02.04.08
Asia is poised for the largest sales growth potential in the global cosmetics market in the next five years, and Western companies are making a beeline to claim their share of the sweet returns.
By Paula Farquharson, European Correspondent
In recent years, there has been an explosion in the cosmetics market in Asia, thanks to changing demographics, increasing living standards and growing interest in Western beauty trends. The developing countries that make up this vast region—including Japan, China, Malaysia and Korea—represent a huge source of virgin consumers ready to be indoctrinated by the mantras of major international cosmetic brands. Asian mothers are learning about skin care and makeup from their savvy daughters who are very receptive to Western products and are tapping into international cosmetic trends. Asian women are increasingly entering the workplace and are becoming more aware of how their appearance can affect their career prospects. Cosmeceuticals, functional products such as anti-aging, whitening and UV protection products, are most popular with them. Young Asian males have embraced the metrosexuality concept, which hit the U.S. in the 1990s, fueling demand for sophisticated cosmetic products and presenting a real opportunity for foreign brands. Reserved Asian fathers don’t recognize their blond-haired sons who are increasingly using facial masks and wearing makeup.
According to Euromonitor International’s senior cosmetics and toiletries industry analyst Diana Dodson, “The world is getting smaller and international fashion trends are spreading, creating greater homogenization of demand.” Dodson points to the rising demand for fragrances in the Asia-Pacific region where there has formerly been a dislike of scented beauty products for their association with the masking of body odor. Dodson says that greater market penetration can be achieved by taking a local approach when marketing an international product, evidenced for example, by the popularity of celebrity politician-branded scents in Russia. In Korea, heartthrob movie star, Jang Dong-kun is the new face for Hera Homme. He will help market sophisticated products such as the company’s Recovery Peeling Pack.
| Shiseido aisle in Japan's Isetan department store. |
The growth trend in Asia Pacific is definitely emerging, with China leading with the most dramatic growth, although remaining behind Japan, which is the biggest, No. 1 market in Asia. In global terms, Japan is the second largest market after the United States and last year China took the No. 3 position in the market for cosmetics and toiletries surpassing France (now in the No. 4 spot on the international stage). Although at this point most of the major brands are investing heavily in these markets, the profits will be reaped very soon.
Country Spotlight: Japan
Traditionally, Japanese consumers are more interested in skin care than makeup (in direct contrast to Western countries) with skin care the largest segment. They are very sensitive to the design details and quality of packaging and are attracted by the total appeal of a product, not just its functional properties. Celebrities are often used to market a brand, according to the organization USA Trade. The Japanese cosmetics market, the largest in Asia Pacific followed by China, is, according to a report on Asia by Research and Markets “in a stable condition but with continuous realignment of distribution channels.” Sales of cosmetics and skin care through “aesthetic” salons (spas, wellness centers, etc.) is increasing and this distribution channel has the most potential for growth as the popularity of wellness centers continues to rise; it currently represents 7.6% of total sales. Door-to-door sales of brands such as Avon and Nu Skin represented 26% of total sales in 2006. The biggest channels remain department stores and specialty stores but sales are slowing, giving way to these new channels.
| Kao has launched a new anti-aging skin care range exclusively in Japan. |
Albion, in business since the 50s, is one of Japan’s leading prestige cosmetic brands, and also holds an agreement to manufacture Anna Sui color cosmetics in Japan; the Isetan department store is the licensee to distribute Anna Sui fashion and cosmetics.
The Ayura range of makeup, fragrance and skin care products is marketed using a holistic care approach. The line, which limits additives and uses only virgin oils and natural ingredients, even includes a tea range to promote good circulation for healthy skin from within, based on the traditional Japanese doctrine. Ayura also offers a complete range of skin-whitening products, some of which contain Japanese and Chinese herbal extracts.
Opportunities exist for targeting baby boomers who are reaching retirement age and becoming more anti-age conscious, fueling demand for appropriate products. Currently the men’s cosmetics market in Japan is small, but one of great potential as the trend for greater usage is growing among men who are influenced by Western trends. Men’s skin care products launched by Clinique, Clarins, Nivea and Neutrogena are credited with triggering the men’s cosmetic boom. The introduction to Japan in recent years of the “metrosexuality” concept—a man of any sexual orientation with a strong aesthetic sense who spends a lot of money on his appearance—is beginning to mirror the U.S. phenomena in the cosmetics industry.
