China Luxury Cosmetics. - Switzerland Global Enterprise

Transcription

China Luxury Cosmetics.
June 2012.
osec.ch
Title.
Language.
English
Number of pages.
89 pages
Content.
China is changing. It is expected that the major growth driver
for the economy will now be consumption rather than
investment. This development in general and a fast growing
middle and upper class make China a very attractive market
for high quality consumables in general and especially for
luxury products.
Consumption of luxury goods is estimated to grow 18%
annually in the next 4 years and will by then account for over
20% of the global luxury market, overtaking Japan as the
largest market.
This report will deliver an insight into the market situation of
luxury goods in general and cosmetics in particular. It will
assist to understand the luxury cosmetics market
environment better by analyzing the competitive landscape,
the distribution system and the regulatory framework. Also,
some suggestions on market entry strategies are given.
Author.
Compiled by:
Swiss Business Hub China
In collaboration with:
CBC Business Consulting
Table of Content
 Research Background…………………………………………………….….…..4~5
 Macro Environment Analysis ……………………………………………..…......6~7
 Luxury Market Overview ………………………………………………………
 Luxury Cosmetics Market
8~14
………………………………………………… … 15~25
 Competitive Landscape……………………………….………....................…. 26~70
 Distribution System…………………… ……………………….…… .......….... 72~74
 Regulatory Framework………………………….………………...................... 75~83
 Conclusions & Recommendations…………………………….………………. 86~89
3
Research Background
 Located within the premises of the Swiss Embassy in Beijing, with area offices in
Shanghai and Guangzhou, the Swiss Business Hub (SBH) China is the network
partner of “OSEC Business Network Switzerland”. Osec & the SBH offer to small and
medium-sized Swiss and Liechtenstein enterprises individual advice on their
internationalization plans. Typical services include market analyses and evaluation,
contacts to business partners, and participation in major international fairs abroad as
part of the SWISS Pavilion.
 Currently the Hub would like to do two different studies focusing on different
industries that are found to have a large potential but have however not necessarily
been in the media spotlight. The goal would be to give the potential target groups,
Swiss SMEs in the respective industries, an overview on the market, specific market
information, regulatory information, and some tips on how to enter the market.
 The Hub would like to use its channels to publish this report in Switzerland under its
name (with CBC being prominently mentioned as the local research partner), making
the report available to companies interested.
 CBC Business Consulting has been mandated by the Hub to conduct the market
survey of high end cosmetics in China. This report presents the main findings of this
study.
Research Objective & Scope
 Research Objective:

To provide the hub and target groups with an in-depth market, competitor,
distribution system, regulatory information of the luxury cosmetics market in
China and market entry suggestions for interested Swiss companies.
 Research Scope:




Market Overview

General overview of China’s macroeconomics

China Luxury Sector Overview and especially Luxury Cosmetics Market

Market Dynamics
Competitive Landscape

Overview of current competitor market, esp. key product categories

General future development trends

Key competitor analysis
Distribution System

Overview of the distribution network of upper end cosmetics in China

General trend of development in the future

Analysis of major distribution channels
Regulatory Framework


Major governing bodies and regulations on cosmetics, registration process
and requirements, Import & Export regulations, Local taxations
Conclusions & Recommendations

Market potentials for Swiss companies: to enter or not to enter?

Entry strategy suggestions
5
Macro Environment Overview
General overview of China’s Macroeconomics- Strong and sustained GDP growth in
2010
 Owing to a stable social environment and active macro-regulating government
policies, the Chinese economy has maintained a sustained and rapid development
since the reform and opening-up in the 1980s.
 China’s national economy witnessed vigorous growth in 2010, with total GDP
climbing by 10.4% (calculated at current price) to USD 6,079 billion. Chinese
economy has gradually recovered from 2008 economic recession. However the
situation in the USA, Europe and Japan remains instable and has and will have its
impact on the development of Chinese economy.
 It is estimated by General Office of the State Council of China that economy will
realize soft landing and the increase rate of GDP will appropriately decelerate to
around 7.5% in 2012. However, the domestic investment environment is still
attractive and healthy.
6500
5200
8.3%
GDP
6079
14.2%
12.7%
3900
9.1%
10.0%
10.1% 10.4%
4758
2600
1661
1823
2423
'02
'03
'04
10.4%
4027
3277
2058
5165
9.6%
2876
9.2%
1300
0
'01
'05
GDP(USD billion)
'06
'07
'08
’09
16%
14%
12%
10%
8%
6%
4%
2%
0%
Annual Growth (%)
Chinese National GDP
’10
Annual Growth
Note: the exchange rate of 1 USD = 6.4 RMB is adopted in this report.
Overall Economic Environment - Continued expansion in 2011 and years beyond
 Further economic advancement is expected in year 2011, which largely stems from:

Domestic investment and demand, especially in the real estate, automobile and
telecommunication industries, have remained quite strong and are still on the
rise.

An improving international environment, with main foreign trade partners and
investors (U.S., EU and East Asia) gradually recovering from their economic
recessions, indicating more foreign trade with and investment in China.
 However the central government has been taking various macro measures to curb a
trend of an over-heated economy by exerting various macro adjustment measures.

Tightened control of the real estate industry to rationalize the overall investment
and soaring retail price in many areas/cities, with similar actions taken for other
industries.

Flexible currency and foreign exchange policy (the previous RMB-to-USD
pegging system switched to a basket of foreign currencies) and RMB valuation.
 By the third quarter of 2011, China’s GDP went up by 9.4% to reach USD 4,859
billion. Therefore the annual growth is estimated at 9% in 2011, and continues to
slow down to a relatively stable 8% per annum from 2012 and on.
7
China Luxury Market Overview
Luxury Goods- Definition
 A luxury product: a thing that is expensive and enjoyable but not essential

Must appear to be exclusive and of high quality.

Sold in a suitable environment, at a relative price level that is out of line with any
rational view of the product’s usefulness.

Under a brand name that conveys a certain image.
Categorization and General Characteristics of Luxury Goods in China
Class A
Private jet/plane, yacht, luxury automotive
Class B
Luxury watches, jewelry, precious metal
Class C
Apparels/shoes, handbags, cosmetics, etc.
Very exclusive to
a few
Less exclusive
and becoming
daily necessities
for many & more
Still exclusive to
Current Market Situation
 China is currently the second largest market in luxury consumption, and is the only
country with consecutive double digit annual growth in the past 5 years.

According to the World Luxury Association, the Chinese consumption of luxury
products grows very rapidly, with an annual average rate of 18% to USD 28.3
billion (excluding private plane, yacht, luxury automobile, services, hotel and
liquor) in 2010. Domestic luxury consumption rises by 23% to reach USD 13.2
billion, with USD 1.34 billion coming from new customers.

In the global picture, Japan remains the biggest market for luxury products by
occupying 1/3 of the worldwide consumption. China follows closely with a quarter
of the global share.

Though the Chinese domestic luxury consumption looks rather promising,
relatively more purchases are made in overseas destinations, including
HK/Macau, Europe and the US.
Overall Consumption Destinations
46%
54%
Domestic
Overseas

The number of Chinese people going abroad in 2010 is over 57 million
person-times, with 80% of them having purchased luxury products, such as
wristwatch, cosmetics, digital products, etc.

According to the World Luxury Association, the Chinese spent over USD 38
billion abroad in 2010, with a large portion going to the luxury goods. It is
estimated that Chinese luxury consumption will reach USD 46 billion in
2015.
 In terms of domestic consumption, luxury cosmetics are taking a very important role
with about one quarter of the total market. Watches and fashion apparels/shoes
follow in close reach.
9
Category Breakdown of Domestic Consumption
7%
Jewelry
12%
14%
Handbags
Apparel/shoes
25%
20%
23%
Watch
Cosmetics
Others
 Major luxury consumption concentrates on fashion, bags and suitcases, jewelry,
watches and cosmetics. Consumption on jewelry and watches increases fast.
 The top three destinations where Chinese consumers buy luxury goods are mainland
China, Europe and Hong Kong.
 In a survey by Bain & Company, the top three luxury brands most desired by Chinese
consumers for two consecutive years are LOUIS VUITTON, CHANEL and Gucci.
Overall Development Trend
 The Chinese luxury market is expected to enjoy a rather sound development in the
years to come, in both domestic and overseas consumption.
 China’s constantly rising number of millionaires and multimillionaires accelerates the
luxury consuming power. The number of China’s households with net assets
exceeding USD 1.0 million arrives at 1.1 million in 2010, rising by 31% than the
previous year.

China has the second largest population of global millionaires (in USD), only
following America. Meanwhile, China is the second largest luxury consumption
country after Japan. It is expected that China will overtake Japan to be the No. 1
consuming nation of luxury goods in 2012.

China has been leading in the wealth increment speed since 2002, with the
fastest compound growth rate of the number of millionaires from 2002 to 2010.

The rise of the new affluent class and consumers’ uplifting demand are the main
factors to drive the sales increase of luxury products in China.

With the appreciation of the Chinese currency and depreciation of EURO and
USD, it is much likely that Chinese will continue to spend more in luxury goods,
esp. in the European and American markets.
 Development trend in the luxury goods consumer market:

Domestic buying percentage presents sustainable and faster increase,
compared with overseas consumption.

