China's Cosmetics Market

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China’s cosmetics market, 2011
February 2012 Li & Fung Research Centre

In this issue:

I. II.

Industry overview Competitive landscape

p. 3 p.18 p.30 p.45

III. Latest developments IV. Snapshots of sub-sector performance

2

I.

Industry Overview
(1) Market Size (2) Retail price of cosmetics (3) Distribution channels

3

Growth of China’s cosmetics retail value accelerated in 2011 According to the National Bureau of Statistics of China (NBS), retail sales of cosmetics of enterprises above designated size* reached 110.3 billion yuan in 2011, up nominally by 18.7% year-on-year (yoy). China’s cosmetics market has demonstrated faster growth in 2011 (18.7% yoy) than that in 2010 (16.6% yoy). Exhibit 1. Retail value of cosmetics by wholesale and retail enterprises above designated size*: 2007-2011

yoy growth (%) Cosmetics

FY10 16.6

1Q11 17.8

1H11 20.0

FY11 18.7

^

'

Source: National Bureau of Statistics of China (NBS) * Designated size: with annual sales of 5 million yuan or above and with an employment of or over 60.

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Cosmetics retail sales in lower-tier cities are fast growing; yet first- and second-tier cities captured a bigger share of the market According to China National Commercial Information Centre (CNCIC), cosmetics retail sales rose by 28.2% yoy in third-tier cities in 2010, faster than those realized in the first- (15.8%) and second-tier cities (17.0%). Although cosmetics sales in lower-tier cities are growing fast, big cities still capture a larger share of the market. − According to a report* by the Hong Kong Trade and Development Coucil (HKTDC), retail sales of cosmetics in Shanghai, Beijing, Jiangsu, Guangzhou, Zhejiang and Shandong accounted for more than 55% of the national total. Among these cities, Shanghai made up the largest proportion of the total retail sales of cosmetics, stood at 12%, followed by Beijing, Jiangsu and Guangdong, representing 11%, 9% and 9% respectively.

*Source: Cosmetics market in China, HKTDC, 2011

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I.

Industry Overview
(1) Market Size (2) Retail price of cosmetics (3) Distribution channels

6

Retail price of cosmetics has been rising in 2011

Retail price index of cosmetics in China has been rising. The index rose above 101.6 starting from August 2011. Although the tax levied on imported cosmetics has been reduced from 6.5% to 5% since 1 January 2012, market experts observe that retail price of many imported cosmetics products remains high. Exhibit 2. Retail price index of cosmetics in China, January 2010-December 2011 (Same month of preceding year = 100)

Source: National Bureau of Statistics of China (NBS)

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Escalating cost pressure on cosmetics retailers

Although retail price has been on a rising trend, most industry players still believed that it had lagged behind the cost increase. − Labor cost constitutes a large cost component for cosmetics companies. Local governments in over 20 provinces/municipalities, such as Beijing, Shanghai, Guangdong, Zhejiang, etc. and one special economic zone (i.e. Shenzhen) have lifted the monthly minimum wage in their jurisdictions in 2011. − Rents, especially those in prime locations, have risen substantially over the past few years. − Other distribution, logistics, packaging and marketing costs have also increased rapidly in recent years, posing great challenges to cosmetics companies.

In order to curb the climbing costs, some cosmetics companies try to pass the costs on to their consumers by raising the retail prices. −

At the end of 2010, Lancôme (蘭蔻) and Biotherm (碧歐泉), which are under L'Oréal Group, announced to raise the retail prices of their products by 20-30% starting from 1st January 2011. − In July 2011, Estée Lauder and Clinique increased the retail prices by 8-10%.

8

I.

Industry Overview
(1) Market Size (2) Retail price of cosmetics (3) Distribution channels

9

Department stores, supermarkets/hypermarkets are the major...
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