Contents

• Market Condition

• Company Dynamics

• E-commerce & Social Commerce News

• Financial Results

• Regulatory Compliance

Market Condition

1. According to the National Bureau of Statistics, in September 2022, the retail sales of cosmetics reached 31.7 billion yuan, declining by 3.1% on a year-on-year (YoY) basis but increasing by 10.1% on a month-on-month (MoM) basis. The total retail sales of cosmetics from January to September 2022 dropped by 2.7% YoY to 277.4 billion yuan.

 2. Based on the national import and export data released by the China General Administration of Customs (GACC), in September, China's total import value of cosmetics and toiletries was 13.82 billion yuan, a YoY decline of 14.32% and a MoM growth of 7.8%. The total import value of cosmetics and toiletries from January to September was 111.06 billion yuan, down 6% YoY.

 3. Chinese Academy of International Trade and Economic Cooperation released the White Paper on the High-Quality Development of China's Collagen Industry (hereafter referred to as White Paper), which analyzed the problems, risks, challenges and prospects for China's collagen industry. The White Paper calls on the administration, enterprises, and consumers to pay attention to the high-quality development of China's collagen industry to foster leading brands .

4. According to Future Beauty, in Q3 2022, the investment in China's beauty industry totaled 2.85 billion yuan, up 131.7% compared to Q2 2022. The average investment in a single target reached 187 million yuan. With the increase in both average and total investment, an upturn in China's cosmetic sector is foreseeable.

 5.  To promote the penetration of Australian beauty products in the Chinese market, the Australian Trade and Investment Commission assembled 32 Australian beauty brands, launching Beauty Cloud Exhibition, a beauty product display and business coordination platform based on WeChat Mini Program. This platform directly connects Australian brands to Chinese traders and facilitates bilateral cooperation.

Company Dynamics

1. China's leading luxury beauty brand group Ushopal acquired the British luxury clean beauty brand Argentum Apothecary. Ushopal's buyout of Argentum follows its minority stake investment in Argentum in November 2021. Ushopal built Argentum among the top-three Gen Z luxury beauty brands in China over the past 12 months, by leveraging social media channels such as Douyin.

2. L'Oréal China held the foundation stone laying ceremony for its first self-built intelligent fulfilment center worldwide—L'Oréal Suzhou Intelligent Fulfilment Center. This center will introduce world-leading automated warehousing and logistics equipment and technology and is expected to be in production in Q4 2023. According to L'Oréal, this center will serve as an incubator for the group's Chinese and global markets to triple the annual D2C product output by 2025.

 3. L'Oréal planned to open the first offline flagship store of TAKAMI in China in 2023, following its Tmall flagship store in July 2022. TAKAMI is a Japanese high-end skincare brand acquired by L'Oréal in 2021. It is famous for its featured product—Skin Peel Pre-serum (also called Little Blue Bottle by Asian customers)

4. H&H Group publicly released Swisse PLUS, a high-end oral beauty brand focusing on new products—NAD+ Restore (for women), NAD+ Body Activator (for men) and Liver Detox. Taking advantage of technological innovation on NAD+, Swisse PLUS provides optimized beauty and healthcare solutions for high-end customers in China.

5. Tamburins, a beauty brand incubated by Gentle Monster, announced the launch of its first perfume series, including ten fragrances. The series is currently on sale in Tamburins's Tmall Global overseas flagship store, priced between 220 and 1,230 yuan for different volumes. Previously, Tamburins launched a multi-functional fragrance series on its Wechat Mini program.

6. Givaudan, a global leader in fragrance & beauty creation, launched its unique AI-driven human-machine co-creation service—Creatogether, in collaboration with the Tmall Innovation Centre (TMIC). This service allows brands to get deeply involved in the fragrance creation process and enable them to realize olfactory vision with unsurpassed speed in China's perfume market.

7. On World Mental Health Day (October 10th), Proya launched the "Echo Project"—a public welfare action on young people’s mental health, to encourage consumers to express their feelings bravely and find an outlet for emotional stress. Through podcasts, books, movies, music, psychological lectures and counselling, Proya provides consumers with emotional release methods from multiple perspectives. Looking back on Proya's marketing actions in recent years, it has got rid of commercialized thinking and subtly shaped the brand image through public welfare activities.

8. Ocean Engine, the marketing service provider under ByteDance, launched the "Great Chinese Ingredient 2" IP project in collaboration with four famous Chinese beauty brands, PMPM, Lifetime Research, Spring Letter, and OSM. This IP project emphasized brands' focus on research, technology and innovation to enhance consumers' awareness of these Chinese domestic beauty brands.