Tier-two and tier-three cities become “rising battlefields” for various top brands.

Customers would like to experience comprehensively differentiated services.

The importance of online shopping continues to ascend. Internet has been
proven to be the second most important source for customers to get luxury
information.

Enhance investment for brand image building and strengthen local elements.

More and more luxury goods are purchased and given as presents, with no
preference of certain category or brands.
 Luxury consumption develops with new characteristics.

Buying purpose: given as presents or investment & collection

Consumption concept is shifting from face-saving consumption to social &
individual consumption.

Low brand loyalty and strong impression consumption concept coexist.

Consumption preference gradually emerged to custom made and limited edition.

The proportion of luxury goods consumed in China is 1/3 from China, 1/3 from
Hong Kong & Macao and 1/3 from Europe/America and other countries (58%
from Europe and 28% from America).

In comparison with the foreign economic uncertainties, China is regarded as one
of the most promising countries for luxury consumption. The most likely growing
fields of China's future luxury industry are art market, second hand luxury market,
tax-exempt market and luxury e-commerce market.
 Most Chinese manufactures are striving to build their luxury brands. China’s top ten
possible luxury brands will come out of industries like white wines, apparels, watches,
jewelry, cigarettes, tea, chinaware, perfumes, cosmetics and art & craft. They are
Maotai (liquor), Wuliangye (liquor), Yue-Sai (cosmetics & perfume), Zhonghua
11
(cigarette), LAN jewelry, NE.TIGER (apparels), Zhuyeqing (liquor), Langjiu (liquor),
Shanghai Bund (apparels), VIVE (cosmetics).
 In order to narrow the luxury price difference at home and abroad, it is expected that
some key departments of China’s central government will adjust the duty for imported
luxury goods, down by 2~15% to encourage domestic consumption.
 Main buying channels for luxury: domestic luxury boutique 35.2%, overseas buying
57%, buying via purchase agent-go between: 7.8%.
 The main consumer groups of luxury goods are getting younger on average, aged
25~30 years old in the next 3~5 years. The gender structure of those consumers is
man 75% and woman 25%.
Major geographical spread and characteristics
 Regional disparities of luxury consumption are obvious. In short tier-one cities are
currently the most important regions, followed by tier-two and tier-three cities. Cities
in East China are far ahead of the Middle and vast Western regions.
 After nearly 20 years of development, the luxury goods markets in tier-one cities like
Beijing, Shanghai, Guangzhou, etc. have been very well established and
sophisticated. Consumers from these regions are sensitive with product quality and
producer’s responsibilities. And manufacturers are cautious with customer’s demand
and pay closer attention to their brand images. The top three cities are Beijing,
Shanghai and Guangzhou.
 New markets for luxury goods in China concentrate on tier-two and tier-three cities.
Competition amongst different top brands will be rather fierce. The top five cities are
Hangzhou, Wenzhou, Qingdao, Shenyang and Chengdu.
 As China’s political, economic and cultural center, luxury goods sell best in Beijing.
Shanghai takes the second place, but gathering more headquarters of various luxury
brands. The maturity of luxury market is the highest and competition is fierce.
Guangzhou is close to Hong Kong and Macao where Guangzhou local residents can
easily visit and buy duty-free luxury products. Therefore it lags far behind Beijing and
Shanghai in sales volume.
 Hangzhou, Wenzhou, Chengdu, Shenyang and Qingdao turn out to be “crucial
battlefields” for luxury brands. However market promotion and sales resources are
restricting them in their overall expansion. Therefore luxury e-commerce is getting
more important. Many well-known virtual shops have emerged on the internet, such
as VIPStore, XIU, ShouKe, etc. These manufacturers are trying to make customers
have offline real experiences in their boutiques, and do their best to possess
advantages with accessibilities, quality and after-sales services.
13
Sales Value Percentage
20%
16%
14%
12%
8%
10%
6%
5%
4%
1%
0%
 In the past two years, luxury brands have been speeding up in expanding their
presence in China. By the August of 2010, fifteen luxury brands, such as Dunhill,
Burberry, Ferragamo, Gucci, Louis Vuitton, etc. have opened 80 new boutique stores
across China, with the total number approaching 550 stores by 2010.
Major demographics
 Gender split: the % of each age groups in total population and the % in each age
group:
Age
% in total population
% in each age group
Male
Female
Male
Female
9-
5.8
4.8
55.1
44.9
10-19
7.2
6.3
53.5
46.5
20-29
7.0
7.0
50.1
49.9
30-39
7.8
8.0
49.4
50.6
40-49
8.7
8.9
49.6
50.4
50-59
7.0
7.0
50.2
49.8
60+
7.2
7.3
49.4
50.6
Total
50.8
49.2
50.8
49.2
Cosmetics Market in China
 The Chinese cosmetics industry is generally speaking at the beginning of its fully
developed phase. Product portfolios are continually to be enriched. Sophisticated
cosmetics are available for buyers at home and abroad.
 As a result of the sustained growth in the national economy and individual wealth, the
cosmetics industry has witnessed a stable and sound growth in recent years.
 The total sales of the cosmetic industry in China are calculated at USD 22.3 billion in
2010, up by 9% from 2009. This figure includes the imported cosmetics but excludes
the exports to foreign markets.
 This current growth pattern of about 10% annually is expected to continue for the
next several years.
Market Size
40
15%
9%
30
20
18.9
8%
20.4
9%
22.3
10%
24.5
10%
27
29.8
10%
32.7
10%
35.8
10%
9%
5%
10
0
0%
2008
2009
2010
2011
Market size
2012
2013
2014
2015
Annual Growth (%)
Size (Bio USD)
50
YOY growth
Source: China Association of Fragrance, Flavor and Cosmetics Industry (CAFFCI)
China Customs, China Statistical Bureau and other information channels.
15
 According to the Customs, the total imported cosmetics is valued at about USD 1
billion, or over 47,000 tons in 2010 while the export value achieves $ 1.62 billion.
 The detailed product information, including HS code, product name, import values
and YOY growth from 2009 is as follows:
HS CODE
33030000
33041000
33042000
33049100
33049900
33051000
33052000
33053000
33059000
33072000
Product Name
Perfumes & Toilet Waters
Lip Treatment
Eye Treatment
Incense Powder (no matter
whether pressed)
Others (including skin care
product, Sunscreen, etc. )
Shampoo
Perm Agent
Hairspray
Others
Body Deodorant and
Antiperspirant
Million USD
68.7
26.4
47.6
Growth Rate %
2009/2010
20.33
7.07
21.33
36.2
25.71
689.1
36.28
25.3
2.7
7.2
32.6
32.32
89.57
44.83
29.25
5.5
38.52
 Overall categorization of cosmetics in China:

Skin care products (face/body lotion, cream, etc.): the most important sector and
fiercest market competition among various brands

Makeup products (lip sticks, perfume, face powder, etc.): fastest growing

Hair care products (shampoo, hair gel, etc.): getting mature but remaining stable

Others including baby care products, those for anti-aging, sports purposes, etc.:
small in total share but demanding constant attention
Luxury Cosmetics in China
Market Overview
 Similar to the overall cosmetic industry, the luxury cosmetics market also enjoys a
very stable development in China, and at a much faster growth rate.
 The domestic consumption of luxury cosmetics is valued at USD 3.3 billion in 2010,
up by 25% from 2009. It represents about one quarter of the total domestic
consumption of luxury products.
 Its annual growth in the next five years is forecast to be around 20%, a very vigorous
and promising pattern. And it will constantly enlarge its share in the total cosmetic
industry in China.
Market Size
8
8.7
24%
26%
25%
6
4
2
2.1
2.6
3.3
24%
4.1
7.3
22%
5
40%
30%
6.1
20%
22%
20%
19%
2014
2015
0
10%
0%
2008
2009
2010
2011
Market size
2012
2013
Annual Growth (%)
Size (Bio USD)
10
YOY growth
Source: China Association of Fragrance, Flavor and Cosmetics Industry (CAFFCI)
China Customs, China Statistical Bureau and other information channels.
 In the meantime the luxury and/or upper end cosmetics mainly depend on imports.
Since the Chinese consumption of luxury cosmetics is in a rapidly rising stage and is
in a high price-to-earnings scenario, the multinational cosmetics companies are
generally rather speedy in introducing their luxury & upper end brands/products to
China. For instance, Estee Lauder has continuously opened four special cosmetics
counters for its new brand “Origins” in Shanghai and Beijing.
 In terms of breakdown of product types, it has much in common with the overall
cosmetic industry:

Skin care products are the fastest growing and most developed sector.

Hair care cosmetics are getting saturated, thus with its growth slowing down.
17

Demand for makeup products increases by 30% per year and the market is far
from being saturated.

60% of China’s high-end lip stick and perfume sales volume is dominated by
worldwide well-known brands, who account for over 90% of China’s perfume
sales value.

