January 2011 Li & Fung Research Centre
In this issue:
Market Overview Competitive landscape
p. 3 p.7 p.12 p.22 p.28
III. Latest developments IV. Snapshots of sub-sector performance V. Appendix
I. Market Overview
China’s cosmetics retail value showed steady growth in 1-3Q 2010 • According to National Bureau of Statistics, China’s cosmetics retail value reached 74.0 billion yuan in 2009, showing nominal growth of 16.9% year-onyear (yoy). In 1-3Q 2010, the retail value of China’s cosmetics registered a slower nominal growth of 16.3% yoy. Retail value of cosmetics by wholesale and retail enterprises above designated size*, 2005-2009 80.0 70.0 60.0 Billion yuan 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 Sales value 2007 2008 2009 Growth 5% 0% 38.7 33.5 48.8 20% % yoy 15% 10% 59.7 74.0 30% 25%
yoy growth (%) Cosmetics
Source: National Bureau of Statistics of China (NBS)
size: with annual sales of 5 million yuan or above and with an employment of or over 60.
Retail price of cosmetics in China on a rising trend
• Cosmetics retail price has been on a rising trend since July 2010. Retail Price Indices of Cosmetics in China, January 2009 – October 2010 (Same Month of Preceding Year =100) 101.4 101.2 101.0 100.8 100.6 100.4 100.2 100.0 99.8 99.6 99.4 Ja n09 Fe b M ar Ap r M ay Ju n Ju l Au g Se p O ct No v De Ja c n10 Fe b M ar Ap M r ay Ju n Ju Au l g Se p O ct
Increasing margin pressure on cosmetics enterprises
• • Although retail price has been on a rising trend, industry players said that it has lagged behind the cost increase. Increase in costs such as rental, labor, logistics, advertisement, and slotting fee etc. are exerting heavy pressure on cosmetics enterprises. Many cosmetics players, especially those with poorer brand equity, have witnessed their profit margin eroding.
II. Competitive landscape
Foreign players have a strong foothold in the mid-range to high-end segments • Comparatively, foreign players have a more extensive brand portfolio than domestic players. (See Appendix) • Foreign players have a strong foothold in the mid-range to high-end segments. • China has become one of the most important markets for many foreign cosmetics companies. – Greater China is the second largest market for Procter & Gamble, after the North American market. According to Access Asia, the sales of P&G in China reached 13.23 billion yuan in 2009, with a market share of 19%. – L’Oréal International sees China as its major growth engine: Garnier recorded a sales growth rate of 61.2% yoy in China in 2009; L’Oréal Paris recorded 25.5% yoy growth in China market’s sales in 2009.
Foreign enterprises have acquired a number of renowned domestic brands • As a shortcut to acquire resources such as brand equity, local connections and distribution channels, a number of foreign cosmetics players have been actively exploring merger and acquisitions (M&As) opportunities. A number of well-known local brands were acquired by foreign brands over the past years. Homegrown cosmetics brands that had been acquired by foreign companies: – Acquisition of Dabao (大寳) by Johnson & Johnson in 2008 – Acquisition of C-Bons (絲寳) by Beiersdorf in 2007 – Acquisitions of Yue-sai (羽西) and Mininurse (小護士) by L’Oréal in 2004
In December 2010, Coty Inc., one of the leading global beauty companies, had agreed to acquire a majority stake (~400 million USD) in domestic skincare group TJoy Holdings Ltd (丁家宜). The acquisition is expected to close in January 2011. 9
Domestic brands are more popular in lower-end segments
• Domestic brands generally priced lower and target the mass and lower-end segments. They have less extensive brand portfolio compared with foreign counterparts. (See Appendix) Though generally weaker in brand building...