As China lifted COVID-19 control measures at the end of 2022, industry insiders anticipated a substantial rebound in the Chinese cosmetic market in 2023 driven by revenge spending. However, the outcomes did not align with expectations. Cosmetic retail sales in 2023 amounted to 414.2 billion yuan, a moderate increase of 5.1% YoY. Although reaching a historic high, its growth remained below pre-pandemic levels. Indeed, 2023 was a phase of profound adjustment for China's beauty industry. Enterprises without competitiveness experienced a mass downturn, but those who timely adjusted their strategies secured tickets to enter the new business cycle. Stepping into the new year, ChemLinked shares the top seven trends to watch in 2024, aiming to help the audience identify possible business opportunities in the evolving Chinese cosmetic market.
Differentiation of Consumption
In the post-pandemic era, the growth of income segments has displayed a pattern of "slow in the middle and rapid at both ends.” This divergence has resulted in differentiation in the consumer market. Specifically, high-income consumers have exhibited strong resilience, maintaining stable demand for luxury products. Middle to low-income consumers now prioritize practicality and value for money with an increased demand for budget-friendly products. The mid-range group has become more cautious in their purchasing attitude, with some even downgrading to the low-income group.
In this context, products emphasizing high-end features, differentiation, or meeting essential needs at affordable prices are poised for development opportunities. Conversely, products labeled as "entry luxury" or "affordable luxury" may face the risk of shrinking market demand. Businesses must gain a profound understanding of the new consumer structure, identify trending segments, and strategically position themselves to precisely target consumers, thereby capitalizing on growth opportunities.
Resilient Momentum of Chinese Domestic Cosmetic Brands
Despite the cosmetic market falling short of the overall expectations, the competitive landscape has showcased notable strength among Chinese domestic brands. According to Future Beauty, across various beauty categories on Tmall, brands that achieved sustained growth of over 10% in 2023 were predominantly domestic brands. Examples include Proya and Confime in skincare, Timage and Carslan in makeup, KIMTRUE in hair care, and Amiro, Usmile, and Jmoon in the beauty device category.
The 2023 Double Eleven Shopping Festival marked a highlight of Chinese domestic cosmetic brands. According to CITIC Securities, the market share of domestic skincare products grew from 20% (2022) to 38% (2023), and domestic makeup products increased from 25% (2022) to 33% (2023). Proya secured the top spot on the Tmall best-selling beauty ranking for the first time in the recent five years. Brands like Winona, Chando, and Confime also delivered impressive performances.
Although a gap still exists between Chinese domestic and international brands, the performance of Chinese brands in 2023 serves as a compelling testament to their surging competitiveness. Looking ahead, the competition between domestic and international brands is anticipated to escalate.
In-depth Localization of International Cosmetic Brands
In response to the evolving dynamics in the Chinese cosmetic market, international beauty giants are embracing a deep localization strategy in research, production, and distribution. Taking Kao as an example, in 2023, its skincare brand Freeplus underwent a significant transformation, introducing a streamlined skincare philosophy that seamlessly aligns with the emerging clean beauty trend in China. According to Kao, Freeplus and Curel will be produced in China to better adapt to changing Chinese consumer demands and minimize supply chain costs.
In terms of product R&D, international beauty giants have predominantly established R&D centers in China, and continuously deepening their focus on the local market. For instance, In the first half of 2023, Estée Lauder unveiled its Global Advanced Technology Center (GATC) at its China Innovation Lab in Shanghai. It is reported that GATC will focus its research efforts on anti-aging and skin science, and collaborate with Chinese academic and scientific institutions to research new skincare ingredients and formulations, in commitment to providing targeted skincare solutions for Chinese and other Asian consumers.
Furthermore, international beauty giants have shown growing interest in investing in Chinese brands. In 2022, L'Oréal and Shiseido invested in DOCUMENTS and Trautec, respectively. In 2023, In 2023, an increasingly number of Chinese brands obtained investment from more and more international beauty giants. For example, Estée Lauder made minority investments in CODEMINT and Melt Season. Through investments in these local brands with differentiated concepts, deeper consumer insights, and innovative operational strategies, international beauty giants aim to better understand local market segments and consumer groups, as well as address specific gaps in their local ecosystems and/or product matrix.