Cosmetics for men grew robustly in recent years, and have about 12.7 % of the
total market share. Oil-control creams and facial-cleansers are rather popular.
Marketing and Sales Strategies in China’s Luxury Cosmetics Market
 The top ten luxury/upper cosmetics brands that perform well in China are all well
established and well-known big international brands, such as CHANEL, LANCOME,
Dior, ESTEE LAUDER, SHISEIDO, Gucci, etc. Swiss brands are in general relatively
less known but more expensive, therefore less popular and less in sales in China.
 Luxury cosmetics mainly rely on traditional channels, namely department stores in
tier-one cities, for their marketing and sales activities.
 With the development of China’s economy and the change in consumption concept,
demands for luxury cosmetics in tier-two and tier-three cities began to rise rapidly.
Chain-store operations become the major form in their retail practice.
 Based on discussions with industry experts, the pricing of luxury cosmetics is mainly
constituted as follows:
General Price Composition
HR cost; 6%
Stores; 3%
Ad & PR; 5%
Govt.
taxation;
20%
Raw
materials; 5%
Manuf. Cost;
6%
Brand value;
55%
Pricing influencing factors
 Currently, taxes for imported cosmetics include import tariff, VAT, consumption tax.

Import tariff is about 6.5%, with little difference for different origins.

17% VAT, same as cosmetics produced in China.

In addition, 30% consumption tax for eleven kinds of cosmetics including lip
make-up preparation and eye make-up preparation.
 The accumulated import linkage taxation for perfume and makeup can reach up to 60%
of the import prices. For example, the retail price of “LANCOME blanc expert ultimate
whitening hydrating” (50ml) is about USD 109 in mainland but it is USD 57 in Hong
Kong, which is nearly 50% cheaper. This tremendously stimulates overseas
purchasing.

In order to minimize the government loss of tax revenue caused by those
overseas purchases, the Customs of P.R.C. announced to impose import duties
from September 2010 on cosmetics and other goods valued over CNY50 (approx.
USD 7.50) that are mailed or couriered from other countries to China.

It is noteworthy to point out that these cosmetics or goods are mainly commodity
products or goods that are intended for resale or distribution. Cosmetics for
individual self-use are still tax free.
 Though the Ministry of Commerce of P.R.C. is fermenting a new round reduction of
imported cosmetics taxes since Sep. 2010, major luxury cosmetics, which are sold
via shopping mall, boutiques and online shopping platforms begin to raise prices
slightly. For example Estee Lauder and LANCOME mark up their prices by 5~8%,
and 10% by Chanel.
19
Market Segmentation
 In terms of origins, luxury cosmetics are mainly from Europe, esp. France, Italy and
UK, where the local markets are relatively mature. Approximately 70% of the luxury
goods are exported to the biggest luxury consumption countries, including China.
There are other few luxury cosmetics brands from America and Japan.
 According to Customs figures, 52.4% of the luxury cosmetics sold in China are from
Europe, 24% from the Americas. Japan is the most important exporting nation in Asia
to China.
Segmentation by Origin
5%
Europe
Americas
19%
24%
52%
Asia
Others
 Switzerland also has a few luxury brands in comparison with the numerous European
brands, such as Swiss Perfection & BELLEFONTAINE from Switzerland.

Top luxury skin care & nourishing creams are made in Switzerland, but the price
is very expensive (a small bottle of 30ml face cream costing about USD 1’200),
very often higher than those famous European brands. For example, La prairie
cream is over seven times more expensive than La Colline’s.

Thus, it is not so often to find Swiss cosmetics on the Chinese market. The
consumers who are interested in and can afford to buy Swiss cosmetics often go
to Switzerland to buy luxury cosmetics or to enjoy body care/health therapy
there.
Price references
 Due to varieties of cosmetics, some representative ones are chosen to show the
retail price situation of different luxury cosmetics that are sold in China, such as
creams, eye treatment, serum / concentrate treatment and makeup in USD.
Cream/50ml
Eye Treatment
/15ml
Serum/Concentrate
Treatment
Markup/
30ml
La prairie
560~1515
439/20ml
864
273/32g
Shiseido
361
118
129/30ml
68
LA MER
356
303
606/50ml
273
LANCOME
94~598
133~265
118/30ml
94
Swissweda
174~1212/30ml
98/(5.5ml*5)
/
/
Cosme Secorte
1060/45g
/
121/40ml
242
Bellefontaine
376~482
361
436/30ml
/
VALMONT
220~706
288
173/30ml
/
180
65~194
118
70/32g
Estee Lauder
112~818
273
98~379/30ml
61
Dior
118~485
120
636/15ml~220/50ml
85
Chanel
104~483
114~200
514/30ml
83
HR
197~573
273
451/40ml
179
83~220/30ml
120
280/30ml
/
Origins
71~88
65
133/50ml
/
Lancaster
76~135
56
130/350ml
/
L’occitane
65~148
50
88/30ml
/
Jurlique
63~70/40ml
63
215/100ml
/
Kiehl’s
44~74
44~62
98/50ml
76
Brand
Elizabeth Arden
La Colline
21
Product Categories
 All of the luxury cosmetics manufacturers have their own comprehensive production
lines of cream, eye treatment and concentrate treatment, which generally have much
added value. But approximate 50% of these manufacturers don’t have a sufficient
portfolio of markup cosmetics and perfumes.
 Standard package is 15~50ml.
 China is in strong demand for luxury cosmetics, which is shown by the robust annual
growth of the overall industry. And it is also demonstrated by the annual increase for
various products in the List of imported cosmetics in 2010 (with half of listed 10 items
growing by over 30% from 2009).
 Skin care product dominates with 73.2% of the import cosmetics.
 Though the import value of perm agent is only USD 2.7million, the year-on-year
growth rate is as high as 89.57%.
Market Dynamics
 China has entered into a rapidly rising stage in luxury cosmetics consumption. There
are big market potentials to be tapped in the next decade.

The mainstream consumers of luxury cosmetics are below 40 years old (18~39)
and the average age of consumption group is getting younger and younger. Their
demands for luxury cosmetics contribute 70% of nationwide sales value.

The gender ratio to luxury cosmetics consumption is male 27%: female 73%.

Demands for luxury cosmetics, especially skin care products for male ascend up
step by step. It is estimated the percentage will rise by 10% till the end of 2012.

Brand perception: consumers are interested in European, American middle-class
luxury cosmetics brands, eg. LANCOME, Dior, Chanel, Estee Lauder. Swiss
brands like La prairie are a bit far away from public because of high prices, and
their customers are mostly celebrities and successful businessmen.

Income increase results in more and more people who have the opportunities to
go abroad. Moreover the price advantage of purchasing luxury cosmetics abroad
is extremely evident. Therefore, overseas purchase via different means has
become a trend for many consumers.
 The geographical spread in luxury cosmetics consumption correlates with other
luxury products.

Heavy consumption areas are eastern & southern coastal areas and the Bohai
Rim, otherwise known as Beijing-Tianjin Corridor.

Regional consumption concentrates in capital/provincial cities like Beijing,
Shanghai, Guangzhou, Hangzhou, Shenyang, etc.

More and more luxury cosmetics brands begin to penetrate into tourism
destinations such as Qingdao, Sanya, etc. and wealthy cities such as Wenzhou
where a large number of small & medium-sized enterprises exist.
23
Consumption Considerations
 In terms of brand selection and considerations, over one third of the luxury cosmetics
consumers think highly of brand history and culture. They pay close attention to
launches of new products and the overall trend of consumption. About half of them
hope to get relevant information from the brand manufacturers or their agents, which
will influence their purchasing decisions substantially.
 When it comes to the reasons behind purchasing luxury cosmetics, a recent study
reveals that nearly 86% of the buyers think their purpose is to show a high quality of
life. Approximate 60% of them consider luxury cosmetics to be able to reflect their
individual characteristics & taste.
Purpose of purchasing luxury cosmetics
High quality of life
86%
Reflect individual characteristics/taste
60%
Best for presents
43%
Improve self-attraction
32%
Reveal the identity and status
Prove self-success
20%
16%
0%
50%
100%
 As far as brands are concerned, the French, Japanese and American luxury
cosmetics brands are more preferred than others because of their constant market
advertising and promotion, nice quality and appropriate pricing. They are rather
popular among up to 40% of the Chinese top cosmetics consumers.
 In comparison with its key competitors, again Swiss brands are preferred by some
consumers but they are far less known to many Chinese consumers.
Brand Preference
Channel
40%
LANCOME
38%
Dior
35%
Estee Lauder
31%
Shiseido
30%
Elizabeth Arden
28%
HR
19%
Jurlique
15%
Lancaster
12%
Origins
10%
Kiehl's
8%
L'occitane
7%
La Colline
6%
Swissweda
3%
VALMONT
3%
Cosme Secorte 2%
LA MER 2%
Bellefontaine 2%
La prairie 1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
25
Competitive Landscape
Overview of the competitive market
 Newcomers to the Chinese cosmetic market will face fierce competition. Multinational
giants who have been present much earlier have achieved an overwhelming market
coverage and influence.
 Beijing and Shanghai are definitely the top two destinations for almost all luxury
brands, including new incoming cosmetic brands. Then they generally expand to
Hangzhou, Guangzhou, Qingdao, Tianjin and other cities including Ningbo, Chengdu,
Tianjin, Zhengzhou, etc.
 Large and continued investment in marketing and advertisement is mandatory to
achieve excellent performance in China.

Large cosmetic giants like ESTEE LAUDER and L’Oreal invest heavily in
marketing and advertising via various channels, such as TV, magazine,
promotional events, brand representatives, sponsorship of influential events, etc.