Contrary to women’s demands for whitening products, tanning lotions are popular with Japanese men, as well as more sophisticated skin care products such as toning lotion, anti-shine products and eye soothers. Indigenous brands such as Shiseido, Kanebo and Kao are expanding their men’s ranges to meet growing demand.
| A Shiseido counter in Japan's Takashimaya department store. |
Hair care product sales are rising, thanks in part to young Japanese males who started using hair dye in the early 1990s; today it is not unusual to see blond men. Kao is relaunching its Asience hair care brand and Delphine Chicheportiche, responsible for Shu Uemura, the L’Oréal owned hair care Japanese brand said, “We plan to launch our new hair care range, Art of Hair, into Asia in the next few months.” The packaging and product names reflect the beautiful form and colors of flowers fusing art and nature. The theme is oriental purity married with Hollywood glamour. The range will be available in prestigious hair salons.
In Japan, the wholesaler usually takes care of the marketing function while the brand manufacturer supports via advertising and promotion to help push sales through the retailer.
Country Spotlight: China
The cosmetics market in China is experiencing amazing growth, according to USA Trade. Over the last five years, the industry has had an average growth rate of 20% to 25% per annum, due mainly to rising living standards and more women in the workplace. According to the China Association of Fragrance, Flavor and Cosmetics Industry (CAFFCI), sales revenues are expected to reach $36.2 billion by 2010.
Because of the complex procedures necessary to market foreign brands, there are many foreign joint ventures in China. Among foreign brands present, L’Oréal has the largest market share in China.
Shiseido, the key Japanese brand, is aggressively expanding overseas, especially in China, as part of its three-year business plan (to March 2008). China is the brand’s key foreign market, increasing at a rate of 30% annually with over 1,700 doors selling the brand. To feed this growth, the company completed the third phase of expansion at its Shanghai factory last September, strengthening its product supply system in China by doubling production capacity. The company says the expansion is principally aimed at addressing an increase in the number of Shiseido specialty stores and in response to rapidly increasing demand for cosmetic products in China. The company established a consumer information center to improve service and to reflect consumer feedback in marketing. The company’s exclusive China brand, Aupres has also benefited from major investment and marketing to increase sales and to enhance sales counters. In October 2006, the company established a research center in Southeast Asia as a way to research consumer needs, develop new product lines and cultivate locally rooted marketing. Products that are booming are skin care, anti-aging and skin brightening lines.
Looking forward in China, President Shinzo Maeda stated in the 2007 Shiseido annual report, “We will strengthen our channel-based brand strategy, enter new channels as well as other initiatives. At the same time we will further refine customer service at sales counters, one of Shiseido’s strengths, by enhancing training for local beauty consultants.”
According to new research from consumer and retail information provider The NPD Group, skin care products make up the majority of prestige beauty sales in China (71%), followed by makeup (17%) and fragrance (12%). Anti-aging and whitening products are the top sellers. Unlike the U.S. where a third of prestige sales come from skin care, in China, it’s closer to three-quarters—and Chinese women are paying premium prices for it.
Outside the department stores, direct seller Nu Skin Enterprises, Inc., has just received authorization from the Chinese Ministry of Commerce to expand its operation to the more than 37 million people residing in Beijing and Shanghai.
Country Spotlight: Hong Kong
For companies wishing to test the Chinese market, Hong Kong is an excellent backdoor approach as it employs no import duties on cosmetics, toiletry and skin care products and requires no registration. In addition, millions of potential consumers visit from China each year to shop, taking advantage of the lower retail prices, up to 30% less than on the mainland. The 15%-22% tariffs, as well as VAT and registration costs imposed by mainland China on beauty products create a wide price discrepancy compared to retail prices in Hong Kong. Hong Kong is widely regarded as the launch pad for the market in China as it sets the trends and acts as a showcase for the bigger mainland market.
