COSMETICS AND JEWELRY IN CHINA

COSMETICS IN CHINA

rightThese days Chinese women are crazy about cosmetics. It seems they can't get enough of them, spending an average of 10 to 15 percent of their income on cosmetics and skin care. Urban women use an average of 2.2 products every morning. Growth rates for the cosmetic industry are in the double digits.

In the Mao era, women either wore no make-up or wore cheap, thick make up that covered up their nice skin. Some women rubbed their lips with sandpaper to create the illusion they were wearing lipstick. Even today most Chinese women over 45 have never used mascara.

Make up is used by mainly young woman. Women have traditionally been taught about make up by their mothers or grandmothers but these days many older women grew up when wearing make up was discouraged. One survey found that only 3 percent of women over 45 wear lipstick, compared ro 50 percent in Europe. There are still many people who link wearing make up up with prostitution and bad girls.

Chinese women are not big on perfumes. They prefer skin care and beauty products, favor neutral colors and eschew make up or hair styles regarded as aggressive. According to research by L’Oreal women in China are concerned about the radiance of their skin and prefer nourishing lotions that protect their skin from the skin-drying winters.

L’Oreal researchers also found that Chinese women are concerned about ingesting lipstick. On researcher told the Times of London, “It is the only region of the world where we have found this food attitude. So we took it into account and developed lipsticks containing vitamins. As soon as we told women there was something healthy in the lipstick, they felt more comfortable.”

In China, Wal-Mart sells moisturizers made with sheep placenta which is purported to reduce wrinkles; spas offer seaweed wraps; and breast implants have names like Magic Peach and Dream Xcell.

Leslie Patton and Lauren Coleman-Lochner of Bloomberg wrote: “China, where skin-care products are in particular demand, is an important yet challenging market for many Western beauty companies. In October 2013, L’Oreal SA called China’s market “slowing, although still dynamic” and said sales in the quarter grew 11 percent there. P&G said in May 2013 it’s been losing market-share in skin and oral care in China. Avon Products Inc. said in October 2013 that possible fines related to foreign bribery probes in China and elsewhere may materially hurt profit.” [Source: Leslie Patton and Lauren Coleman-Lochner, Bloomberg, December 31, 2013]

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Dangerous Cosmetics in China

Some skin whitening cosmetics cost as much as $385 for a 50-milliliter bottle. Health experts warn women to be on their guard because some use mercury and lead---both very toxic substances---as whitening agents. Mercury blocks an enzyme that is necessary for the formation of melanin, the dark pigment in our skin, but exposure to mercury can affect the central nervous system and cause brain or kidney damage. Even products that claim to be mercury free are sometimes full of mercury when they are examined in a laboratory

Nine SKII products made by Proctor and Gamble were found to contain chromium and neodymium---two metals whose use in cosmetics is banned in China. Chromium is carcinogenic and can cause eczema. Neodymium is used in magnets and can cause eye and skin irritation.

A woman in the Anhui Province of Central China nearly died when she was attacked by thousands of bees that were attracted to her facial creme.

Cosmetics Industry in China

There are between 3,500 and 4,000 cosmetic manufacturers in China.

The value of the Chinese cosmetic industry was estimated to be somewhere between $4.5 billion and $6 billion in 2004 and is expected to reach $8 billion in 2007. As of 2005, skin products accounted for about 60 percent of sales, make up 30 percent and fragrance 10 percent.

The Natural Beauty Group, a company that specializes in making cosmetics for Chinese women, was set up in the early 1990s by the Taiwanese entrepreneur Tsai Yen-ping. By 2001, it had more than 1,000 stores and 10,000 employees.

Foreign Cosmetics Companies in China

Even though only 500 of the 3,500 cosmetics manufacturers in China foreign owned they control an 80 percent share of the market.

L’Oreal of France, Procter and Gamble and Avon of the United States, Shiseido of Japan all have large market shares in China and are all enjoying healthy growth in China. Chanel and Christian Dior are also doing well.

Avon is the No. 2 cosmetic seller in China. It sold $157 million worth of products in 2003 and expected to sell $500 million by 2007. Avon has had to be flexible to prosper. It began by using its traditional direct selling strategy but when door-to-door sales were banned in 1998 because of concerns about pyramid schemes, Avon became a retailer. As of 2004, there 6,000 Avon Beauty Boutiques in China, many of them run by former door-to-door saleswomen. Avon is strong outside the major urban areas. Mary Kay has over 200,000 women selling cosmetics in China and has posted sales increases of 20 percent a year. In China the company is regarded as a premium brand.