In conclusion, international beauty giants are accelerating their localization efforts to better align with the ever-evolving Chinese cosmetic market.
Synergy between Emotional and Value
Emotional value is the worth that consumers willingly invest to experience specific emotions and sensations. It can bring premium to products and foster repeat purchases. Hence, cosmetic brands are increasingly incorporating emotional value into their product concepts. On the one hand, some brands have introduced product lines like "emotional skincare," "emotional fragrance," and "emotional hair care," with a focus on emotional healing. On the other hand, some brands emphasize the concepts of convenience, relaxation, and special occasions in their product promotions, catering to consumers' desire for self-gratification.
It is also worth mentioning that more brands are strategically harnessing emotional value to enhance their brand image and strengthen connections with the younger generation. For example, Proya delved into the emotional needs of young people and consistently launched the "Echo Project" for three years to help the public alleviate emotional stress. Proya also launched a series of advertisements addressing hot societal topics such as female public welfare, gender equality, family, anti-bullying, perseverance, etc., which achieved strong emotional resonance with audiences. Similarly, OSM's brand philosophy—"Take It Slow" has gained widespread recognition because it profoundly understands the fatigue and confusion of young people in the fast-paced era. This brand philosophy, to some extent, soothes young people’s anxiety.
Emotional value is becoming an increasingly vital tool for capturing consumer attention. Brands, in addition to emphasizing the functional value of products, should also leverage emotional value to elevate brand awareness and foster loyalty.
Dynamics of Beauty Sales Channels
Due to the slow recovery of beauty consumption and the gradual peaking of online traffic, changes in the beauty e-commerce landscape have become more noticeable. During the 2023 Double Eleven Shopping Festival, the overall GMV of beauty products on comprehensive e-commerce platforms (including Taobao Live) amounted to 78.6 billion yuan, a 4.38% decline compared to the previous year. Meanwhile, the total GMV of beauty products on Douyin reached 21.52 billion yuan, with a YoY growth of 38.87%. Moreover, according to Meritco Services, in 2023, cosmetic sales on Tmall totaled 190.5 billion yuan, with a decline of 16.65% YoY. On Douyin, cosmetic sales grew by 45.65% YoY to 134 billion yuan, making Douyin the second-largest online channel for cosmetics.
It is noteworthy that while many platforms are still competing on the "lowest price," Xiaohongshu has strategically moved away from the "price war" to target the high-consumption demographic. With its user base primarily consisting of women, residents in top-tier cities, and high-income individuals, Xiaohongshu's live-streaming e-commerce prioritizes aligning products with high-quality lifestyles, rather than just competing on price. Despite the considerable gap in transaction volume and market share compared to platforms like Tmall and Douyin, Xiaohongshu has become a significant incremental channel for niche brands as well as those hitting bottlenecks on traditional platforms.
On the other hand, the value of offline channels is undergoing a reevaluation. According to the National Bureau of Statistics, in 2023, the retail sales of offline department stores and brand specialty stores increased by 8.8% and 4.5%, respectively, which showed that beauty enterprises have been strategically planning their offline channels. In H1 2023, Botanee’s opened 35 new direct-sale stores, and earned offline revenue of 615 million yuan, with a remarkable growth of 48.64% YoY. Confime, a skincare brand under Giant Biogene, launched its first offline store in Xi’an, marking a new chapter in its offline strategy. YUESAI, a high-end Chinese brand acquired by L'Oréal, reorganized its offline channels in 2023 and accelerated its presence in shopping malls. Kans also announced to resume its customer satisfaction (CS) channel in 2024. In conclusion, offline channels serve as an effective touchpoint for brands to connect with potential customers. Through on-site experiences, brands can enhance consumer awareness and loyalty. In the future, offline channels are poised to become a new focal point of competition.
