A range of factors are driving China’s market, including rising prices, consumers trading up to more expensive products, growing demand for anti-aging products, and the official relaxation in 2006 of an earlier ban on direct sales. On prices, for example, TNS Worldpanel China data shows the average price increase in China of make-up for 2006 vs 2005 was 15.7%, while prices of facial cleanser and skin moisturizer increased by 9.7% and 8.4% respectively.
Jason Yu, Regional Account Development Director for TNS Worldpanel, who is based in Shanghai, said: “We don’t know for sure when China’s cosmetics market will eclipse the US, but it will happen sooner than we think – the year 2009 is likely. Growth in 2006 over 2005 in the US cosmetics market was flat. If that continues in the next three years, China is likely to overtake the US. Even if we see growth of 2% in the US for the next three years, China will still be vying with the US market in 2009 and would probably take the lead the year after.”
China’s recent liberalization of direct sales (meaning home sales) is having a major impact on the country’s cosmetics sector. China put a moratorium on direct sales in cosmetics in 1998. But the government issued a new law in 2006 that allowed direct sales on the back of tighter regulation. Major foreign brands now have fresh opportunities in what is expected to become the world’s largest cosmetics market. TNS data shows the share of spend from the direct sales channel in China has shot up, rising 82% in 2006 over the previous year for skin care products, and 92% for make-up.
The first direct sales player granted a license to sell at national level in China was Avon, with brands targeting a range of affordability levels. Mary Kay is also permitted to undertake direct sales and was one of the fastest growing brands in 2006. Amway is another direct sales player, with its prestige Artistry brand.
Mr. Yu added: “This is an exciting market for cosmetics brands from the US and Europe with the promise of growth followed by yet more growth in the next few years. China clearly stands out from its neighbors in this respect, with average spend per household at the end of 2006 in urban areas of just US$26, far lower than the US$191 level seen in Korea and US$176 in Taiwan. The average spend on cosmetics per trip in China – at just US$7 – compared to US$31 in Korea and US$26 in Taiwan further underlines the opportunity for overseas brands to sell more products. Whichever piece of data we look at, we see the same promise of room to grow in China’s cosmetics sector.”
TNS advises major foreign brands to monitor five major themes in China cosmetics:
1. Consumers trading up:
• More than 47% of facial products sold in China in 2006 were above US$12.90 in value – 3% more than the previous year.
• Make-up products above the U$12.9 level comprised less than 24% of the market in 2005 but increased to nearly 28% the following year.
2. Demand for anti-aging is on the rise:
• Anti-aging products are popular, especially in the direct sales channel with anti-aging making up nearly 21% of the value of purchases in 2006 (a big increase over the 13.6% share of spend that anti-aging achieved in 2005).
• As China’s population ages, anti-aging products will see even more growth.
3. Direct sales are back:
• Around 1 in 4 skin care buying households in Taiwan buys from direct sales channels, while in China the figure is still only 1 in 15 households – despite the 2006 improvement. Direct sales have room to grow in China.
4. Are China’s 2nd-tier cities the new frontier?
• China’s 2nd-tier cities accounted for nearly 41.9% of China’s demand for make-up in 2006 – some 20% higher than the 38% level seen in 2005.
• Consumers from 2nd-tier cities are spending almost as much as the 1st-tier consumers (per shopping trip), with the average spend for 2nd-tier consumers reaching 49.8 RMB in 2006 and 1st-tier consumers parting with an average of 51.3 RMB each trip in the same year.
5. Combinations and usage:
• China also shows strong potential for consumers buying and using broader combinations of cosmetics products. Only 2.6% families purchased across the categories of facial moisturizer, cleanser, toners and face make up in 2006. This level is very low and leaves significant room for growth.