Proctor & Gamble arrived in China in 1988 through a joint venture with the Hong Kong-based company Hutchinson Whampoa.

The Japanese cosmetics giant Shiseido is marketing their products aggressively in China. Shiseido produces Urara which is only available in China and Za brands which are sold throughout Asia. Shiseido entered China in 1981, making it one of the first cosmetics company to enter the Chinese market. It had ¥60 billion in sales and 2,500 retailers in 2007.

Shiseido has two factories: one in Shanghai and one in Beijing.. In November 2005, it opened a large research facility outside Beijing. Researchers plan to examine skin and hair from women all over China and develop products to best suit local lifestyles and weather. In 2007, Shiseido doubled the production capacity size of the plant in Shanghai to keep up with demand.

L’Oreal in China

L’ Oreal entered China in 1996 and is now the No. 1 cosmetics seller in China. In 2006, it earned $500 million, up from $207 million in 2003, which in turn was an increase of 69 percent from the previous year. L’Oreal markets 16 brands in China, including Maybelline, Loreal Paris, Lacome and Shu Uemura.

L’Oreal’s marketing director in China told the International Herald Tribune, “Our strategy is to be everywhere." Maybelline is sold in 12,873 stores in 646 Chinese cities. In 2006, L’oreal purchased Mininurse, which is distributed in 250,000 outlets.

In September 2006 L’Oreal opened a research center in Shanghai. Researchers there study things like the way women wash their face and apply cosmetics and the diameter of their hair follicles. To develop cosmetics and hair care products designed especially for Chinese women the company is assembling “atlases” of Chinese women’s skin.

Revlon Exits China

In December 2013, the cosmetic-maker Revlon announced it would cease operations in China and eliminate about 1,100 positions, including 940 beauty advisers, as it restructures its struggling business. Leslie Patton and Lauren Coleman-Lochner of Bloomberg wrote: China makes up about 2 percent of Revlon’s net sales, and the restructuring will result in about $22 million of pretax charges, the New York-based company said in a filing with the U.S. Securities and Exchange Commission. The changes are expected to reduce costs by about $11 million a year, Revlon said. [Source: Leslie Patton and Lauren Coleman-Lochner, Bloomberg, December 31, 2013]

The company, which posted profit declines in 2011 and 2012, has been making acquisitions and introducing new products as sales in some of its larger brands slow.“Revlon was unable to gain scale and relevance in the important Chinese beauty market,” Connie Maneaty, an analyst at BMO Capital Markets in New York, wrote in a note.

Cosmetics for Men in China

The market for men's cosmetics in China is growing very fast. Among the items for sale are skin lotions, whitening agents, face cleansing cream, deodorant spray, mud masks and anti-aging beauty creams made especially for them.

The Natural Beauty Run is a spa in Shanghai exclusively for males that features massages, “essential oil” treatments, facials and saunas with piped in music. Among its products are Body Firming Creams and Bio for Man Intensive Cleansing Milk, which, according its label “removes abnormal and dead cells without a tight feeling, yet softens the horny layer.” [Source: Peter Goodman, Washington Post, August 2003]

Shiseido offers the Handsome Man line of products, which includes mousse, cologne, skin moisturizers, facial cleaning lotions and scented antiperspirant lotion. Cosmetics companies have found that products for men sell best when the are sold with women’s cosmetics. Marketing researchers have found that men often are too embarrassed to buy the products themselves but will use them if their wives or girlfriends buy them for them.

