02.04.09
Where China Goes, Asia Follows
Despite the global economic crisis, demand for cosmetics in Asia continues to rise—and impressive sales in Hong Kong lead the way.
By Paula Farquharson, Contributing Writer
While the cosmetics world in the West may be waiting with bated breath for the outcome of the economic downturn on consumer spending, beauty companies can look to Asia for growth; there, statistics for cosmetic sales remain impressive. In addition, according to Euromonitor International, luxury products will successfully ride out the recession and demand will even rise for products with an image of exclusivity, sought after in places like the United Arab Emirates.
Predicting beauty trends for 2009, Nica Lewis, head consultant at Mintel, a leading market research company (and a member of Beauty Packaging’s Board of Advisors), says, “2009 will be all about survival of the fittest in the beauty industry.” Brands such as L’Oréal, which is expanding into Asia with its own portfolio as well as acquiring local brands, are proving they are fit for these emerging markets.
The pursuit of eternal beauty is not stock market sensitive in Asia, where sales will continue to outperform other world markets. The average Asian consumer is concerned with looks, and is fast catching up on Western trends. Skin care is huge in Japan, which is the country with the most elderly population and high demand for the expanding anti-aging product category.
Asia Pacific continues to offer opportunities, especially for international brands, which are the market leaders. Although Asia is a vast continent comprised of a long list of very different countries, when it comes to beauty sales, the top three countries account for the majority of revenue. Japan (43%), China (20.2%) and South Korea (9.3%) make up 72.5% of the total cosmetic and toiletries market in Asia, which was valued at just under $71 billion in 2007 according to Euromonitor International. These figures identify huge potential for untapped smaller markets such as Malaysia, Singapore and Vietnam, which had respective sales of $973 million, $595.9 million and $517.3 million in 2007. When Shu Uemura Art of Hair launched onto the Asian market last year, parent company L’Oréal targeted Japan, China and Hong Kong, but also smaller markets including Korea and Indonesia.
According to the USA Commercial Service, Hong Kong is the most open market in Asia for selling cosmetics and toiletries with zero import duties and no registration/labeling requirements. With over 12 million Chinese consumers traveling there every year—and with cosmetics a top purchase—Hong Kong remains a gateway to China for many foreign brands.
Packaging Trends
According to Ken Wu, Asia executive director, Rexam Packaging, “Packaging trends in Asia are twofold, becoming either more luxurious or natural. Decorative looks of diamond, leather and gold appear frequently on brands. Cosmetic packaging changes rapidly to attract attention.” Wu adds that “lipstick is considered the most valuable item for Asian women, while mascara is gaining interest among young women.”
| The package for Avon’s ClearWhite Supreme, which launched in China and Japan, was developed by Rexam Personal Care.
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Research by Organic Monitor confirms that demand for natural and organic cosmetics is surging in Asia. Global brands like Aveda and Dr. Hauschka are well-established and now new and smaller brands are gaining market share such as British brands Neals’ Yard Remedies and Organic Pharmacy.
Also, according to Mintel, “sustainability and eco-friendly are tipped to remain buzzwords in 2009. In fact, an emphasis on waste reduction will be supported by both ‘austerity chic’ and an environmentally friendly approach to beauty.”
According to Netpop, a research company, “Chinese consumers rely heavily on social media (Web 2.0) in the decision making process. Companies with good word-of-mouth reputations see it reflected in sales figures.”
Asian Leaders
Although Japan remains the No. 1 Asian market (with cosmetic and toiletry sales of $30.5 billion in 2007), China continues to lead with the most dramatic rise, with an annual average rate of more than 10% for the five years leading up to 2007. However, amid the global financial crisis in 2008, across the Asian map, previous years’ growth trends are slowing, but continuing upward.
