Last year, the Chinese beauty market nearly trebled the growth rate of the US, at 12.9%, compared to 4.6%, with prestige cosmetics outpacing mass-market products by close to 50%. Yet the luxury category still only represents about a third of the market.
Put together, mass and prestige sales amount to a US$60bn market in China, and according to L’Oréal, it has the potential to double in the next decade.
Now the world’s second biggest beauty market, JP Morgan estimates that China represents about a quarter of all luxury beauty sales, if travel, retail and purchases abroad are factored in.
The top players on China’s luxury skincare scene are L'Oréal with 17% share, followed by Estée Lauder with 13% and Shiseido with 6%.
By contrast, there has been a slowdown in the US prestige market, even though it had been growing in the high single digits until last year. This deceleration has been particularly evident in colour cosmetics.
Discussing the report with lead analyst Celine Pannuti, JP Morgan senior analyst Andrea Teixeira said there is now a significant opportunity for pure prestige players like Estée Lauder in a country where the middle-class population is expected to grow ninefold over the next decade, even at a time when a GDP slowdown is expected.
“We have not seen any deceleration in prestige cosmetics sales in the country. Growth in China has been quite resilient in both the skincare and colour cosmetics,” said Teixeira.
Increased demand, driven by growing wealth among the world’s biggest female workforce, and the dramatic rise of e-commerce have been transforming the Chinese market, allowing international luxury brands to penetrate more than 500 Chinese cities. By contrast, in the pre-Alibaba era, only about 130 cities with department stores were in their sights.
“The rapid rise of e-commerce is really allowing brands to reach customers outside the most developed Chinese cities. In fact, right now, e-commerce represents a quarter of the market and this has favoured the development of luxury brands by creating new point of distribution, well ahead the development of department stores, especially outside the big cities,” said Pannuti.
Part of the affluent, middle class consists of digitally engaged young consumers who are entering the prestige category directly. Unique to China, this demographic is looking for established international brands and innovative products straight away.
“What’s interesting here is that they have strong buying power, often, I must say, subsidised by their parents and their grandparents,” continued Penutti.
“And this really sets the Chinese market apart, as young consumers in the rest of the world clearly do not have such buying power.”
Luxury players, such as Estée Lauder, have been the major beneficiaries of this e-commerce boom in China. The prestige cosmetics company grew over 40% in China in the 12 months to June 2019, on top of the 67% growth seen in the previous 12 months.
“Younger Chinese consumers are not only more affluent, they are also using skin care much earlier than previous generations. Alibaba and other e-commerce platforms have accelerated this process, particularly for luxury cosmetics, and now represent more than 30% of premium cosmetics sales in China,” said Teixeira.