Go­ing for China’s glam mar­ket

China is the world’s num­ber 3 cos­met­ics mar­ket and for­eign-based brands are try­ing to gain a foothold. But as one lux­ury goods ad­viser said, de­spite clear op­por­tu­ni­ties, China’s beauty mar­ket is dif­fi­cult to crack, re­ports ZHANG YUWEI in New York.

China Daily (Canada) - - FRONT PAGE -

On a snowy evening in early De­cem­ber, the res­i­dence of Peter Thomas Roth, founder of Peter Thomas Roth Clin­i­cal Skin Care, on the Up­per East Side of Man­hat­tan was filled with its first group of guests for a pre-Christ­mas party. The cozy gath­er­ing was not for fam­ily mem­bers or friends but a group of Asian jour­nal­ists, with quite a few from China, where the brand con­sid­ers it to be its best bet for over­seas growth in the com­ing years.

“You should re­ally try our cu­cum­ber eye cubes – it’s amaz­ing,” said Roth, pass­ing an eye-mask-shaped box to Mad­die Liu, a Chi­nese guest at the party.

Liu, 39, is among many pro­fes­sional, trendy Chi­nese women who seek unique, new skin­care brands from aboard. “The cu­cum­ber prod­ucts of PTR has a good sell­ing point in the Chi­nese mar­ket be­cause the con­cept of us­ing veg­etable fruit for skin­care at­tracts a lot of Chi­nese women of dif­fer­ent ages,” she said as she checked out the eye cubes.

A Beijing na­tive who moved to New York three years ago, Liu said the best sell­ing point for PTR – or any new Western brands tap­ping into the Chi­nese mar­ket – is its unique­ness.

“Es­pe­cially for those women in first and sec­ond-tier Chi­nese ci­ties, if a new for­eign beauty brand wants to stand out from the well-es­tab­lished pre­mium brands, it must of­fer some­thing unique,” said Liu. Unique­ness sells

When Roth talks about his prod­ucts, he brings in his own ex­pe­ri­ence, which is how his pas­sion for es­tab­lish­ing a skin­care brand started. Born to a fam­ily that had owned two spa re­sorts in Hun­gary, Roth, the first gen­er­a­tion child of Hun­gar­ian par­ents who moved to the United States, launched his own brand un­der his name in 1993 to share his ex­pe­ri­ence of treat­ing his own skin prob­lems, such as acne.

“I think I have sim­i­lar skin type to Asian skin, so if I am happy with the prod­ucts I make, then Chi­nese peo­ple with a sim­i­lar skin type will like them, too,” said Roth.

PTR’s prod­ucts now in­clude cleans­ing, mois­tur­izer and mask, a full range of skin­care cat­e­gories. In 2007, the brand en­tered Hong Kong be­fore its launch in other Chi­nese ci­ties in 2010. Within four years, it was be­ing sold in more than 300 Sephora stores – a French brand and chain of cos­met­ics stores – in China, where PTR is ranked the No 1 ex­clu­sive brand.

PTR is sold in more than 25 Chi­nese ci­ties, in­clud­ing first tier ci­ties like Beijing and Shang­hai. After a suc­cess­ful launch of its $45 Rose Stem Cell Bio-Re­pair Gel Mask in China last year, the company will bring its make-up prod­uct – Lashesto-Die for Plat­inum – into the Chi­nese mar­ket in March.

Roth said the beauty con­sumer trend in China sur­pris­ingly gives them a bet­ter idea of what kind of prod­ucts they should con­sider launch­ing within and beyond the US.

“The Rose Mask was one of those we cre­ated for China but since it was so popular we launched it world­wide,” said Roth.

Echo­ing Roth’s com­ments, his wife Noreen Dono­van Roth, who is man­ag­ing di­rec­tor of PTR, said Chi­nese beauty prod­ucts con­sumers are also lead­ing the trend glob­ally.

“What we are see­ing is that our global cus­tomers in the US and else­where look to­ward what’s go­ing on in China,” she said. “Our prod­ucts that be­come real su­per­stars in China – then all of sud­den it’s con­ta­gious – and they be­come huge all over the world,” she added.

Noreen, who vis­its China for business about three times a year, said Chi­nese cus­tomers are get­ting more so­phis­ti­cated when it comes to choos­ing skin­care prod­ucts.

“They do their re­search well; Forty per­cent of the daily vis­i­tors to our web­site are Chi­nese from China,” she said.