9. IMCD, a leading distributor of specialty chemicals and ingredients, announced to acquire 100% of the shares of Shanghai Sanrise Industries & Development Co., Ltd. (hereafter referred to as Sanrise). Sanrise is one of China's leading distributors in the personal care market, representing leading global suppliers and providing its customers with an extensive portfolio as well as technical and formulation support. According to Andreas Igerl, President of IMCD Asia, the acquisition will put IMCD in a strong position in the Chinese market, backed by a comprehensive portfolio and elevated technical expertise.

10. Beauty tech company Perfect Corp (Taiwan, China) made its debut on the New York Stock Exchange under the ticker symbol "PERF" via the SPAC process with Provident Acquisition Corp. Perfect Corp provides AR and AI SaaS solutions to beauty and fashion industries. This merger transaction provided Perfect Corp with approximately $119 million in gross proceeds, among which $50 million was from the private investment in public equity (PIPE) transaction (investors including Chanel, CyberLink, Shiseido and Snap, as well as reputable financial investors).

11. L Catterton, the LVMH-backed private equity firm, aimed to raise 2 billion yuan ($275.44 million) for its first yuan-denominated fund. The first close of this new fund has been completed beyond expectations. According to L Catterton, in the first phase, the new fund will focus on investment in early-stage firms covering cosmetics, food and beverage, healthcare, consumer technology, new retail, etc. L Catterton previously invested in Chinese soft drink brands Genki Forest and Heytea, premium pet food brand Pure Nature, beauty brand Marubi, and fashion brands Secoo and GXG.

E-commerce & Social Commerce News

1. According to Tmall Beauty, in the first phase of Tmall Double-eleven Shopping Carnival (October 31th 20:00 to November 1st 23:59), 76 beauty brands achieved more than 100 million yuan sales. In particular, L'Oréal, Estée Lauder, Lancôme and Proya (Chinese beauty brand), Olay and Winona (Chinese beauty brand) each had more than one billion yuan turnovers.

Top 5 Beauty Brands in the first phase: L'Oréal, Estée Lauder, Lancôme, Proya, Olay

Top 5 Brands in Skincare Segment in the first phase: L'Oréal, Estée Lauder, Lancôme, Proya, Olay

Top 5 Brands in Makeup Segment in the first phase: YSL, 3CE, Mac, Estée Lauder, Florasis (Chinese beauty brand)

Top 5 Brands in Fragrance Segment in the first phase: Jo Malone, The Beast (Chinese perfume brand), Tom Ford, BVLGARI, Diptyque

2. Bilibili, a popular video platform targeting the young generation in China, launched the shopping function in the live streaming section. Products in the live stream room are displayed with links to third-party E-commerce platforms such as Taobao and JD. This business mode is the same as that of Kaishou and Douyin E-commerce in their early stage, to gradually open up its E-commerce business while making up for the deficiency in supply chain.

Financial Results

International Beauty Enterprise

Chinese Beauty Enterprises

 Specializing in the efficacy skincare business, Bloomage Biotech, Proya and Botanee Group achieved growth in revenue and net profit. Although Shanghai Jahwa ranked first in revenue, it declined both in revenue and net profit due to two reasons: 1) Low-margin personal care and home cleaning products accounted for half of the revenue from January to September 2022; 2) Shanghai Jahwa highly relies on offline channels. The sales in offline channels were severely hit by the COVID-19 impact, especially Shanghai’s lockdown in Q2 2022.

Regulatory Compliance

1. On October 17, 2022, Alibaba International, China's leading cross-border trade platform, added a new product rule entitled Compliance Rules for Cosmetic Products on Alibaba.com because of the strict regulatory requirements and industry standards for cosmetics in China and abroad. More details on ChemLinked.

2. On October 25, 2022, China National Medical Products Administration (NMPA) issued the finalized Inspection Points and Judgment Principles of Cosmetic Good Manufacturing Practices, which will come into force on December 1, 2022. The new regulation will replace the current Inspection Points for Cosmetics Production License (commonly known as "105 Articles") and become a new standard for unannounced inspections on cosmetic production. More details on ChemLinked.

3. On October 31, 2022, the State Administration for Market Regulation (SAMR) and six other departments jointly issued the Guiding Opinions on Further Regulating Celebrity Endorsements, which entered into force upon its issuance. Consisting of six parts, the Guiding Opinions makes comprehensive and systematic regulations on the behaviour of each subject engaged in star endorsements, including celebrities, enterprises, and media.