Other new entrants mainly focus on one or two media for advertisement like
magazine, which is relatively cheaper but still effective in “precise marketing” to
their target consumers.

Cosmetics brands labeled “Swiss” usually have good reputation among Chinese
consumers, which is a natural advantage. However most Swiss brands are not
doing very well in raising their brand awareness in China due to insufficient
investments in advertising. Some of them even do not have a Chinese official
website, making it inconvenient to understand their products and to purchase
them.
 At the early market entry stage, the business model of distribution via agents is often
used. And most companies choose to setup their own legal entity in China after sales
revenue is stabilized, usually after 3-5 years.
 In terms of retail, traditional channels, namely beauty counters at department stores
or shopping malls are still most preferred. However online shopping is getting more
and more popular, both among the consumers but also among the retailers.

Cosmetics companies either choose to convert their official websites into online
shopping center, or cooperate with other third party online shopping portals.

Large cosmetic groups like L’Oreal have also adopted the online shopping
system for the majority of its affiliated brands.

For newcomers or relatively smaller companies, the online platform can
compensate well their disadvantage of having a small number of retail outlets.
 Performance of Swiss brands varies dramatically. Most of them are sold mainly in
beauty salons instead of traditional but predominant retail outlets in department
stores.

La Prairie, affiliated to the BEIERSDORF group, is an exception. It has
established its own China branch office and follows the traditional route to
expand in retail stores.

La Colline and Valmont are cooperating with local distributors, mainly selling to
consumers in beauty salons or SPAs.

Swiss Perfection, who was in cooperation with a local partner, tried to expand in
department stores and shopping malls but finally failed due to the high
investment in advertisement and rent in top ranking stores.

There are other brands not shortlisted or studied in this survey. They work with
influential cosmetics chain stores such as Hong Kong SASA China Co., Ltd.
27
Major luxury cosmetic brands analyzed in this study:
 la prairie SWITZERLAND
 SHISEIDO
 LA MER
 L’occitane EN PROVENCE
 Jurlique
 ORIGINS
 CHANEL
 HR
 LANCÔME PARIS
 Kiehl’s
 ESTEE LAUDER
 Dior
 Elizabeth Arden
 COSME DECORTE
 LANCASTER
 VALMONT
 La Colline
 Bellefontaine Switzerland
 Swissweda
 SWISS PERFECTION
la prairie SWITZERLAND
 China Market Development

China market entry in 2005 in Beijing

First launched in SCITECH Plaza Beijing in 2005 and then expanded to high-end
department stores or shopping malls in 13 cities; on Aug. 25th 2011, the 19th
beauty counter was opened in Beijing

The turnover for China market increased by 45% in 2010

Beauty counters combined with VIP beauty salons

No e-commerce for China market

Now considering cooperation with premier SPA brand, also to distribute in beauty
salons in the future

The China market is developing much faster than any other markets in the world
for LP.
 Marketing Strategies & Activities

Hosted news release conference for important events

Cooperated with top level fashion magazine (i.e. ELLE) for advertisement and
products promotion

Hosted luxurious banquet event for new products launch and anniversaries with
top national film stars invited, like the China entry news release conference, 5th
anniversary event, etc.

Invited top models or film stars to be the brand representatives
29
 Distribution Channels

Distributor: La prairie Trading (Shanghai) Company 莱珀妮商贸上海有限公司

Address: Room 4101, Tower2, Plazza66, 1366 West Nanjing Rd., Shanghai, 上
海南京西路 1366 号恒隆广场 2 期 4101 室

19 direct sales beauty counters in high-end department stores or shopping malls
in 13 cities

Beauty counters combined with VIP beauty salon
 Typical Price Range (in RMB)


Cream

Skin Caviar Luxe Cream 50ml
3,700 RMB

Cellular Radiance Cream 50ml
5,200 RMB

Cellular Cream Plantinum Rare
10,000 RMB
Eye Treatment


Skin Caviar Luxe Eye Lift Cream 20ml
2900 RMB
Serum/Concentrate Treatment:

Skin Caviar Intensive Ampoule Treatment
5700 RMB

Makeup Cosmetics

Skin Caviar Concealer Foundation SPF15 30ml+2g
1800 RMB
31
SHISEIDO

Started to distribute more than 60 categories of commodities in China in 1981
through 9 department stores like Beijing Friendship department Store

Technological assistance and joint venture program with Beijing Liyuan Daily
Chemicals Factory to launch a locally developed brand, HUAZI, in 1983

Joint venture Shisedo Liyuan Cosmetic Co., Ltd. was founded and factory
established in 1991-1993

Joint venture Shanghai Zhuoduozi Citic Cosmetic Co,. Ltd was founded for the
East China Area in 1998

R & D China Center was established in 2003

Shisedo Life Quality Beauty Center was established in Shanghai to offer free
beauty advice for customers.

Shiseido China widely used varieties of advertisement channels for its brands,
like TV advertisement for AUPRES and chose actress SUN Li to be the brand
representative

Shiseido paid attention to charity activities and has built 5 Hope Primary Schools
in Inner Mongolia, Tibet, Shanxi, Hebei and Beijing so as to set up good image of
social responsibilities

Hosted and sponsored various contests for young people, such as modeling,
attracted attention and transmitted the brand image to the younger generation

Shiseido cooperated with local provincial companies for distribution and its
products have widely reached tier1, tier 2 and tier 3 cities all over China through
department stores, shopping malls, special beauty shops and supermarkets

Distributor:

Established its own company - Shisedo China Investment Co., Ltd. 资生堂
(中国)投资有限公司

Address: 10th Building, No. 1558 Longdong Road, Pudong District, Shanghai
上海市浦东新区龙东大道 1558 号 10 号楼
 Typical Price Range


Cream

Benefiance Nutriperfect

Future Solution Revitalizing Cream 50ml
2,380 RMB
Benefiance Nutriperfect Eye Serum
780 RMB


860 RMB
Eye Treatment


Day Cream 50ml
Bio-performance Super Corrective Serum 30ml
950 RMB
Makeup Cosmetics

Benefiance Enriched Revitalizing Foundation 30ml
450 RMB
33
LA MER


First launched in SCITECH Plaza Beijing in 2004 and then expanded to 20 beauty counters in
high-end department store or shopping malls in 14 cities all over mainland China

La Mer managed to setup an image of ocean environment protector in China. It cooperated with
National Geographic to host the “Looking for the China Blue Ocean” Event as well as sponsored
Shanghai Jiaotong University for research on the HAB (Harmful Alga Bloom) in China.


Cooperated with top level fashion magazine (i.e. ELLE) for advertisement and products
promotion

Hosted luxurious banquet event for new products launch and anniversaries with top national film
stars invited

Invited top model or film star to be the brand representative

China Distributor:

Estee Lauder (Shanghai) Trading Co., Ltd. 雅诗兰黛(上海)商贸有限公司

Address: Rm 301, 302 & 306, No. 3688 Jindu Rd, Minhang District, Shanghai, 上海市闵行区
金都路 3688 号 301、302、306 室

Online Shopping available at www.lamer.com.cn

20 direct sales beauty counters in high-end department stores or shopping malls in 14 cities


Cream




The Moisturizing Gel Cream 30ml
1,600 RMB
The Moisturizing Lotion
2,350 RMB
50ml
The Eye Concentrate 15ml
2,000 RMB


1,600 RMB
Eye Treatment


Crème de la Mer 30ml
The Concentrate 50ml
4,000 RMB
Makeup Cosmetics

The Treatment Fluid Foundation 30ml 1,800 RMB
35
L’OCCITANE EN PROVENCE


First launched in 2005 and then expanded to 86 beauty counters in middle and
upper level department stores or shopping malls in 34 cities all over China


products promotion

top national film stars invited

Invited top models or film stars to be the brand representative

China Distributor:

L’OCCITANE en Provence Trading (Shanghai) Co., Ltd. 普罗旺斯欧舒丹贸
易（上海）有限公司，

Address: Rm 2209-2210, 819 West Nanjing Rd, Shanghai 上海市静安区南京
西路 819 号 2209-2210 室

in 34 cities

Online shopping at www.loccitane.cn


Cream

Immortelle Divine Cream 50ml
980 RMB

Immortelle Very Precious Cream 50 ml
800 RMB

Shea Butter Ultra-Rich Face Cream 50ml 430 RMB
Eye Treatment


330 RMB
Serum/Concentrate Treatment


Ultra-Rich Eye Cream 15ml
Immortelle Brightening Essence 30ml
580 RMB
Makeup Cosmetics

NONE
37
Jurlique

China market entry before 2009 in Beijing and Shanghai

Later expanded to 23 direct sales beauty counters in middle-end department
stores or shopping malls in 12 tier 1 and tier 2 cities

Cooperated with many magazines and in order to enforce the brand image,
Jurlique currently make advertisement on 3-4 magazines on a monthly basis,
namely Psychologies, Self, Ruili, Style, Cosmopolitan, Vogue, ELLE, Mina, Oggi,
CeCi, L’OFFICIEL, Marie Claire, etc.