About 60 per­cent of Chi­nese con­sumers had bought for­eign brand cos­metic prod­ucts in 2013, ac­cord­ing to Statista.com, an on­line statis­tics por­tal.

Os­car Yuan, a New York-based part­ner of global mar­ket­ing con­sul­tancy Mill­ward Brown Ver­meer, said the Chi­nese con­sumers’ savvi­ness makes this crowded mar­ket more com­pet­i­tive.

“They will be look­ing for unique and dif­fer­ent brands that de­liver on spe­cific needs, both func­tional and emo­tional,” said Yuan. “Beauty brands will have to start de­vel­op­ing deeper and deeper un­der­stand­ings of the Chi­nese con­sumer, and per­haps start cre­at­ing unique of­fer­ings for the mar­ket, rather than sim­ply in­tro­duc­ing brands they are sell­ing else­where.”

Walde­mar Jap, a part­ner at the Bos­ton Con­sult­ing Group in Hong Kong, said as Chi­nese con­sumers are be­com­ing more knowl­edge­able, they trade up to the high-end brands backed by sci­en­tific claims or trade­down to more mass brands where they go for more ba­sic func­tion­al­i­ties.

“Western brands have the ad­van­tage of R&D in­vest­ment to support their claims and strong ad­ver­tis­ing/ mar­ket­ing mus­cle. Nonethe­less, Chi­nese con­sumers have be­come more so­phis­ti­cated and of­ten con­duct their own re­search to as­sess how dif­fer­ent brands/prod­ucts fit with their skin,” said Jap. Land of op­por­tu­nity

The cos­met­ics sec­tor in China – the world’s No3 cos­met­ics mar­ket – has been grow­ing at a fast pace with the coun­try’s eco­nomic growth in re­cent years, cre­at­ing op­por­tu­ni­ties for many for­eign brands. The to­tal re­tail sales of skin­care prod­ucts and make-up prod­ucts in China reached 131.4 bil­lion yuan ($21 bil­lion) and 18.8 bil­lion yuan ($3.1 bil­lion), re­spec­tively in 2013, achiev­ing year-on-year growth of 9.1 per­cent and 7.3 per­cent, re­spec­tively, ac­cord­ing to Bri­tish mar­ket in­tel­li­gence firm Euromon­i­tor.

Yuan said de­spite the com­pet­i­tive­ness the mar­ket is big enough for dif­fer­ent lev­els of for­eign brands to es­tab­lish and make their own China sto­ries.

“In China, fo­cus­ing on their strengths will al­low Western brands to do well, rather than com­pet­ing in the mass mar­ket, which is much more price-driven, and in which the halo of be­ing a Western brand is less likely to im­pact sales,” said Yuan. “Par­tic­u­larly as Chi­nese brands be­come bet­ter mar­keters, Western brands will have to dou­ble down on their unique dif­fer­ences.”

De­spite Western brands, such as Es­tee Lauder and L’Oréal, which en­tered in the Chi­nese mar­ket in the early days and have dom­i­nated the rank­ing chart, newer brands want to open their own chan­nels in this grow­ing mar­ket by sell­ing their unique ex­pe­ri­ences to cus­tomers in the world’s No 2 econ­omy.

Erno Las­zlo, a skin­care brand cre­ated by late Hun­gar­ian-Amer­i­can der­ma­tol­o­gist Erno Las­zlo, is one of them.

As the brand turns 88 this year, it has big ex­pan­sion plans for China, where it launched its first three coun­ters in Shang­hai and Xi’an in 2014. The brand is plan­ning for 10 stores by the end of this year and 100 coun­ters in the next five years, said CEO Rochelle Weitzner.

The brand had to wait almost nine months to get reg­u­la­tory ap­proval for its launch in China, but Weitzner said “it’s all worth it”.

Erno Las­zlo – with its best seller $45 Sea Mud Deep Cleans­ing Bar – mar­kets it­self as a “celebrity’s skin­care” brand with cus­tomers such as late Hol­ly­wood stars Mar­i­lyn Mon­roe and Au­drey Hep­burn as well as the cur­rent A-listers like Brooke Shields and Ni­cole Kid­man. The company’s mem­bers-only The In­sti­tute in New York’s Soho is a place where its celebrity cus­tomers visit for spa ser­vices.

In China, the brand has only a small group of cus­tomers, but Weitzner be­lieves it is more im­por­tant to have a solid rep­u­ta­tion than a fast re­turn of profit.