Chinese Jewellery Market

Leo Lewis wrote in The Times: “Of all stops along the 12-year Chinese zodiac cycle, the Year of the Dragon has the clearest economic effects. The Chinese marry more and bear more children in a "lucky" dragon year: in a frenetically gift-giving culture growing wealthier all the time, 20 million births and 12 million marriages will translate directly into big sales of gold. Moreover, other demographic and economic developments are even more important. "Women's labour participation in China is increasing above 60 per cent and many are supporting their families,” Adrian Cheng of Chow Tai Fook says. “That participation is growing and these women have more spending power." [Source: Leo Lewis, The Times, January 23, 2012]

And while crowds from the mainland may hit Hong Kong's shopping malls like starving locusts, Mr Cheng believes that they are doing so with a sharper eye than the tills alone suggest. In Mr Cheng's view, the hunger for luxury goods by China is a quest for authenticity. "Chinese women are turning to diamonds for many complicated reasons. Unlike an iPhone, which they buy knowing it will be out of date in six months' time, with jewellery they are looking for something that represents investment and value. These women are sophisticated, educated and have travelled. They know what investment is and they know how to buy in a way that preserves value. Diamonds for Chinese women are also a symbol of status. It is giving face. When you wear a diamond - one, two or three carat - it immediately translates as status in front of your peers, clients and stakeholders."

Aside from China's young working women, Mr Cheng wants to direct his stores towards two other types of customer. One is the generation of men now buying jewellery for its women - unsurprisingly, the transactions are extremely rapid and based on raw price over aesthetics. On occasions when men come in to Chow Tai Fook stores accompanied by women, staff are trained to be discreet on the issue of whether it is a wife or mistress. [Ibid]

The other rapidly growing category is the generation that lived through the worst decades of Chinese history and is now in its fifties - yearning to buy the wedding rings, engagement rings and other jewellery they could never dare to want as Mao's Cultural Revolution raged. "These are people who dress very conservatively and buy big carats,” Mr Cheng says. [Ibid]

The same market that can be enchanted by a logo on the back of a grimy bus is developing a Japanese-style obsession with cuteness. One new product that Mr Cheng believes could become a favourite in the company gift-giving circuit is a solid gold Winnie the Pooh. He fought hard to gain the rights from Disney and has Mickey and Minnie firmly in his sights as Shanghai begins work on mainland China's first Disneyland. "The problem is that not all Disney characters are really cute,” he points out. “I mean, you can't really have the Little Mermaid. Would we look at Hello Kitty? Probably."

Chow Tai Fook, the World's Biggest Unknown Jewellery Brand

Leo Lewis wrote in The Times: “Chow Tai Fook is a brand more hotly desired by 1.3 billion Chinese than Armani, Hermes, Prada and Rolex. According to the Chow Tai Fook heir Adrian Cheng, Westerners don't understand China. Nor Chinese tourists and especially not Chinese women. "We do," he says. "My family is genetically good at understanding women." If that boast is correct, China's young women are about to become some of the world's biggest buyers of diamonds, treating themselves as their wealth grows. [Source: Leo Lewis, The Times, January 23, 2012]

In late 2011, “the company, the largest jewellery retailer in the world by many measures, listed 10 per cent of the family's stock on the local market, raising about $US2 billion ($1.9 billion). The listing set out to hold the once-private company to more international standards of corporate governance and provide a little more clarity on the succession questions surrounding Chow Tai Fook. Specifically, how the brand, the supply chain and the 1500-outlet retail network in Greater China will be run as the company rumbles towards a third generation of Cheng family control. [Ibid]

The answer, at least in part, appears to lie in Adrian Cheng, the 32-year-old, Harvard-educated grandson of the company’s billionaire chairman Yu-Tung Cheng. The initial public offering, Adrian Cheng tells The Times in his first post-listing interview, was all about establishing "clear and clean divisions" that ultimately should smooth the process of succession and eliminate the squabbles that, for example, swirl around the future of Stanley Ho's Macau gaming empire. [Ibid]

For now, Mr Cheng acts as executive director (his father Henry Cheng remains more senior) and has been put in charge of branding, marketing and e-commerce - pointedly the three critical areas of Chow Tai Fook's growth story as the company swells by 250 new points-of-sale per year in China. [Ibid]

Even by the expansive norms of corporate China, these are big ambitions. The company has a scattering of stores in Asia but 1,500 points of sale in Greater China. Its revenues are 50 per cent bigger than those of Tiffany, the next-largest pure-play jeweller in the world, and eclipse global sales of the jewellery segments of Richemont. Possibly the most disturbing element for foreign observers - once they have overcome the fact that Chow Tai Fook is probably the biggest brand they have never heard of - is that its fame and prospects are entirely a Chinese affair. All of Mr Cheng's plans lie in China's second, third and fourth-tier cities. Many preach the eastward shift of the global economy, but few practice it so purely.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated July 2015

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