China Distributor:

Beijing Hengcheng Industrious Development Co., Ltd. 北京恒城实业发展公
司 (previously distributed by a company in Foshan before 2009)

Address: 25th Floor, 15th Building, No. 39 Middle Dongsanhuan Road,
Chaoyang District, Beijing 北京市朝阳区东三环中路 39 号建外 SOHO 15 号楼
25 层

23 direct sales beauty counters in middle-end department stores or shopping
malls in 12 cities

More than 10 SPA companies in 7 cities have been officially authorized by
Jurlique for distribution


Cream

Jurlique Moisturise Replenishing Day Cream 40ml
420RMB

Jurlique Clarifying Day Care Lotion 30ml
420 RMB

Purely Age-Defying Day Cream SPF 15 40ml
460 RMB

Jurlique Balancing Day Care Cream 125ml
800 RMB
Eye Treatment


420 RMB


Herbal Recovery Eye Gel 15ml
Herbal Recovery Gel 100ml
1420 RMB
Makeup Cosmetics

NONE
39
ESTEE LAUDER ORIGINS

China market entry in 2010 in Shanghai

First launched in Shanghai Parkson in 2010 and then expanded to 20 direct sales
beauty counters in high-end department stores or shopping malls in 9 cities

Developed online shopping system at its official website www.origins.com.cn


Cooperated with fashion magazine (i.e. ELLE) for advertisement and products
promotion

Hosted event for new products launch and anniversaries with top national film
stars invited

Invited famous skin-care and make-up expert to be representatives and
ambassadors of the brand, helping to advertise and give instructions to
consumers.

China Distributor


Address: Rm 301, 302 & 306, No. 3688 Jindu Rd, Minhang District, Shanghai,
上海市闵行区金都路 3688 号 301、302、306 室

in 9 cities


Cream

Make a Difference Skin Rejuvenating Treatment 50ml 470 RMB

Starting Over Age-erasing moisturizer 50ml
Eye Treatment


580 RMB
Youthopia Firming Eye Cream with Rhodiola 15ml
430 RMB

Dr. Andrew Weil for Origins Mega-Mushroom Skin Relief 50 ml 880 RMB
41
CHANEL


in 17 tier 1 and tier 2 cities

Extremely frequent TV advertisements


Cooperated with top level fashion magazine for advertisement and products
promotion




China Distributor:

Chanel China Trading Company 香奈儿(中国)贸易有限公司

Address: N&P, Level 4, 185 Taigu Road, Waigaoqiao Bonded Area,
Shanghai 上海市外高桥保税区泰谷路 185 号第 4 层 N、P 部位



Cream

Sublimage Essential Regenerating Cream 50ml
3190 RMB

Chanel Ultra Correction Lift 50ml
1305 RMB

Hydramax Active Moisture Gel Cream 50ml
690 RMB
Eye Treatment

Sublimage Essential Regenerating Eye Cream 15ml

Ultra Correction Line Repair Anti-wrinkle Eye Cream15ml 750 RMB


1315 RMB
Sublimage Essential Regenerating Serum 30ml
3390 RMB
Makeup Cosmetics

Pro Lumiere Professional Finish Makeup 30ml
550 RMB
43
HR

China market entry in 2000

In 10 years, HR has expanded its coverage to 31 direct sales beauty counters in
high-end department stores or shopping malls in 22 cities

Online shopping at www.helenarubinstein.cn


products promotion


Invited international top model or film star to be the brand representative

China Distributor:

With its own company: L’Oreal China Group 欧莱雅（中国）有限公司

Address: 25 Floor, 1601 West Nanjing Rd, Jingan District, Shanghai 上海市
南京西路 1601 号越洋广场 25 楼

in 22 cities

Online shopping at: www.helenarubinstein.cn


Cream

Collagenist Night Cream 50ml
1,300 RMB

Prodigy Re-plasty 50ml
2,380 RMB

Life Pearl Cellular 50ml
3,780 RMB
Eye Treatment


1,800 RMB


Life Pearl Cellular Eye and Lip 15ml
Prodigy Re-plasty 40ml
2,980 RMB
Makeup Cosmetics

Prodigy Liquid Light 30ml
11,80 RMB
45
LANCÔME


In 1996, setting up its first beauty salon in Pinault Printemps-Redoute in
Shanghai

Till now, there are 104 direct sales beauty counters in high-end department
stores or shopping malls in 38 tier 1 and tier 2 cities


Participated in the L’Oreal Group online system

Extremely frequent TV advertisement. The company has invested huge amount
of money in advertisement to raise the brand awareness


products promotion

top national film stars invited, i.e. 75th anniversary of Lancome was celebrated in
the World Exhibition Park in Shanghai in 2010


China Distributor:

With its own company: L’Oreal China Group 欧莱雅（中国）有限公司


104 direct sales beauty counters in high-end department stores or shopping
malls in 38 tier 1 and tier 2 cities

Online
shopping
at
www.lancome.com.cn,
http://static.msn.yobrand.com/promote/luxurious/luxurious.html

http://lancome.luxurybeauty.com/lancome/_zh/_cn/index.aspx (the luxury brands
online shopping site of L’Oreal Group, including LANCOME, Kiehl’s, Biotherm,
Shu uemura, Giorgio Armani, HR, Kerastase, etc.
47



Cream

Hydra Zen Cream 50ml

Renergie Lift Volumetry Advanced Lifting and Shaping Cream 50ml 895
RMB

Secret de Vie 50ml
3,950 RMB
Eye Treatment

Secret de Vie Yeux 15ml

Absolute Premium BX Advanced Replenishing Eye Cream 15ml 880 RMB
1750 RMB


620 RMB
Genefique 30ml
780 RMB
Makeup Cosmetics

Teint Renergie Lift 30ml
620 RMB
Kiehl’s

China market entry in 2009 in Beijing and Shanghai

Till now, Kiehl’s has already set up 20 beauty counters in more than 13 cities

Developed online shopping system at its official website and also at
www.luxurybeauty.com, the official shopping system of L'Oreal Group

Cooperated monthly with around 20 top level fashion magazine (i.e. ELLE) for
advertisement and products promotion and invited famous stars and models to
share experiences with the brand
49

China Distributor:

With its own company: L’oreal China Group 欧莱雅（中国）有限公司


in 13 tier 1 and tier 2 cities.

Online
shopping at
www.luxurybeauty.com
its
official
website
www.kiehls.com.cn




Cream

Abyssine Cream 50ml

Ultra Facial Cream 50ml

Cryste Marine Ultra Riche Cream 50ml
490 RMB
290 RMB
580 RMB
Eye Treatment

Creamy Eye Treatment 14ml

Darkness Diminishing Activated Eye Treatment 15ml
290 RMB

Dermatologist Solution 50ml
650 RMB

Target Spot Whitening Treatment 30ml
500 RMB
Makeup Cosmetics

NONE
410 RMB
and
ESTEE LAUDER


Established the Estee Lauder China Company in 2002

In the past 18 years, Estee Lauder has opened 91 direct sales beauty counters in
high-end department stores or shopping malls in 36 tier 1 and tier 2 cities

In 2005, the company has setup its own R & D Center in Shanghai

Launched online shopping system on its official website

Extremely frequent TV advertisement. The company has invested huge amount
of money in advertisement to raise the brand awareness

products promotion



51

China Distributor


Address: Rm 301, 302 & 306, No. 3688 Jindu Rd, Minhang District, Shanghai,
上海市闵行区金都路 3688 号 301、302、306 室


Online shopping at www.esteelauder.com.cn as well as MSN Shopping Channel


Cream

Time Zone Line and Wrinkle Reducing Moisturizers 50ml 740 RMB

Time Zone Night Anti-Line/Wrinkle Crème 50ml 790 RMB

Re-Nutriv Ultimate Lift Age-Correcting Crème 50ml 2500 RMB

Re‑Nutriv Re‑Creation Night Crème 50ml 5400 RMB
Eye Treatment



Re-Nutriv Intensive Lifting Eye Crème 15ml 800 RMB

Advanced Night Repair Synchronized Recovery Complex 30ml 650 RMB

Renutriv Ultimate Lift Age-Correcting Serum 30ml 2500 RMB
Makeup Cosmetics

Double Wear Stay-in-Place Makeup SPF 10 30ml 400 RMB
Dior

China market entry in 1979 as the first foreign brand to cooperate with Friendship
Department Store in Shanghai, Beijing and Guangzhou

Established the LVMH cosmetic and perfume company in 1993

Extremely frequent TV advertisement


promotion


Invited top model or film star to be the brand representative, i.e. Sara Stone
came to Shanghai for the International Film Festival and participated in event of
Dior
53

China Distributor:

LVMH Parfum and Cosmetic (Shanghai) Co., Ltd. 路威酩轩香水化妆品（上海）
有限公司

Address: 2nd Floor, 32# Factory, No. 190 Hedan Rd, Waigaoqiao Bonded
Area, Shanghai 上海市外高桥保税区荷丹路 190 号 32＃厂房第二层 B 部位

Online shopping at www.sephora.cn

Through beauty counters in tier one and tier two cities all over China


Cream

Sublissime Whitening Cream 50ml
780 RMB

Capture R60/80 XP Rich Crème 50ml
895 RMB

Capture Totale Cream 50ml
1080 RMB

L‘or de vie 50ml
3200 RMB
Eye Treatment



Capture/TOT Inst Rescue Eye 15ml
790 RMB

Capture Totale 50ml
1450 RMB

L‘or de vie 15ml
4200 RMB
Makeup Cosmetics

Sculpt Liquid Foundation 30ml
560 RMB
Elizabeth Arden


Firstly cooperated with distribution agents to setup beauty counters only in
Beijing, Shanghai, Tianjin, Hangzhou

Later stopped cooperation with distribution agents and strengthened the
relationship with department stores all over China. In this way, the city coverage
of their products raised by 50% in 2007.