“We are not re­ally tar­get­ing a par­tic­u­lar con­sumer group; what we are tar­get­ing is those in­di­vid­u­als who are very pas­sion­ate about skin­care and want to see re­sults,” she said.

Weitzner said the way the company mar­kets the brand is by “word of mouth”. With a sim­i­lar strat­egy of celebrity en­dorse­ments in China, the company tries to work with lo­cal Chi­nese pub­lic re­la­tions firms to get in­flu­en­tial per­son­al­i­ties to use the prod­ucts and spread the word.

The sell­ing point of Erno Las­zlo, ac­cord­ing to its CEO, is to of­fer Chi­nese cus­tomers a unique “ed­u­ca­tion” of its skin­care rit­ual, which in­cludes its spe­cial in­struc­tions for us­ing the sea mud soap bar and its skin­care con­cept of a clock­ing sys­tem that shows a per­son’s dif­fer­ent skin con­di­tions at dif­fer­ent hours of the day.

Erno Las­zlo sells its con­cept of be­ing com­mit­ted to skin car­ing as Weitzner puts it: “It doesn’t take a mir­a­cle to have per­fect skin, it takes a com­mit­ment.”

For the Chi­nese mar­ket, she said, their prod­ucts also re­spond to con­sumers’ in­creas­ing con­cern about pol­lu­tion.

“Our prod­ucts are for those who are pas­sion­ate about hav­ing the best pos­si­ble skin they can and un­der­stand that com­mit­ment is in­volved,” said Weitzner.

Avery Booker, a part­ner at China Lux­ury Ad­vi­sors, a Los An­ge­les, New York, and Paris-based firm that helps lux­ury brands and re­tail­ers at­tract af­flu­ent Chi­nese con­sumers in the US and Europe, said de­spite clear op­por­tu­ni­ties, China’s beauty mar­ket is “trust-based” and dif­fi­cult to crack.

“Brands new to the mar­ket will have to work hard to court the right con­sumer de­mo­graphic, work with the right mar­ket in­flu­encers, and fig­ure out how to make a com­pelling value propo­si­tion,” said Booker.

The Chi­nese beauty mar­ket in­creased 13 per­cent in 2013 to $26.4 bil­lion, down from 17 per­cent growth from the pre­vi­ous year when global multi­na­tion­als Proc­ter & Gam­ble, L’Oreal and Shi­seido dom­i­nated the mar­ket, ac­cord­ing to dig­i­tal re­search firm L2.

Booker said re­gard­less of the over­all growth in China’s cos­met­ics mar­ket, smaller brands have a great op­por­tu­nity this year to en­gage out­bound Chi­nese tourists, stu­dents, and par­tial em­i­grants, who make a sig­nif­i­cant amount of beauty pur­chases in New York, Los An­ge­les, Paris, and else­where. Pos­i­tive out­look

Mill­ward Brown’s Yuan said that de­spite the slow growth of the cos­metic mar­ket in China, the out­look for the beauty mar­ket is pos­i­tive be­cause of con­sumers’ grow­ing en­thu­si­asm to ex­plore new and dif­fer­ent prod­ucts.

“The con­sumer ex­po­sure and in­ter­est in brands con­tin­ues, par­tic­u­larly in sec­tors like per­sonal care and cos­met­ics, as the pop­u­la­tion con­tin­ues to ur­ban­ize,” said Yuan. “The growth rate might slow from pre­vi­ous years, but will still be ahead of stag­nant or de­clin­ing rates for well de­vel­oped mar­kets like Western Europe or North Amer­ica.”

Liu, the Chi­nese me­dia spe­cial­ist, said Chi­nese con­sumers are keen on get­ting re­li­able prod­ucts and brands – be it do­mes­tic or Western.

“I find that cred­i­bil­ity, qual­ity and rep­u­ta­tion of a brand is im­por­tant among Chi­nese cus­tomers who now have many choices be­cause of the size of the mar­ket,” she said. Yuan, the brand­ing ex­pert, agrees. “China will con­tinue to be an op­por­tu­nity area for Western brands, as they still hold strong pres­tige and qual­ity at­tributes for the Chi­nese con­sumer, es­pe­cially in the face of prod­uct safety con­cerns for do­mes­tic Chi­nese brands,” Yuan said.

Do­mes­tic brand and Asian brands – Ja­panese and Korean – are be­com­ing more com­pet­i­tive in China’s beauty mar­ket, mak­ing Western brands dif­fi­cult to stand out.

