Changes in retail shape China cosmetic industry

According to research firm Kline & Company​, the cosmetic and toiletries market in China increased 13 per cent from 2003 to 2004, with the country's share of the $147.4 billion global market coming in at $7.1 billion at the manufacturers' level, accounting for nearly 5 per cent of total sales.

"China's share of the global cosmetic and toiletries market may seem small compared to huge markets like the US and Japan, but with a population of over a billion people, the growth potential there is staggering,"​ said Lenka Contreras, vice president and head of the Consumer Products practice for Kline's research division.

According to the report Global Cosmetics and Toiletries 2004, to be published soon by Kline and which includes a comprehensive section about the China market, skin care and make-up products account for the largest share of the cosmetic and toiletries market with 31 per cent and 11 per cent of the market, respectively. Contreras also adds her belief that these categories have a huge potential for further increases in sales.

The research firm has also published a study, Beauty Retailing China 2005, which shows that now 80 per cent of cosmetic and toiletry sales are now through hypermarkets and mass retail outlets. However, the study also finds that the huge growth in specialty beauty stores such as Watson's and SaSa is starting to threaten the larger retailers.

Contreras says that the growing spending power, alongside the better choice and better more specialized service is helping to boost sales in the specialty outlets.

"Service at retail outlets in China is really amazing, and it is delivered at every type of channel, even at the mass level,"​ Contreras said. "This encourages more women to buy products and helps them make more informed decisions about their purchases."​

It was only one generation ago that Chinese women were restricted on how much perfume or make-up they could use. This led to a lack on investment in the beauty field that is now being made up for. With a vengeance.

"It's difficult for local companies to gain market share because the MNCs are already entrenched, making it tough for local companies to compete. But regional suppliers like Shiseido and LG Household and Health Care are entering the business and finding their niche,"​ Contreras said.

But now the larger retailers have more to fear from than just the specialty stores, following the China government's decision to drop prohibitive laws against direct sales companies. This will open the doors to major players such as Oriflame, Amway, NuSkin and, in particular Avon, from December 1st.

"The change in the government's policy will help Avon to re-establish itself with wider distribution and penetrate the rural areas that the recent boom in sales hasn't reached yet,"​ says David Vladyka, head of Kline's Consumer Products consulting practice.

With many of the direct sales cosmetics companies having spent the last two years investing heavily in an effort to ready themselves for the re-opening of this market, the growth of this segment is expected to be rapid and significant and adding yet another dimension to the retail landscape.