Till now, there are all together more than 200 beauty counters in up to 101 tier 1,
tier 2 and tier 3 cities

Website: www.china.elizabetharden.com/

Forum: www.ea-beauty.com
Mr. Chen Zhixin,
CEO of EA in greater
China Area


promotion

top national film stars invited, etc.

55

Sponsored influential event like the International Beauty Contest for Tourism.

China Distributor

Setup their own trading company

Elizabeth Arden Cosmetic (Shanghai) Trading Co., Ltd.

Address: Rm 322, The Bank Building, No. 24, Jiafeng Road, Waigaoqiao
Free-duty Zone, Shanghai

200+ beauty counters in middle to top level department stores in 100+ cities



Cream

Visible Difference Refining Moisture Cream Complex 75ml
350 RMB

Ceramide Moisture Network Night Cream 30ml
710 RMB

Millenium Night Renewal Cream 50ml
1,190 RMB
Eye Treatment

White Glove Extreme Brightening Eye Moisture Cream 15ml
430 RMB

Prevage® Eye Anti-aging Moisturizing Treatment 15ml
1,280 RMB


Ceramide Gold Ultra Restorative Capsules 60 capsules
780 RMB
Makeup Cosmetics

Ceramide Plump Perfect Foundation 32g
460 RMB
COSME SECORTE


First launched in Shin Kong Place in Beijing in 2009 and then expanded to
Hangzhou Tower in Hangzhou, Zhejiang Province in 2010
Opening ceremony of
Beijing Beauty Counter
in 2009


promotion

Hosted luxurious banquet event for new products launch

Invited famous skin-care and make-up expert to be representative and tutor of
the brand, helping to advertise and give instructions to consumers.
57

China Distributor:

Kose Cosmetic Sales (China) Co., Ltd. 高丝化妆品销售(中国)有限公司

Room 1002, 58 Wuhua Rd, Hongkou, Shanghai 上海市虹口区物华路 58 号十
楼 1002 室

Only 2 direct retail beauty counters in high-end department stores and shopping
malls in 2 cities (Beijing and Hangzhou)

No online shopping system (excluded from Kose online shopping system at
Taobao.com)


Cream

COSME SECORTE AQ Cream Meliority 45g
7,000 RMB

COSME SECORTE Vitalizing Lotion 200ml
1,200 RMB


COSME SECORTE Moisture Liposome 40ml
800 RMB
Makeup Cosmetics

COSME SECORTE Absolute Quality Foundation Meliority
1,600 RMB
LANCASTER


First launched in Beijing and then expanded to high-end department store or
shopping malls in Guangzhou in 2010

Cooperated with Sephora for retail outlet and online sales.

Website: www.lancaster-beauty.com.cn

Established an image as a product used by the Monaco Royal family/the royals

Cooperated with fashion magazine for advertisement and products promotion

Hosted banquet event or seminar for new products launch

Invited famous skin-care and make-up expert to be representative and tutor of
the brand, helping to advertise and give instructions to consumers.
59

China Distributor:

Beijing Meiti Trading Co., Ltd. 北京美缇商贸有限公司

Address: Rm 925, Guozhong Commercial Building, 33 Dengshikou Avenue,
Beijing 北京市王府井灯市口大街 33 号国中商业大厦 925 室

3 direct sales beauty counters in middle-end department stores or shopping
malls in Beijing and Guangzhou

Distributed also in chained cosmetic store: Sephora

Online Shopping at www.sephora.cn/showBrandAction/lancaster/227_6.html


Cream

Revolcanic Deep Moisturizing Rich Cream 50ml 500 RMB

Wrinkle Lab Precise Correction Day Cream 50ml 620 RMB

Suractif Non-stop Lifting Advanced Rich Day Cream 50ml 890 RMB
Eye Treatment


Revolcanic Eyes deep moisturizing anti-fatigue eye care 15ml 370 RMB

365 Cellular Elixir DNA Action Complex 350ml 850 RMB
VALMONT


Two distribution agents: Beijing CLV Cosmetic Co., Ltd. in the North and Joy
Century in Shenzhen in the South. Beijing agent is mainly in charge of the
distribution, import issues, etc.

Established network with top grade beauty salons and 5 star hotels for products
distribution

http://www.evalmont.com/flashCn/main_cn.htm#/products

Very few activities or events held publicly

promotion

China Distributors: two in China

Beijing CLV Cosmetic Co., Ltd. 北京思慧莉化妆品有限公司

Address: Room 1511, COSCO Happiness (Beijing) Tower, 3 Dong San Huan
Bei Lu, Chaoyang District, Beijing 北京市朝阳区东三环北路 3 号中远幸福大厦
A 座 1511 室
61

Joy Century in Shenzhen

Address: Unit D, 7th Floor, Intelligent Tower, 12 Foo Man Road, Shenzhen 广
东深圳福田区福民路知本大厦 7D
深圳嘉悦世纪贸易有限公司

Products are also sold in SPA or beauty Salons

Direct sales beauty counters in high-end department stores or shopping malls in
Beijing and Shanghai


Cream

Proactive Cream 50ml

Regenera 1 Cellular Restoring Nourishing Cream 50ml

Cyto Complex Rides Lift-Intense Factor II 50ml
2,140 RMB
Cyto Complex Eye Rides Lift-Intense Factor II 15ml
1,900 RMB


1,450 RMB
Eye Treatment


4,660 RMB
Infinite Radiance Essence 30ml
Makeup Cosmetics

None
1,145 RMB
La Colline

Official China market entry in 2004 in Beijing

First launched in Jinyuan Shopping mall in 2004 and then expanded to high-end
department store or shopping malls in Shanghai and other tier 1 or tier 2 cities

Besides opening beauty counters, La Colline also cooperated with top spa and
beauty salons

Hosted news release conference for important events, especially for launch of
new product line

Cooperated with top level fashion magazine (i.e. Rui Li, Spa China, City Sap) for
advertisement and products promotion

Sponsored the beauty Contest of Miss. Asia in South China in 2009
63

China Distributor:

Guangzhou Yuexiu Dongxing Trading Co., Ltd. 广州市盈星贸易有限公司

Address: Rm 1106, 410 Dongfeng Rd, Guangzhou 广州市越秀区东风路 410
号 1106 房

Beauty counters in high-end department stores or shopping malls

Cooperated with many beauty salons and SPA centers for distributing


Cream

Cellular Hydro Night Cream 30ml
546 RMB

Cellular Vital Cream 30ml
1,450 RMB

Cellular Absolute White Day Cream 30ml
1,125 RMB
Eye Treatment


788 RMB


Cellular Vital Eye Cream 15ml
Cellular Matrix Serum 30ml
Makeup Cosmetics

None
1,850 RMB
Bellefontaine Switzerland

China market entry in 2009 in Beijing: first launched in Beijing and then in the
same year, expanded to Shanghai and Suzhou

No online shopping for China market

Cooperated with premier and luxurious SPA brand all over China

Established Bellefontaine Health and Wellness Center in Shanghai offering
premier Swiss health care to clients

www.swissbellefontaine.ch/
 Marketing Strategies & Activities\


Highlighted the image as Swiss made and used by the Royal family

top national film stars invited. In the opening ceremony for Shanghai and Beijing
beauty counters, tens of top film stars were invited to attend; In promotional
events, many TV or film stars were also invited to share their skin care tips and
experience with the brand
65

China Distributor:

Shanghai Meijun Cosmetics Trading Co., Ltd. 上海美筠化妆品贸易有限公司

Address: Room 8E, 601 Zhangyang Rd, Pudong District, Shanghai,
上海市浦东新区张杨路 601 号 8E 室

The company also imports other Swiss brands like La Vallee.

Direct sales beauty counters in high-end department stores or shopping malls in
tier one and tier two cities, like Beijing Shin-kong Place, Shanghai Hongqiao
Friendship Department Store, Suzhou Sogo, etc.

