mother, who declined to speak to Newsweek Select’s reporter. Xiao Zhou alternately rushes from the perfume wall to the beauty bar to the full-length mirrors spritzing and brushing and fluffing in a frenzy of uninitiated joy.
“Aren’t you done already?” Her beleaguered mother asks, wearily following her daughter now applying blush to the beat of rap music bumping from the store’s speakers. “We’ve almost been here an hour, and this place is giving me a headache.”
It seems beauty is still in the eye of the beholder.