| Hong Kong is a launch pad into China and other parts of Asia. |
Country Spotlight: Korea
The South Korean cosmetics market is growing at a faster rate than developed regions, resulting in strong expansion for imported cosmetics and significant gains for U.S. suppliers. According to USA Trade, the cosmetics market in Korea was estimated at $6.1 billion in 2007. Koreans tend to be health conscious, embracing the “well-being” trend and preferring organic and “green” cosmetic products, while also following the global quest for more youthful skin. Men’s cosmetics is growing significantly as well, representing 9% of the total market in 2006. According to Auction, one of the largest online shopping malls in Korea, as of July 2007, sales of men’s cosmetics grew to 36% of their total sales compared to 2006. In response to this growth, a rival online mall, Skin RX is now selling men’s cosmetic products including foundation, clear mascara, concealer and manicure products, while department stores now have dedicated cosmetic counters with men’s only products featuring brands such as Clinique, Clarins and Biotherm. The men’s and women’s market continues to be polarized with products selling best at both ends of the spectrum; premium end (Chanel, Dior, Clinique, Estée Lauder, Bobbi Brown, etc.) in department stores and mass market in low-cost franchise stores. Less established imported brands are distributed through non-traditional outlets such as online malls, TV home shopping channels and drugstores. Koreans tend to favor European brands over U.S. brands, perceiving their image and packaging as more luxurious. U.S. products tend to be packaged more simply.
Trade tip: A U.S.-Korea Free Trade Agreement (KORUS FTA) was signed in June 2007 freeing up the market to U.S. cosmetic imports as the Korean 8% tariff is eliminated over the next three-to-10 year period, for the various makeup, skin care and hair care segments. For example, baby cosmetic tariffs are now exempt, while makeup cosmetics will have to wait another three years.
Country Spotlight: India
Indian consumers are becoming more sophisticated, resulting in a surge of cosmetic sales in 2006 of 12.6%, with anti-aging and skin whitening products two of the most popular segments. According to Research and Markets, “modern, urban Indian women are becoming increasingly conscious about their style and looks, with great emphasis on lightening of skin tone. Skin care and color cosmetics have witnessed solid growth for the last few years, with more than half of the skin care market comprising skin lightening creams. Lip products form a majority of the color cosmetics market.” Hindustan Unilever is India’s largest cosmetics company, followed by L’Oréal. According to USA Trade, distributors feel that products labeled “Made in USA” appeal more to consumers than local brands. Skin care products accounted for more than 20% of total imports, with the U.S. as the top supplier in this segment. Print media is the primary advertising channel used to promote
imported cosmetic brands. (Conde Nast has just launched an Indian edition of Vogue there.)
| Unilever recently launched a line of Pond's skin lightening products in Asia. |
ASSOCHAM says India’s domestic cosmetics and toiletries industry has been growing at 15-20% over the last few years, but that India is a price-sensitive market. Companies need to work out innovative strategies to establish a foothold here, the organization advises.
Distribution
Forging a strong relationship with a retailer or distributor is key to entering the Asian market and projecting the desired image to your target market. Many of the Asian markets, including Japan and China, do not yet allow a foreign company to make direct applications from overseas for a license to market cosmetics in their countries. Therefore, a company wishing to export must find a Japanese importer or representative or set up a subsidiary in the country. Last November, Davi Skincare launched onto the Hong Kong market debuting at Lane Crawford, Asia’s leading specialty store. Launched in 2004 from its Californian vineyard headquarters, Davi, is a brand of luxury skin care products for men and women; its unique USP is the active ingredient derived from fermented grape extracts.
“Lane Crawford caters to a clientele that enjoys luxury products,” explains Carlo Mondavi, co-founder of Davi. “Much like a Bergdorf Goodman or Neiman Marcus in the United States or a Selfridges in London, Lane Crawford provides a perfect platform to establish our luxury brand as we begin our expansion into Asia.”
Another strong retailer in Asia is Parkson where the skin care, makeup and fragrance brand, Lancaster, recently launched both its skin care and sun care ranges onto the Malaysian market at the Parkson Pavilion in Kuala Lumpur. In Asia, Lancaster is sold through department stores, unlike in Europe, where it is distributed mainly through perfumeries. Lancaster’s star products in Singapore are the 365 Cellular Elixir, which supports DNA repair, Suractif Non-Stop Lifting, a cream designed to lift, firm and re-contour skin and Infinite White, which evens out, illuminates and revitalizes the skin.
As Western trends continue to spread East, Asia is poised for the largest sales growth potential in the global cosmetics market in the next five years.