Cooperated and also distributed with top grade SPA or beauty Salon


Cream

Repairing Nutritive Night Cream 50ml
3,180 RMB

Super Moisturizing Gel 50ml
2,480 RMB
Eye Treatment


2,380 RMB


Vitalite-care Eye Cream 15ml
Beauty – white lightening Concentrate 30ml
Makeup Cosmetics

None
2,880 RMB
swissweda


First launched in Beijing and then expanded to middle or high-end department
store or shopping malls in only 3 cities, namely Beijing, Shanghai and Qingdao

In 2010, Swissweda launched its premier product line in World Exhibition Park in
Shanghai


Website: www.swissweda.cn

Hosted news release conference for important events, especially held the
Shanghai entry ceremony in the Swiss Pavilion in the World Exhibition

Invited VIP customers for products launch event and experience new product,
sent direct mail with samples for potential clients

Distributed promotional set of products in the name of some great events, like the
World Exhibition Set

China Distributor:
67


Branch of Swissweda’s Taiwan Agent: Fangzi (Beijing)Trading Co., Ltd. 芳姿
（北京）商贸有限公司

Address: Rm 1515, 37 Nanmofang, Chaoyang District, Beijing 北京市朝阳区
南磨房路 37 号 1515 室
Direct sales beauty counters in middle to high-end department stores or
shopping malls in 3 cities, namely, Beijing Shanghai and Qingdao


Cream

Programme Vreme Cryo Lifting Intense 30ml
1,150 RMB

Diamond Forever 24 Carats Delux Cream 30ml
8,000 RMB
Eye Treatment


Hydrating Ampoules 5.5ml*5
Makeup Cosmetics

NONE
650 RMB
SWISS PERFECTION


First launched in Beijing and Shanghai with beauty counters in 2007. It has tried
to setup its beauty counter in Bund the 18th but failed.

After 2-3 years of retail business in China, they withdrew from those shopping
malls and department stores and currently no retail outlet in mainland China.


Hosted news release conference for important event, i.e. new product launch at
Bund the 18th in 2007

promotion

Invited top model or film star to be the brand representative (etc. Meng
Guangmei)

China Distributor

Shanghai HONGJIWEIYE Industrious Development Co., Ltd. 上海鸿基伟业
实业发展有限公司

Address: 11F, New Huangpu Financial Building, No. 61 East Nanjing Road,
Shanghai, 上海南京东路 61 号新黄埔金融大厦 11 楼
69


Besides Swiss Perfection, this company has also distributed other Swiss
brands such as La Danza.
Swiss Perfection used to setup beauty counters in high-end shopping malls and
department stores. However, the Swiss side decided to withdraw the investment
due to too high marketing costs and poor performance in the market

No Retail at the moment
Distribution System
 Traditional retail channels, particularly beauty counters in well-known and high end
shopping malls or department stores are still predominant in the distribution and retail
of luxury cosmetics.

The great majority of luxury cosmetic brands have been actively fighting for the
best spot at various landmark dept. stores.

Some major department stores or shopping malls in tier one and tier two cities,
which are always the first option for cosmetic companies to consider:

Beijing: SCITECH Plaza, Lane Crawford, Parkson, Shin Kong Place,
Capitaland, Intime, Lotte, etc.

Shanghai: Plaza 66, Maison Mode, CITIC, Xintiandi, Jiuguang, Hongqiao
Friendship, Isetan, Orient Shopping Centre, Raffles, etc.

Hangzhou: Hangzhou Tower, Intime, Baida, Jiebai,

Guangzhou: Guangzhou Fiendship, Laperle, etc.

Chengdu: Renhe Spring Department Store

For instance, Beijing Shin Kong Place houses approximately 40 luxury or
upper end cosmetic brands, including Chanel, Dior, Estee Lauder, HR,
Jurlique, La Colline, Origins, Shiseido, swissweda, Cosme Decorte, La
Prairie, etc.
 Online Shopping Retail Channel

With the fast-growing trend of online shopping in China, especially with the boom
of Taobao which is the most well-known online shopping portal in China, various
cosmetic brands have also launched online shopping system, especially those
71
giant cosmetic groups. They usually combine online shopping together with
direct sales at traditional outlets.

Besides their official websites, cosmetic brands also refer to public shopping
websites, like MSN shopping channels, Taobao or Sephora for online distribution,
depending on the differentiation in their general budget or target groups.

Brands or groups who have adopted this online channel and their respective
shopping website include:



Estee Lauder Group:
-
www.loccitane.cn
-
www.origins.com.cn
-
www.esteelauder.com.cn
L’Oreal Group:
-
www.lancome.com.cn
-
msn shopping channel (but currently the website is under construction.
Dior & Lancaster
-

www.sephora.cn
Kose Group
-
Kose Group, which Cosme Decorte is affiliated to, has established an
official online shop on www.taobao.com.
-
However, Cosme Decorte has been excluded from the group online
shopping website, due to its brand positioning.

Official shopping website of La Mer and HR
 Other forms of distribution: with authorized partners in SPA or beauty salons

Some relatively minority brands, like Valmont and Bellefontaine, mainly distribute
their products in cooperated or authorized SPAs or beauty salons. Valmont has
also set up beauty counters in shopping malls and department stores, but their
retail price is much higher compared to those distributed in salons. It is commonly
accepted that their beauty boutiques are mainly for the purpose of display and
advertisement instead of retailing.

Brands having adopted this salon channel:

Jurlique: more than 10 SPA companies in 7 cities have been officially
authorized for distribution

Valmont products are also sold in SPA or beauty Salons

Bellefontaine has cooperated and also distributed with top grade SPA or
beauty salons.
73
Regulatory Framework
Governing Bodies and Regulations
 Quality and safety have always been carefully attended by the governing bodies in
China, esp. after the much reported and disputed safety scandal of SK-II (a luxury
brand manufactured by P&G Japan. Its exports to China were found to contain
prohibited elements such as Chromium and Neodymium in 2006 and had to be
removed from the shelf.)
 With the change in name and responsibilities, State Food & Drug Administration is
currently the most important governing authority for cosmetics in China.
 Currently the major governmental departments in charge of cosmetics monitoring are:
Food & Drug Administration Department, Public Health Bureau, Quality Supervision
Bureau, Industrial & Commercial Bureau, and Commodity Inspection & Testing
Bureau. These departments are generally independent with their own managing
responsibilities.

Food & Drug Administration: safety consolidated supervision, coordination and
investigation of large public accidents

Health Bureau: record and examination & approval, sanitary condition, issue of
sanitation license

Quality Supervision Bureau: issue of production certificate, quality and
industry/products standards

Industrial & Commercial Bureau: market access, business license, monitoring

Commodity Inspection & Testing Bureau: import-export inspection/regulation
 Major national governing bodies

Ministry of Health of PRC

State Food and Drug Administration (SFDA)
 Major regulations

Detailed Rules for the Implementation of the Regulation on the Hygiene
Supervision over Cosmetics

Measures for the Inspection, Quarantine, Supervision and Administration of
Imported and Exported Cosmetics

Regulations Concerning the Hygiene Supervision

Hygienic Standard for Cosmetics

Product Quality Law of PRC

Administrative Provisions on Cosmetics Labeling

Regulation on Cosmetic Nomenclature

Instructions for Use of Products--General Labeling of Cosmetics

Inspection Measures for Cosmetic Sanitary Administrative Licenses

Measures for the Administration of Hygiene License of Cosmetic Manufactures

Guidance for the Safety Evaluation of New Cosmetic Raw Materials

Administrative Measures for the Filing of Domestic Non-special Purpose
Cosmetics

Technical Specifications for Cosmetic Products
75
Import Procedures & Documentation
 Key notes on imported cosmetics into China

Cosmetics are categorized into Special-Function Cosmetics, which consist of 9
sub-categories, and Non-Special Function Cosmetics.

Application for Registration or Filing:

Since July 1st 2004, all imported special-function cosmetics must be
registered at the SFDA before they are imported or sold. The non-special
cosmetics adopt a simplified method of filing system.

The registration system and the filing system are generally the same, with
the only difference that the registration system for special-function cosmetics
requires an extra Technical Review or Examination of submitted materials.

The applicant should be the Manufacturer itself of imported cosmetics. If it is
not legally registered in China, it can authorize a local company (registration
agent) to apply for the registration or filing on its behalf. In fact, this practice is
very much time and cost friendly, and thus suggested for foreign cosmetic
companies who intend to enter the Chinese market.

Testing of sample products goes ahead of the overall filing system or registration.
The company can register or file the products at SFDA ONLY AFTER the test
meets the local requirement.

One filing is for one product name only. The possibly various products under one
brand or series of one product should be registered individually.

Generally speaking, China has been taking active measures to simplify the
procedures and requirements for imported cosmetics, esp. for non-special
function cosmetics.
 Disclaimer: there might be some changes in some specific requirement on imported
cosmetics due to the latest formulation and implementation of new regulations or
adjustments to previous regulations by SFDA, Customs or other governing bodies in
China.
Overall Import Procedures
 Before arriving at the customs
 After arriving at the customs
Detailed procedures & requirements
 Filing system for non-special cosmetics


Authorities involved:

Test and inspection institutions

Approval authorities

Evaluation committee

Health and other administrative authorities
Registration process (normally 6-12 months)
77


Inspection:
-
Inspection organizations: mainly the Environment and Health
Inspection dept. at China Disease Prevention and Control Center
located in Beijing, Shanghai and Guangzhou
-
Inspection content: bio inspection, health chemical inspection, PH value,
human safety and function test, etc.
-
Documents required: Health products inspection application form,
product formula, product manual (in Chinese)
Review and Evaluation:
-

The Cosmetics Evaluation Committee of the Ministry of Health
generally hosts four conferences per year, in mid-March, June,
September and December respectively. The decisions on the safety of
new imported cosmetics and other key aspects will be made during
these meetings.
Final approval by the Ministry of Health
 Registration process for special cosmetics

In addition to the normal filing system, an extra Licensing is required for 9 types
of special cosmetics: including hair growing, hair dye, hair perming, depilating,
breast beauty, slimming, deodorant, spot-removing and UV prevention cosmetics

A Technical Review by industry experts and technicians will be organized to
examine the submitted materials of these cosmetics.