Spotlight: China
China is now experiencing an economic slowdown and as a result, consumer confidence declined in 2008. However, the good news is that the Chinese government’s stimulus package announced in November 2008 should help boost consumption. The International Monetary Fund (IMF) is forecasting China’s economy to slow to 8.5% in 2009. However, according to Euromonitor International, “this rate is still impressively high on a global scale and consumer spending in China should continue being supported by rising incomes overall.” The figures tell a past success story and a promising future tale. Per Euromonitor International, China was a standout performer in the Asia Pacific region with total cosmetic and toiletries sales valued at $14.3 billion in 2007 (a remarkable increase of 73.3% in five years compared to 2002 sales). Skin care sales alone were $5.3 billion in 2007, up 132% from 2002. If other underdeveloped cosmetic categories experience similar increases, foreign brands have much to gain by entering this lucrative market. For example, fragrance represented only 2.5% ($360.6 million) of total sales in 2007. According to Euromonitor’s analyst Diana Dodson, senior cosmetics and toiletries industry, traditionally, Asian consumers have steered clear of fragrances for cultural reasons—its association with the masking of body odor. However, demand for fragrances is continuing to rise as Asian consumers copycat Western beauty trends.
According to Euromonitor International, the cosmetic and toiletries market in China was worth a total of $14.3 billion in retail sales in 2007. The largest category is skin care with 36.8% of the total, followed by hair care with 19.9% and oral hygiene products at 13.9%.
Popular Products in the People’s Republic
According to the USA Commercial Service, “Anti-aging currently is the most sought-after skin care product in China, a trend forecasted to continue. For example, the Olay brand has expanded with the launch of anti-aging and skin rejuvenating products in recent years. Likewise, L’Oréal has enlarged its portfolio to include skin whitening and anti-aging lines. Body care is a significant subcategory with professional body care products in demand among high income women in big cities, such as Beijing, Shanghai and Guangzhou. However, the range of brands and product diversity is insufficient and therefore has great potential for growth.” Luxury hair care products also have potential for further growth. The premium and upper-end mass market segments use price difference to discriminate between product lines.
Presently, there are only a few luxury hair care brands in the Chinese market, including Shiseido, Kerastase, Schwarzkopf, Wella and Tsubaki.
New Packaging Law in China
With a huge population of 1.3 billion people (representing 20% of the world population), producing massive waste, it was only a matter of time before China finally faced its environmental conscience. The problem of abusive over-packaging is due to the lack of legal norms. However, according to Keller and Heckman’s law office in China, “major new legislation introduced by China’s General Administration of Quality Supervision Inspection and Quarantine (AQSIQ) pertaining to packaging, is due to come into force early this year.
Asian packaging expert Stuart Hoggard explains “Over the years, many countries in the EU have explored the concept of legislating excessive packaging, but abandoned it for lack of common agreement between the various national interests. With a population larger than N. America and the EU combined, China now has the market and spending power to influence global demand, and in the near future we can expect China to exert considerably more influence following the introduction of its Packaging Recycling Master Plan, which will ban certain materials and processes from production in the country and from import.”
Consumers will see drastic change in brand shelf presentation as marketers are forced to rethink packaging. According to Wu of Rexam, “Under this regulation, the concept of the biodegradable package will become more important to both brand companies and packaging suppliers in Asia. Rexam has been aware of this topic for years, and continues to put R&D effort into developing feasible materials for market requirement.”
The aim of the law is to reduce excessive packaging by forcing companies to adhere to strict rules at the risk of hefty fines and even confiscation of non-compliant products or withdrawal of the company’s operating license. The law redefines mandatory legal standards by issuing new specifications; for example packaging layers, excluding the initial packaging, must not be more than three layers, and the cost of a product’s package may not exceed 15% of its retail price. Even the “free space” between layers is subject to restrictions. In addition, the total packaging cost should not exceed 12% of the cost of the product. Hoggart explains, “These new standards will be mandatory for all packaging produced in China.” He adds that foreign companies selling cosmetics in the China market will also have to adhere to these rules. As for the rest of Asia, Hoggart says, “There is no similar legislation, but where China goes, Asia always follows.”
