China is well on its way to becoming the biggest beauty market in the world, capturing nearly $60 billion of the $532 billion in global beauty sales. The opportunity is real, but it’s only getting more competitive. Success requires an understanding of the dynamic retail landscape, the nuanced marketing ecosystem, and the wildly sophisticated consumer.
There is no silver bullet when it comes to tapping into the growth coming out of China. It requires significant investment, a long-term strategy, and a strong local partner. Azoya was founded in 2013 to take advantage of the cross-border e-commerce policies instituted by the Chinese government, and has been at the forefront of advising brands entering the market.
Azoya is an omnichannel partner that helps brands to build and grow robust businesses in the constantly changing China market. We caught up with Franklin Chu, Azoya US Managing Director, to discuss the current state of the Chinese beauty market.
The market in China is incredibly dynamic, nuanced, and wildly sophisticated, and Azoya has deep experience. Can you share a bit about Azoya and how you work with beauty and wellness brands?
Azoya was founded in the southern Chinese city of Shenzhen to take advantage of the new cross-border e-commerce policies instituted by the government. In 2013 we began by building independent cross-border e-commerce platforms for health and beauty retailers, and have since expanded the business to include Tmall/JD operations and digital transformation projects. This includes customized websites, mobile apps, and mini-programs on WeChat and Alipay.
In short, we advise brands on China market entry through cross-border e-commerce and help them run their China businesses. For beauty brands, we typically help them enter the China market through Alibaba’s cross-border e-commerce platform Tmall Global; Tmall typically requires brands to use a vendor like us to run their store due to the high-touch customer service standards involved. But before we do this, we’ll do extensive marketing on all of the major social media platforms, work with influencers, and potentially open stores on WeChat and Little Red Book.
We only set up the flagship Tmall store and begin marketing/selling on that platform when we feel that the brand is ready. Our team handles store setup, marketing, customer service, etc., essentially providing an end-to-end solution. After the brand scales, then we’ll advise them on whether or not to expand to other channels.
China is close to becoming the largest beauty market in the world, but many beauty brands refuse to sell in the market because of the country’s outdated animal testing requirements. How does animal testing factor into cross-border e-commerce? Can you provide an insight into the future of animal testing in China?
For beauty brands, the appeal of cross-border e-commerce is that it allows them to sell in China without having to do animal testing. Under general trade, products have to undergo animal testing to sell under a Chinese entity and offline retail channels.
The government is taking steps to eliminate animal testing as a requirement in China, but entering the market will remain complicated. Cross-border e-commerce will remain appealing because brands do not have to set up a Chinese entity or register products, which can take a long time.
China offers a crystal ball in many respects that can provide a competitive edge in Western markets—private traffic and livestreaming are such trends. Can you share some insight on this marketing lever?
For livestreaming, you can either do it yourself or hire a KOL/influencer. If you take the latter option it provides immediate reach and sales from the KOL’s fan base, but they’ll charge a hefty commission and require a heavy discount on products.
To do it yourself, well, it’s a lot of work to get people to sign up if your following is small. Sometimes you have to set up a WeChat group with your most loyal fans and give them incentives to share the livestreaming details with their friends and family members. Setting up a private WeChat group helps you keep in touch with these customers, and you can provide incentives such as discounts, raffles, etc. This form of “private traffic” marketing has become popular over the last year as it enables you to build your own following without having to spend on ads.
Can you share what successful execution of livestreaming looks like?
To give you a livestreaming example, we worked with a German pharmacy to promote skincare and health products. The session lasted one hour. At the beginning of the show, we let viewers know that they’d have access to a 15 EUR coupon to be used if they spent over 120 EUR. Throughout the show, we offered an 8 EUR coupon to be used with no restrictions. We also offered a redemption code to cover shipping costs and taxes.
Next, we raffled off Shiseido products for those who placed an order during the livestreaming session. After the raffle, we moved on to the product presentation part, where we discussed some of L’Occitane’s famous hand creams and other hand products. We then went on to present a niche French skincare brand called Viscontour and Xhekpon Neck Cream, specifically touching upon ingredients and proper application. At the end, two employees answered questions posed by viewers during the livestreaming session.
With such a deep understanding of the beauty category in China, I’m sure Azoya has its ear to the ground in terms of trends. Are there any subcategories or niches that are starting to emerge and gain traction?
Perfume has become very popular this year and people are willing to try and discover different scents. More and more luxury brands are launching beauty products to tap into the pool of customers that can’t afford to buy a handbag but might be able to in the future.