How­ever, the in­creas­ing e-com­merce trend in China has opened a new chan­nel for for­eign brands to reach out to more cus­tomers in China. An L2 re­port finds that store­based re­tail of beauty prod­ucts has de­clined in China while on­line re­tail sales have soared since 2007.

The In­ter­net is one of the rea­sons why Chi­nese con­sumers are savvier about the nu­mer­ous brands and spe­cific in­gre­di­ents that are in the mar­ket, said Robb Akridge, global gen­eral man­ager of Clar­isonic, a L’Oreal-owned company that pro­duces elec­tronic cleans­ing brushes.

“E-com­merce al­lows brands to de­liver prod­ucts to the con­sumer rapidly with­out hav­ing to de­pend on brick and mor­tar re­tail stores for their dis­tri­bu­tion. It also gives com­pa­nies like Clar­isonic the op­por­tu­nity to up­date con­sumers in­stantly with in­for­ma­tion about our prod­ucts,” said Akridge.

Chi­nese con­sumers have em­braced the Clar­isonic’s tech­nol­ogy so well that it has given the company con­sis­tent dou­ble digit growth since its launch in 2013, he said.

In­ter­net users hit 618 mil­lion in China, larger the the whole US pop­u­la­tion.

Most of for­eign brands now are par­tic­i­pat­ing in Chi­nese so­cial me­dia chan­nels in­clud­ing Sina Weibo – a Twit­ter-like a mi­cro-blog­ging site – and WeChat – a mo­bile com­mu­ni­ca­tion and so­cial net­work­ing app that has 438 mil­lion monthly ac­tive users, catch­ing up to the 500 mil­lion-user­based What­sApp. E-com­merce

For­eign brands are us­ing Chi­nese e-com­merce plat­forms, in­clud­ing Alibaba, Jumei and JD China’s e-com­merce gi­ant Alibaba’s on­line re­tail Tmall also helps open re­tail chan­nels for for­eign brands, es­pe­cially those new brands in­clud­ing Peter Thomas Roth and Erno Las­zlo.

JuE Wong, CEO of StriVectin, a brand known to be the pi­o­neer in clin­i­cal anti-ag­ing skin­care, said the power of th­ese so­cial me­dia plat­forms will help in­crease sales fur­ther as “buy” com­po­nents are added and evolved.

“Shopa­bil­ity will make it even more con­ve­nient for con­sumers via guided reviews and rec­om­men­da­tions to support buy­ing de­ci­sions, and ease and se­cu­rity of pur­chase,” said Wong. “To­gether with the power of data col­lec­tion and an­a­lyt­ics, which al­low brands to tai­lor and cus­tom­ize com­mu­ni­ca­tions with the con­sumer, the ex­pe­ri­ence is es­sen­tially like hav­ing a per­sonal shop­per in your pocket for ev­ery as­pect of their con­sump­tion needs.”

iRe­ser­ach, a mar­ket re­search firm fo­cus­ing on China’s in­ter­net in­dus­try, said the rea­son for the sta­ble growth in China’s cos­met­ics mar­ket – which is to hit 113.9 bil­lion yuan in 2017 with an an­nual growth of over 20 per­cent – is its well-de­vel­oped on­line shop­ping mar­ket.

Frank Lavin, a for­mer US un­der­sec­re­tary of Com­merce for In­ter­na­tional Trade and founder of Ex­port Now, which has a part­ner­ship with Tmall, said e-com­merce is a pow­er­ful tool for for­eign brands be­cause it al­lows them to test prod­ucts quickly and in­ex­pen­sively.

“Sim­i­larly, dig­i­tal com­mu­ni­ca­tions al­lows brands to test themes and mes­sages quickly and in­ex­pen­sively. E-com­merce al­lows the newer and smaller brands to com­pete on the same foot­ing as the larger and well-es­tab­lished brands,” said Lavin.

But ev­ery­thing has two sides. On­line re­tail brings cer­tain con­cerns too.

“The main chal­lenge and cau­tion for the con­sumer us­ing e-com­merce is mak­ing sure the prod­ucts they buy come from an au­tho­rized dealer to en­sure the prod­uct is au­then­tic and comes di­rectly from the brand,” said Clairesonic’s Akridge. Con­tact the writer at yuweizhang@ chi­nadai­lyusa.com Lu Hui­quan in New York con­trib­uted to this story.

SEAN DOYLE / CHINA DAILY

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