In 2022, online sales in China’s prestige beauty e-commerce market posted a small decline of 1% (YTD Nov.), an impressive feat given market uncertainty, especially at the beginning of the year.
We expect 2023 will be a strong year for China’s beauty market thanks to the economic recovery and increasing consumer demand among its 1.4 billion consumers. The uncertainty of brick-and-mortar traffic accelerated the pace of digitization as companies embraced online sales and livestreaming throughout the course of the pandemic. Even though lockdowns have come to an end, online sales continue to outperform expectations.
Combined, the travel retail and livestreaming channels represented over 20% of beauty online sales.
Travel retail gave more opportunities to niche segments, such as home scent, which was negligible on B2C but growing rapidly at a high double-digit rate within travel retail last year. More international brands are using travel retail as another important channel in addition to B2C after entering the Chinese market. Using By Kilian as an example, it entered the Chinese market and opened its B2C Tmall flagship store in mid-2020. After entering travel retail in late 2021, its sales continued to grow.
In addition to international brands, more local brands are jumping on the travel retail channel bandwagon. The concept of functional and simplified skincare is becoming increasingly accepted by Chinese consumers, leading to local brands selling cost-effective products that focus on functional skincare. More importantly, as more local brands continue to target travel retail, there are more types of brands and more competition in a platform that had previously been dominated by international brands.
Livestreaming, which is catching up with travel retail in value sales, will be the channel to watch in 2023.
With lockdowns ending in the first half of 2022, livestreaming sales in the second half saw an increase versus the previous half of the year. Hair showed triple-digit growth, followed by fragrance and makeup with double-digit growth. Only skincare was down slightly.
International brands have also gradually discovered the huge potential of livestreaming, with more international brands opening official accounts and brand flagship stores using a combination of key beaty influencers’ livestreaming fused with short video content to generate a lot of discussion and quickly attract traffic. At the same time, seeded short videos can attract potential target users and drive sales of pillar products. Diverse content creation increases brand exposure, helps brands spread their own core content, drives membership accumulation and sales growth, and carries out effective conversion.
China, which lifted its COVID-19 restrictions in December 2022, is projecting its GDP will grow by 6% this year as consumers’ income and confidence levels increase. As such, international beauty conglomerates continue to see China as a growth engine, announcing plans to increase investments to support their strategies in the country.