The application procedures are as follows:
 Detailed procedures & requirements


Prepare and provide the official Inspection and Quarantine Certificate by the
relevant overseas agencies/authorities

Also provide Risk Evaluation Report by an authorized third party

Generally one Inspection Certificate and one Risk Evaluation report for one
product
Apply for Health Approval of Imported Cosmetics
79


Documents required:
-
Application Form for Approval of Imported Cosmetics at the local
municipal Bureau of Health where the import takes place
-
Product formula
-
Product components, function and inspection methods (for special
purpose cosmetics)
-
Production process and basic flow chart
-
Quality standard and test method
-
Production and sales permit in the country of origin
-
Cosmetics evaluation report
-
Product packaging with labels
-
Product manual/literature of use
-
Other documents related and helpful for the inspection, plus three
samples with complete and good package
-
All the documents should in Chinese and have 1 original copy as well
as 3 photo copies

Submit the forms and other documents to the Health Administration of the
State Council who will arrange the examination and approval process

Obtain the Health Permit for Import Cosmetics, which is valid for 4 years and
should be renewed 4-6 months prior to the expiry.
Apply for Certificate of Chinese Labeling for Imported Cosmetics

Overall requirement of the draft Chinese label: the distributor, importer, agent
in China, and/or contact in China should be legally registered names and
address

Documents required:
-
Application Form to the inspection agencies designated by the General
Administration for Quality Supervision, Inspection and Quarantine 90
days before the product inspection
-
Cosmetics functions and related proven materials, test method
-
Formulation

-
Quality standard that the manufacturer adopts
-
Production and sales permit in the country of origin
-
Label samples (6 sets) or valid photos
Approval granted

Obtain Customs Declaration Form

Customs Declaring

The imported cosmetics shall be inspected randomly. If the inspection report
fulfills the requirement, the cosmetics will be declared by actual quantity,
labeled with CIQ and then be ready for sales.
81
Import Taxation
 Overall import taxation for cosmetics
MFN Consumption
VAT %
Rate %
Tariff %
General
Tariff %
HS CODE
Product Name
33030000
Perfume & Toilet Water
10
30 ad valorem
17
150
33041000
Lip Treatment
10
30 ad valorem
17
150
33042000
Eye Treatment
10
30 ad valorem
17
150
33043000
Nails cosmetics
10
30 ad valorem
17
150
33049100
Incense Powder (no matter
whether pressed)
10
30 ad valorem
17
150
33049900
Other skin care or sun
preventions products
5
30 ad valorem
17
150
33049900
91
Beauty or make-up
preparations，containing
composition of plants in imminent
dangers
6.5
30 ad valorem
17
150
33051000
Other shampoo
6.5
17
150
33051000
10
Shampoos containing
composition of plants in imminent
dangers
6.5
17
150
33052000
Perm Agent
10
17
150
33053000
Hairspray
10
17
150
33072000
Body Deodorant and
Antiperspirant
10
17
150
33059000
Others
10
17
150
 From Jan. 1st 2012, China has reduced import tariff for over 730 commodities,
including skin care cosmetics of which the import duty has decreased from previous
6.5% to 5% for most favorable nations (MFN).
83
Domestic Taxation
 Local taxations for imported cosmetics include the following two parts. One is paid
based “composite assessable price”, the other is paid based on incomes.


Taxes based on composite assessable price

Composite assessable price=（landed price/CIF price + customs duty) / (1product tax rate)

Consumption tax rate: 30%

VAT rate: 17%

Additional tax rate: 13%*(30%+17%)=6.11%
Corporate income tax: 25%
Conclusions & Recommendations
TO ENTER OR NOT TO ENTER?
 This comprehensive market study demonstrates that there are certainly big market
potentials in the luxury cosmetics market in China.

Still very strong and stable GDP growth averaged at 7-8% in the next several
years

Consequently constant rise in individual income and purchase power, esp. the
high net worth of affluent households (millionaires) who retain the largest target
groups for various luxury products, including cosmetics

Strong demand of luxury/upper end cosmetics valued at USD 3.3 billion in the
domestic market, not to mention the vast amount spending in overseas market
which is very likely to see a downturn as the domestic supply is getting better in
product variety, availability, price and service.

And vigorous annual growth of around 20% till 2015 in the domestic luxury
cosmetics market
 So the answer should be: TO ENTER
HOW TO ENTER?
Suggestions on the entry strategy
 Company establishment & registration
No legal entity in China (first three years)
 Sole reliance on local partners (distributors/agents) to nurture and
gradually expand the Chinese market
 Office-in-Office (OIO) solutions to enhance the management of local
agent (s) and better understand the Chinese market with its own staff
Legally registered in China (if the situation is favorable)
 Representative Office (not much suggested)
 WFOE with trading license (much recommended)
 WFOE with production license (depending on the product portfolio)
85





Local partnership

The best option for those brands/companies interested in the Chinese
market but not ready for a big investment at this moment

Crucial to identify and recruit the experienced, enthusiastic and manageable
partner who shares the same vision and value in developing the local market

Tough negotiation in cooperation terms such as retails channels, pricing,
marketing support, terms of payment, staff training, etc.

Better to have one single agent nationwide for better control and dealer
management efficiency
OIO solutions by CBC

The fastest and most cost efficient way of entering the Chinese market: just
be here in China without being legally registered

CBC: offering a furnished office space, recruiting and employing the staff,
providing various administrative and secretarial support, coordination and
marketing assistance and supervising

Client: having its staff on the site to coach and manage local partners and
getting itself ready for a more active market entry
Rep. Office

Good to the brand image, no need for registered capital and less requirement
for team setup

Cannot invoice clients directly, cannot employ staff by itself, still need to pay
corporate income tax based on office expenditures, therefore not very much
suggested in general
Trading WFOE (wholly foreign owned enterprises)

Most suggested because it meets almost all the business needs

More requirement on registered capital, staff setup especially for those in
charge of import and export and various running cost
WFOE with production license


Just dependent upon the business development and product features
Location

Most preferably in Shanghai or Beijing (the same for product sales)
 Import & custom clearing partners

Most convenient and thus suggested to rely on the local partner for the various
and time consuming import and custom clearing process

Other independent service providers also abundant
 Marketing strategies



Branding

It is much suggested to highlight the differentiation of the brand from others
because many of the current luxury brands are so identical.

Brand history, uniqueness of the products, special success stories and long
built brand image are the aspects to consider.

The Swiss image is rather well perceived and accepted among many
Chinese, which is something to take advantage of.

Sponsorship of various fashion events, sports, entertainment, and even
charity affairs is very popular among luxury cosmetic brands.

It is rather expensive to have a celebrity or other persons as the brand
representative. But it really helps to build the corporate and brand image.
Marketing and advertising

Advertising is definitely the key to raising the brand awareness and
stimulating the purchase interest of the targeted customers, esp. for new
comers to China.

TV advertisement is the most direct and effective way when the company
has sufficient marketing budget. If not, magazine or internet also works.
Fashion magazines like Elle, Ruili are very good choices to consider when
aiming targeting the white collar females aged 22-45.

Online advertising is getting more popular. Some grass-root fashion bloggers
or makeup artists are also influential in guiding their fans for cosmetic
consumption. Some leading figures can increase the sales revenue
dramatically.
Retail channels

The retail channels may vary dramatically depending on different market
positioning and value proposition. Whatever the channel, the cosmetic
company should display and shelf its products at the right place.
87

Traditional channels such as dept. stores should never be ignored. But they
are seldom cost-friendly to the company. Top ranking department stores
means top ranking lease.

Online channels: a good supplement but not a must:



-
In order to deliver the products to customers with least inconveniences
and most competitive price, online sales appear to be a good
alternative, especially under the circumstance that Taobao and other
e-commerce platforms are such an overwhelming trend in fashion and
beauty products purchase.
-
The manufacturer should also be cautious of the fact that
online-shopping, which is generally perceived as grass-root or the mass
shopping channels, will probably hurt the prestigious brand image. It
can be understood when Kose group excludes Cosme Decorte from
their Taobao shopping center.
SPA and beauty salons are pursued by some brands, but generally not so
hot. Besides the SPA and beauty salon sector is not so well organized and
less transparent with the products they claim to use and those they actually
use. This may have some less desirable impact on the brand. And it can be a
big challenge to find well-developed top ranking salons nationwide.
Pricing

For late comers, it is much suggested that they price their products a bit
lower than that of their key competitors who have been well established here
in China.

In some special cases of product uniqueness, ingredients or extraordinarily
good performance, higher pricing can be adopted if it can be justified.

A unified pricing system should be applied for the same product in all retail
channels across China.
Other factors to consider

Managing the relationship with Chinese consumers at the global parameter,
not only confining to China so that they can enjoy the same service and
experience worldwide, which is one of the key drivers of their consumption.

Enhancing staff training and management so that they can deliver the same
service as expected by customers, esp. in Tier 2 and Tier 3 cities.
89

China Luxury Cosmetics. - Switzerland Global Enterprise

Transcription

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