This year has also seen a sharp jump in sales for local Chinese beauty brands and retailers, who are backed with significant venture capital funding and gaining traction with innovative marketing such as co-branded product lines and the creation of virtual influencers. The most notable C-beauty brand is Perfect Diary. Emerging beauty retailers such as Wow Colour and The Colorist are also giving Sephora a run for its money by targeting the mid-end segment.
The US is the largest market in the $532 billion global beauty business, with China a close second and projected to surge into the number-one position. Can you share three key differences between the markets?
1. A lot of subcategories in China are relatively new to the market, like perfume, concealer, organic beauty, etc. Until recently the market was dominated by skincare products—multi-step makeup application is relatively new as are the influencers that have popped up to teach newcomers how to apply makeup properly.
2. The middle segment of the market has only started to emerge. Before that, foreign brands targeted the high end of the market, while local brands targeted the low end of the market. Now things are changing as middle-class consumers are maturing and looking for niche, value products that are just as effective as the luxury products. This is creating a lot of opportunity for new brands.
3. KOLs/influencers absolutely dominate marketing for the beauty industry in China. While they are popular in the US, in China they are even more dominant because advertising options on social media platforms are limited and consumers are more likely to trust a recommendation from a real person. This means brand content and content produced by influencers will be a big part of what influences brand perception.
The growth coming out of the market in China can provide the misconception that launching the market is some sort of silver bullet when it comes to revenue. What are some of the most common mistakes brands make or misconceptions they have when entering China?
The biggest challenge is the fact that the customer journey is just longer in China. They take longer to get to know a brand, research ingredients, ask around for opinions from friends/family, etc. In the US a person may make a purchase after seeing the brand 3-4x, in China, this figure is more like 7-8x. Brands have to be patient and invest with a long-term view.
Customer acquisition costs are also expensive. There aren’t really advertising tools like Facebook where you can create a lookalike audience and test ads with a small budget. Most ad spending will be on influencers and Tmall ads, and costs have gone up exponentially over the past few years. Growing revenue is one thing, but doing it with a positive ROI is much harder, and many brands don’t make money for the first few years in China.
There is no shortage of distributors, consultants, and trading partners (TP) to help brands launch, build, and manage their business in China. What makes Azoya stand out or differentiated from your competitors?
We’re a Chinese TP, but we’re also more westernized than most Chinese companies. Our employees know the local market well, but they can also speak English and educate clients. Having strong communication skills is an important part of building trust and working relationships with clients that are often located halfway around the world in New York or London.
We’re also an omnichannel player that operates channels other than just Tmall. We do JD.com, Little Red Book, build WeChat mini-programs and apps, and run several multi-brand beauty retailer platforms in China. Some of these platforms have tens of thousands of beauty SKUs, and this makes us better in touch with the market.
Lastly, we have strong technical teams to help larger brands create a customized experience for their customers. Since we have a history of building mini cross-border e-commerce platforms, we have a large force of programmers that other marketing agencies don’t have. This enables us to do digital transformation projects like setting up customized websites and mini-programs, but we also provide operational services that other IT vendors don’t have. We look at building a brand presence from a marketing point of view rather than from an engineer’s point of view.
China was the first market to deal with the impact of the coronavirus. Can you share the business implications, learnings, and insight?
During the depths of the coronavirus lockdowns, the trends were quite clear. Skincare products remained in demand because people still need to care about the health of their skin when they’re at home. But demand for makeup and cover-up items dropped steeply because everyone was stuck at home.
Private traffic through private WeChat groups and livestreaming became popular because 1) everyone was stuck at home and 2) retailers had a surplus of labor since all the malls were empty. These retailers kept their shop attendants working by having them sell to customers on WeChat and training for livestreaming sessions.
What is the current state of the beauty landscape in China?
Since then, the Chinese government has done an extraordinary job of quarantining COVID-19 patients, requiring people to wear masks, and getting restaurants and other public venues to comply. The COVID-19 virus is more or less eliminated in China and beauty and luxury sales have recovered to their pre-virus peaks.
There’s still so much uncertainty in many global beauty markets. Do you still think now is a good time for brands to enter China?
It’s understandable that now is an uncertain time for brands as they struggle with their businesses back home. But I think that brands should consider entering China as soon as possible because 1) long term, Chinese consumers will power much of the world’s growth in the luxury and beauty categories; 2) the costs of market entry and customer acquisition are getting higher and will only get higher over time; and 3) right now, China is the only large market in the world that has recovered from the COVID-19 pandemic.
People are out and about at the malls and shopping like nothing ever happened. So China is the one bright spot in the world consumer market and I think it should be a priority for anyone with a sufficient budget.