Full details of the legislation and its implications are available in a report published by Hoggard: “China’s Restriction on Excessive Packaging: Commentary & Impact Analysis” (www.packwebasia.com/library/172.html).
Company Spotlight: L’Oréal
The world’s second largest cosmetic company, L’Oréal, is increasing sales by expansion in Asia. For example, the beauty firm’s R&D center in China focuses on developing products specific to the needs of Asian skin and hair. In recent years L’Oréal also acquired two Chinese brands, Mininurse and Yue-Sai and according to Euromonitor International, now ranks second in the local cosmetic and toiletries market. The Body Shop, bought by L’Oréal in 2005, has been expanding throughout India since June 2006. An acquisition in late 2007 was of hair care specialist Canan in Turkey. L’Oréal is planning an April 2009 rollout launch in Asia for a selective designer trio of women’s fragrances from its Giorgio Armani label. Inspired by the rituals of the Orient, each scent in the Onde collection, comprising Mystère, Vertige and Extase, has a unique bottle with a different color and a silk tassel for a sensual finishing touch.
Lucrative Niche Distribution Channels
In many Asian markets, money is no object. The Daniele de Winter organic cosmetic range and bespoke spa treatments from Monaco target an elite clientele through exclusive distribution in Asia. Marketing spokesperson Anke Wieber says, “We are present at the spa ofThe Mandarin Oriental five-star hotel in Tokyo, as well as in some top department stores in Japan. Our most recent cooperation is with the spas at the new $1.5 billion Atlantis The Palm Jumeirah five-star resort in Dubai, which welcomes the VIP customers we target. We do not adapt our packaging for the Asian markets.”
In the news for hosting the world’s most expensive luxury hotel grand opening last November, Dubai is an excellent showcase for the opportunities open to foreign cosmetic companies in Asia. Thanks to wealth accumulated during the record surge in oil prices, the crisis will have only a limited impact on the United Arab Emirates economy.
According to worldwide research firm Kline, Estée Lauder’s acquisition last year of a minority share in India-based spa products marketer Forest Essentials has landed the cosmetics giant a stake in the country’s largest selling spa brand. Kline says Forest Essentials holds an 18.4% share in the burgeoning Indian spa market, which is expected to grow more than 13% annually through 2012.
Lane Crawford, Asia’s leading specialty store, caters to a discerning clientele seeking luxury products. This January, it opened the recently expanded and renovated cosmetic department of its Times Square store in Hong Kong, adding space for men’s grooming advice and exclusive fragrance consultations.“Lane Crawford’s recent Times Square renovation clearly demonstrates our commitment to the Lane Crawford customers’ needs and expectations by dedicating more space and exciting new brands to the cosmetics area. It has further strengthened Lane Crawford’s position as the ultimate cosmetics and beauty destination in Hong Kong,” says Morgan Tan, general merchandising manager of cosmetics at Lane Crawford.
Spotlight: Japan—Old and into Skin Care
Japan has the world’s oldest population, with 22% over the age of 65 in 2007. According to Euromonitor International, “the country is the biggest consumer of skin care on a per capita basis. In 2007, Japan accounted for 20% of global skin care consumption with $13.1 billion in sales, while making up only 2% of the global population.”
According to Chris Ono of the U.S. Commercial Service, “Market success in Japan can raise product profile and visibility in other Asian markets.” Ono says the best prospects are anti-aging, skin lightening and skin moisturizing cosmetics and toiletries. High performance and quick-acting skin care products for specific parts of the body, or cosmetics with multifunctional ingredients, are also popular items.
Furthermore, organic or natural products, luxury products, and unique or branded products are in demand. Men’s skin care, fragrance and personal care products (e.g., deodorant products) are gaining ground among Japanese men of all ages.Asian consumers are very particular about the design and quality of packaging, and their tastes change with seasonal and fashion trends. Thus, how the product concept has been developed, which famous people use it and what unique characteristics it holds are important factors in gaining market share.
