China government crackdown blamed for cosmetic 'plunging sales'

By Michelle Yeomans contact

- Last updated on GMT

Related tags: Cosmetics, China

China government crackdown blamed for cosmetic 'plunging sales'
A government crackdown on extravagance and an increasing number of consumers buying products abroad is reportedly driving certain cosmetic giants to pull their business out of China.

Despite Euromonitor predicting China’s $25.9bn cosmetics market to rise 63% by 2015, growth in sales of perfume and skin care products are reported by the National Commercial Information Center of China to have declined.

According to the CNCIC, retail sales growth of cosmetics dropped 3%-10% last year, the lowest growth in China since 2008 and its' director Wang Yao noting Beijing's anti-corruption campaign as influencing the likes of giving cosmetic products as gifts. 

The Center also reckons brands retreating can also be attributed to an increasing number of consumers who are aware of the gaping price disparity between high-end cosmetic products in China and abroad.

In this instance, Wang says these consumers are choosing to travel to other countries to buy up the products in large quantities.

"Consumers are not willing to pay a hefty premium because a brand is foreign. They're internet savvy and lack of brand loyalty makes them the world’s most demanding customers.​"

'Plunging sales'

Several international cosmetic brands have withdrawn from China in the last year including Revlon, P&G's skin care business and L'Oreal's Garnier brand, all citing 'plunging sales'. 

At the time L'Oreal reps said the brand would be focusing on two of its other mass market brands in China; Maybelline New York and L’Oréal Paris, covering skin care, make-up and hair care.

According to consultancy firm Bain & Company; digital penetration, which represents online sales as a percentage of total sales, has reached 9% in Tier 1/Tier 2 cities in China and stands at 6% across all cities in China.

In terms of cosmetics product sales specifically, Bain analysts say; "this penetration rate is 3-4 times higher in the Chinese market ​, indicating the shift in the customer buying pattern from traditional brick-and-mortar retail outlets to the seller’s online platform."​ 

It is on this platform that some foreign beauty brands are struggling to compete against discounts on higher-end cosmetic brands such as Dior and Estée Lauder.

Related topics: Business & Financial

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