China overtakes the US as world’s largest economy

By Michelle Yeomans

- Last updated on GMT

China overtakes the US as world’s largest economy
China is likely to overtake the USA to become the world’s largest economy in Purchasing Power Parity, an economic milestone according to Euromonitor.

As two of the world’s largest manufacturers, China and the USA lead in global energy consumption and pollution, with China overtaking the USA in 2010 to become the world’s biggest energy consumer.

China is set to overtake the US in 2014 in terms of international travel and knock Germany off the top spot in 2017 to become the largest outbound source market with 105 million outbound trips.

According to the market researcher, by 2018, the US beauty per capita spending is expected to increase to US$240, approximately five times higher than China’s projected per capita spending of US$50.

However, the success of local beauty and personal care players in China has forced brands like Garnier and Revlon to pull out of the country. 

US brands struggling in Asia of late

In January, Revlon was first up to announce it was exiting China in an effort to restructure struggling departments that it hopes to reduce costs by about $11 million a year in the long run.

China represents 2% of Revlon's net sales and the brand’s revenue in Asia dropped from 3.5% to $166.8 for the brand in 2012.

It was then L’Oréal’s turn to reveal its decision to pull its Garnier brand out of the country, stating that it was looking to concentrate on other brands that are performing stronger in the region.

Vice president of L’Oréal China, Lan Zhenzhen, insisted at the time that the move was not a major challenge to L’Oréal or its brands, simply a reallocation of resources. Simply put, sales growth did not meet expectations, and the company are attempting to be proactive.

So what's happened on the market that has seen these brands running for cover to balance the books?

Market analysts weigh in..

Well, according to consulting firm Bain & Company, the Chinese e-commerce market is on a 32% growth trajectory, with total sales doubling to reach RMB 3.3 trillion (~$545 billion) by 2015. 

These figures represent an 8.3% erosion in value over a span of two years, and analysts say that, combined with the fact that Chinese retail cosmetics sales witnessed explosive growth and tripled in value during the 2000-2010 period, the market could begin to see a steady decline in product sales in the coming years.

Among the reasons supporting this view the firm reports a shift as to where Chinese consumers are now choosing to invest their money. They note that they have adopted to online shopping and e-commerce over the past two years and that traditional outlets are suffering as a result.

"Digital penetration, which represents online sales as percentage of total sales, has reached 9% in Tier 1/Tier 2 cities in China and stands at 6% across all cities in China," ​they reveal.

In terms of cosmetics product sales specifically, they 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."

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