Strategic Focus on Personalized Cosmetic Service to Enhance Consumer Experience
In 2022, the National Medical Products Administration (NMPA) issued a notice clarifying that from November 2022, Beijing, Shanghai, Zhejiang, Shandong, and Guangdong MPA would implement a one-year pilot for personalized cosmetic services. Amid the encouraging regulatory environment, a series of personalized cosmetic services were launched in 2023. SkinCeuticals obtained the first "on-site personalized service" license in April at its store in Pudong New Area, Shanghai. In August, Le Labo officially introduced on-site personalized handcrafted perfume services at its new store in Shanghai. In December, Shiseido unveiled its IPSA ULX Customization Center in Shanghai. Following Shanghai's pioneering initiatives, similar pilot projects were also launched in Beijing and Zhejiang.
In addition to these officially launched personalized cosmetic services, beauty technology innovations have continued to emerge, laying a solid groundwork for the future implementation of more personalized cosmetic services. At the 6th China International Import Expo, L'Oréal presented four new-to-Asia beauty tech offerings: the AI-powered scalp and hair smart camera, Kérastase K-SCAN; the handheld skin health diagnostic device, Giorgio Armani Meta ProfilerTM; the smart eyebrow makeup applicator, Shu Uemura 3D shu: brow; and the inclusive smart makeup device, HAPTA. Estée Lauder showcased the VISIA CR 5.0, a new-generation scientific photography system that can capture comprehensive images from skin color to surface contour in a single shot. Kao introduced its latest research achievement—the Kao Life+ online smart application, whose AR color testing function can help users find personalized makeup and hair colors. The integration of technology and beauty holds the promise of a more connected, convenient, and intelligent experience for beauty consumers.
Stricter Compliance Requirements
Starting from January 1, 2024, when applying for the registration of special cosmetics and notification of general cosmetics, the cosmetic registrant and notifier must provide ingredient safety information documents for all ingredients used in the product formula. More importantly, according to the Technical Guidelines for Cosmetic Safety Assessment, starting from May 1, 2024, cosmetic registrants and notifiers will be obligated to submit the full version of the product safety assessment report during registration and notification, canceling the previous option of simplified version. The full assessment requires registrants and notifiers to provide toxicological information for each ingredient. Notably, acceptable evidence types do not include "historical concentration used by this enterprise" or "maximum historical usage amount published by the cosmetic regulatory departments." This implies that brands must source authoritative assessment reports and literature to validate the compliance and safety of their ingredients. The challenge arises as many cosmetic ingredients, particularly plant extracts, fermented ingredients, and biologically synthesized ingredients, lack sufficient toxicology data. Therefore, in the future, the comprehensiveness of toxicology data may become a critical factor for brands in selecting ingredients.
Regulatory scrutiny is also enhancing on the product side, with targeted regulatory guidelines introduced for children's cosmetics, beauty devices, and toothpaste. The Technical Guidelines for Children Cosmetics have introduced enhanced requirements on safety assessments and testing of children's cosmetics, imported children's cosmetics specifically designed for the Chinese market, children's sunscreens, ingredients used in children's cosmetics, as well as labeling and claims associated with such products. Concerning beauty devices with radiofrequency (RF) technology, a significant regulatory change is set to take effect from April 1, 2024. Previously governed as household appliances, these RF-type beauty devices will be classified as Class III medical devices, necessitating the registration certificate for Class III medical devices before market access. Regulatory standards for toothpaste have also been refined with the implementation of the Administrative Measures on Toothpaste on December 1, 2023. The Measures stipulates that Chinese domestic toothpaste manufacturers must submit notifications to the provincial MPA before market entry, while imported toothpaste must be notified to the NMPA before importation. Notably, the Measures mandates that the efficacy claims of toothpaste should have a sufficient scientific basis.
Since the enforcement of the Cosmetic Supervision and Administration Regulation in 2021, 2023 and 2024 is a critical stage for implementing complementary regulations. Looking at the regulations that have been implemented and set to take effect soon, "stricter supervision" is a key theme. As these new regulations continue to progress, they will catalyze the upgrading of China's beauty industry.
