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China retail sales boom driven by cosmetics

16-Nov-2004

Rapidly increasing consumption of cosmetics products helped fuel a 14.2 per cent growth in China's retail sales during the month of October. The figures confirm the continued rise of cosmetics sales in the country and the mounting prospects the market represents, but caution over economic uncertainties must be heeded, Simon Pitman reports.

The figures show the fastest gains in five months and have even beaten analysts estimates of 14 per cent growth on the same month last year.

As well as sales of cosmetics products, the figures also revealed that clothing and computer related purchases were helping to push retail sales.

 

Feeding this boom, cosmetics companies are mushrooming in all of the key industrial areas. Lead by the major multinational companies lining up to increase their penetration into the market, new domestic businesses are also proliferating.

 

Earlier this month Beijing G&D Cosmetic company was established. Specialising in marine biological skincare products, it reflects the growing maturity and sophistication of the market.

 

And further opportunity could well be on the cards. the relaxing of current retail laws by the end of this year is also expected to increase prospects for major cosmetic companies. Limitations on the entry of foreign retailers as well as direct sales in the country will allow more channels for cosmetic sales.

 

In particular direct sales have, until now, been almost completely banned. Dropping all restrictions means that major direct sales players such as Avon and Oriflame are both poised for rapid expansion in the market. Oriflame is currently constructiing a major manufacturing facility in the country, while Avon is set to embark on making its first foray into direct sales in the country next year.

 

The State Information Centre says that, if government plans for the economy are realised, it anticipates that retail sales will continue to grow at between 8 and 10 per cent in the period 2005 to 2010. And if estimates for future cosmetics sales are anything to go by, the cosmetics segment will be taking up a large slice of the predicted growth.

 

Currently the market for cosmetics in China is estimated to be worth $4 billion, but going by current demand experts believe that this figure will have grown ten-fold by the year 2010.

 

However, whether or not this level of demand can be sustained is another question. Experts say that domestic retail performance will be key to ensuring continued economic growth, but with the government now taking steps to try and to prevent economic overheating, some sort of slowdown seems inevitable in the near future.

 

The government's moves have included measures to limit both investment and lending, and to back this up it raised interest rates for the first time in nine years last month. Such moves would ideally bring the economy into a period of steadier, sustained growth, but guaranteeing that outcome is harder still.

 

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