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    World 'beauty makers' knocking China door
    By Mark Godfrey (China Today)
    Updated: 2004-04-06 14:04

    A beauty contest craze and a wealthier society are both nourishing China's cosmetics market. The world's leading brands are competing with -- and buying -- local cosmetics firms for a share of China's vanity cash.


    To women, cosmetics are very important. [newsphoto/file]

    The most battered suburban avenues in east China's provincial cities usually have an Avon shop. The famous cosmetics firm also had its name stamped over the doors of high-street boutiques and small shops in the dusty back streets of cities as far-flung as Fuzhou and Harbin.

    Department stores in China’s largest cities are stuffed with the counters of the world's most famous cosmetics makers. China is the world's eighth largest consumer of cosmetics and the second largest in Asia, after Japan. The Chinese cosmetics market is worth 14 billion yuan or 1.7 billion US dollars annually, according to the China Association of Perfume, Essence and Cosmetics Industry (CAPECI). The state-run body puts Chinese beauty product sales in 2003 at 46 billion yuan.

    French cosmetics leader L'Oreal recently bought two Chinese cosmetics companies within of two months. That's some indication of how red-hot the cosmetics trade has become in China. In January the world's biggest cosmetics group, L'Oreal, acquired Chinese skincare brand Mininurse. Launched on the local market in 1992, Mininurse is one of country's three famous skincare brands and holds 5 percent of the market share. The acquisition hands L'Oreal a valuable manufacturing base as the deal included Mininurse's large factory in Yichang, Hubei Province. The acquisition was an "important step into the Chinese market," said L'Oreal's Chairman and CEO, Lindsay Owen-Jones. But the French firm isn't resting yet. Its latest buys will "show our determination to step up the pace of our growth in China," said Owen-Jones.


    L'Oreal's takeover deal with Yue-Sai has inspired more foreign cosmetic companies to explore the Chinese market. [newsphoto/file]

    A month earlier L'Oreal signed a takeover deal with Yue-Sai, the cosmetics brand founded by Chinese-American TV celebrity Yue-Sai Kan. Yue-Sai is an attractive buy for L'Oreal because the company's large customer base around China will allow it to compete with Avon and Mary Kay in provincial cities. Yue-Sai has sales operations in 240 cities -- many of whose customers are loyal followers of Yue-Sai Kan's beauty advice and TV shows. The television queen is so popular in her native land that China Post issued a stamp with her image. The company carrying her name reported sales of 38 million euros last year.

    L'Oreal is playing catch-up however on US competitor Mary Kay, which got into the Chinese market in 1998 and has since cornered an 8 percent market share, with sales of 1 billion yuan in 2002 -- 30 percent up on the previous year's figures. Japan’s Kanebo and Shiseido meanwhile look to China as the source of an increasing percentage of their overall sales. Kanebo is doubling its current tally of 150 distribution outlets in an effort to sell up to US $20 million of products every year in China.

    Young professionals are the best customers of mid-range cosmetics in China. University educated, this high-earning strata of Chinese society identifies more with the Sex and the City TV series ubiquitously available locally on pirated DVDs than they do with Confucian notions of beauty and modesty. "I only use skin care products and lipsticks, given that I don't need make-up for work" says financial analyst Amy Chen. The 25 year old Beijinger buys facial products by top-dollar brands like Clinique, Estee Lauder and Lancome.

    "I buy Lancome for my mom too because their aging products are pretty good." Chen spends "About 800 yuan a month" on cosmetics, "Counting in expenses for beauty salons." "I find the basic products from Clinique are the most suitable for me. I use their scrubs. I use body washes by Nivea, Vaseline, Waterson and Olay. I also use Adidas after sports. They're all pretty good." Chen chooses Lancome and Mentholaton lipcare products. She also buys some locally produced cosmetics, though fewer." All the products I buy are made by foreign firms, although some are manufactured in China."

    Foreign cosmetics brands and retailers may find it hard work to make their China operations pay. Competition is fierce in an overcrowded production base -- there are over 3,000 Chinese-owned cosmetics companies in the market, most of them small scale operations. The rampant counterfeiting of top-range brands meanwhile doesn't help foreign firms to increase their sales. Leading US cosmetics retailer Mary Kay has managed to make money in China, but only after adjusting its 40-year policy of direct selling.

    Mary Kay and other foreign cosmetics brands want China to ease its restrictions on imports of foreign sellers operating in the country. Mary Kay and its foreign counterparts can only sell products it makes in China. The US giant manufactures its products at a plant it built in Hangzhou in 1995 but plans to expand that factory, possibly to supply its markets outside of China as well as its local sales outlets.

    Avon and Mary Kay both struggled to get around the ban on direct selling put in place five years ago and are constantly modifying their current system of franchising to low-scale local retailers sprinkled around China. "Promoters" meanwhile sell products outside shops but are not required to buy in bulk up-front. Rather, they are paid monthly bonuses based on how much they sell. "We put a lot of emphasis on service to attract customers," says Mary Kay China CEO, Paul Mak. The company is targetting various income sectors, launching an upscale "Timewise" line recently and a separate line aimed at teenagers. "We have 150 product lines," says Mak, who anticipates Chinese regulators will grant trading rights to foreign firms this year.

    The growth of China's cosmetics market will outpace that of the rest of the world for the considerable future, says Paul French, senior analyst at the Shanghai offices of business intelligence agency Access Asia. "The growing number of young females in white-collar jobs will continue to power the market. The proportion of their income which they are willing to spend on cosmetics will also increase at a higher rate than the international average."

    Nail polish and lipstick are the fastest selling products but skin creams and skin whiteners are also set to sell in greater quantities, predicts French. "One factor behind this growth, apart from rising incomes and growing consumer sophistication, is the prevalence and seeming obsession with beauty shows and models currently taking hold in China."

     
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