China’s beauty market continues to be in a transitional phase. According to multi-national banking firm Jefferies, the country’s recovery has been slower than expected, a reflection of the overall economy and spending. That said, China beauty sales in January and February increased 5.5% year over year – slightly higher than estimates, Jefferies reports.

According to NIQ data, the online share of total skin care sales year to date is 69%, while the online share of skin care sales in 2023 was 72%. This data spans the full skin care realm, including toners, face masks, and cleaners, encompassing more than 250 brands and collections. With 70% sales of skin care online, that means digital is the place to focus.

Sarah Hu, NIQ China Chief Business Officer, agreed that beauty’s growth rate has been slowing down compared to the last 10 years, and that growth is largely being driven by online sales.

“Consumer trends in China are mixed,” said Oliver Chen, Managing Director, Head of Retail and Luxury at Cowen, and Professor of Marketing and Retail at Columbia University Business School. “We’ve seen volatile consumer spending and volatile consumer confidence, with high levels of unemployment. The housing market has been under pressure in terms of valuation, and that’s a big part of the economy, which weighs on the overall environment. It’s the backdrop that matters, especially with the dips around decelerating growth.”

China’s New Beauty Consumer Mindset

Despite slower growth, there are steps beauty brands can take to get a leg up in China.

For years, beauty behemoths such as The Estée Lauder Companies and L’Oréal have relied on brand reputation to cement their status in Asian markets. But modern Chinese consumers are more discerning about what’s in the bottle.

“We’re seeing that there are fewer consumers paying for brand reputation,” said Larissa Jensen, SVP, Beauty Industry Advisor, Circana. “They’re searching for functionality, they’re searching for effectiveness, and also whether a product is suitable to their particular skin condition. With the mindset changing, they’re no longer willing to just pay for the brand.”

A major global trend is an extreme appreciation of science-driven efficacy and results, and that applies to the Chinese market, too. As consumers have become more educated, brands need to meet their higher standards.

Jensen suggests that brands consider establishing a local innovation center to research and develop products that are more localized and suitable to regional consumer skin conditions, with an emphasis on functionality and effectiveness of product, rather than relying on brand reputation. “The skin conditions in China may be different from what, as a global brand, you may be developing in a broader way,” she said. “Potentially, there is the opportunity to create and develop products that are more local and suitable.”

It’s also important to understand how and why consumers spend in China. Hu cites NIQ research that reveals consumers have become more rational with their spending. They are also more sensitive about price and tend to plan their spending more.

“But at the same time, research is indicating that they’re willing to pay for more emotional [elements] because there is a psychological recovery needed after COVID,” Hu said. “Experiential corporate consumption has a strong lead, but there might be less need in terms of the actual product. There will be changes in consumer behavior, psychology, and sentiments.”

Livestreaming Remains Top Shopping Platform

As global travel has slowed in China, Chinese consumers are spending less overseas and more at home, but where they shop has evolved.

Douyin, the Chinese counterpart to TikTok, has emerged as a major player in the beauty space. “Where the growth is coming from has significantly changed from offline to online, and away from traditional e-commerce,” Hu said, crediting Douyin with driving significant growth.

“There’s been a big change in channel dynamics in terms of how they’re purchasing beauty,” Jensen said, explaining that B2C e-commerce platforms, such as Tmall and JD, have traditionally been where consumers went to shop and discover. “For a very long time, that’s been the path to entry in China. We’ve started to see a slowdown in performance there because more and more Chinese consumers are choosing to purchase through livestreaming platforms.”

Cowan’s Chen also stressed the importance that livestreaming has gained, and as a result brands need to consider what will make a product go viral. “It has to be visually efficacious and there has to be a compelling story — it has to be simple yet complex,” he said. “You need to design products to optimize for potential for virality. China is much more advanced with digital, and the customer needs a phenomenal online storytelling experience.”

The appeal with livestreaming platforms is interacting with local beauty influencers, and brands need to understand how to navigate the influencer world in China and form the right partnerships. Both are crucial in terms of building brand awareness.

Another perk of livestreaming in China is their competitive pricing. “With all these channel choices, consumers are going to seek out the best pricing available, rather than just sticking to a single source like Tmall,” Jensen said.

Those marketplaces are now filled with local emerging Chinese brands, creating fierce competition for global brands who may be challenged to adapt to a new format in a timely manner.

Local Brands Gain Ground Over Multinationals

“Speaking to my colleagues in China over the last several years, they have been alluding to Chinese local brands becoming bigger and more important; it’s continued to accelerate in a big way,” Jensen said. “Now we’re at a point where there’s a lot of local pride and there’s this element of Chinese consumers being more open to purchasing from Chinese brands and seeing Chinese brands gaining importance across all the different categories.”

This shift is supported by NIQ data, as well.

“A lot of booming new brands and smaller, local Chinese brands came into the game, providing additional competitiveness to the overall industry,” Hu said. “Most of them are playing on Douyin. There are so many emerging new local Chinese brands that are coming into this channel. But at the same time, the global brands are resilient because they’re operating in multiple channels.”

In a report by JingDaily, “among local beauty brands, Aupres, Proya, and Florasis secured the top three spots, in media value, according to WeArisma. Pechoin and Flower Knows followed closely behind.”

Most emerging local brands only have Douyin as their commerce channel, while global brands can reach consumers in more places. “In the long run, they will still be very competitive in the China market, but they need to be more adaptive to the changes of the channel and to the challenges of the consumer,” Hu said. “Global brands might need to make changes to the way they communicate to the consumer and the way they promote their products.”

Look to the Future

Between the aftermath of the global pandemic and the volatility of the Chinese market, brands have an even greater need to consider logistics.

“The supply chain and product development process both help you plan for volatile changes in the environment,” Chen said, “and it also help you manage for new product development.”

Over the past few quarters, Chen pointed out that China had too much inventory that needed to be cleared, which created pressure to discount across the market. That contributed to a slower than expected recovery.

“For beauty brands not in China it’s becomes a decision around how you think about distribution and who you partner with,” Chen said. “Because you’re building, you’re needing to make decisions around speed and cost, and then partners. Certainly, Sephora Asia is a big deal, and they’re global.”

Ultimately, experts predict the China beauty market will continue to recover and anticipate it will have single digit growth in 2024. “We believe that premiumization will continue, so luxury price points will continue to be a hot topic, as well as emerging channels,” Jensen said. “Global brand performance is definitely going to be stronger for those who are able to change and adapt to this new normal. We’re in a period of change in the China market, so it’s about turning potential challenges into opportunities. It’s an opportunity for brands if you think about what consumers are looking for, and if you have the ability to adapt and create product to meet those needs.”

Though the Chinese market will likely remain in flux for some time, it will still be an important market for global brands. “It’s got a vast population and a growing middle class that are willing to spend, and that is ripe ground for brands that are looking to enter a profitable space,” Jensen said. “But the caveat is that success in China is not going to be easy anymore. Brands will need to continue to invest in products that can meet those changing needs, and then also quickly adapt to the changing market environment and the channel dynamics.”