A Decade of Insight on Building Beauty Brands in ChinaSeptember 20, 2021 BeautyMatter
September 20, 2021
Sponsored By GED China
China’s retail and e-commerce market has historically been markedly different and light years ahead of other countries, particularly those outside Asia. China is gaining on the United States, and the Chinese beauty market is expected to record a value of $87.64 billion in 2025, increasing at a CAGR of 6% for the duration spanning 2021-2025 according to NPD.
Identifying the right partner is a crucial element in building a sustainable and profitable presence in China. GED China has been building global brands in China from the ground up for over a decade by staying one step ahead of the ever-changing consumer, working with brands like Dr. Barbara Sturm, RéVive Skincare, Tocca Perfume, Jouer Cosmetics, and Tria.
Jean-Philippe Benoist, founder and Chief Executive Officer of GED China, says, "Building a brand in China is a little like surfing: if you don’t surf with the wave, you’re done, you’re taken to the bottom of the sea."
The market remains a crucial driver of growth for multinationals but has become increasingly important for indie brands and those eyeing a strategic exit. China represents significant revenue opportunity but has also become an important acquisition proof point, making it a high-stakes market where failure isn't an option.
BeautyMatter tapped into Jean-Philippe Benoist's decade of experience on the ground in China to understand how to de-risk launching in the hypercompetitive market and unlock the long-term potential.
It feels as though there have been significant shifts in the Chinese beauty landscape in the past 24 months. Are there ways brands can lay the groundwork for China as they build other markets? How does a brand determine the time is right to successfully launch in China?
At a minimum, a brand must have achieved some level of success somewhere else, especially in their domestic market. If they have built a strong business in their home market, they are ready for China, that’s for sure. Gauging brand awareness and consumer demand in China by asking potential distribution partners and people on the ground for insight is a crucial first step. But, generally speaking, there is no best time. As soon as you can do it, do it. Don’t waste time. Start building your reputation in China; the sooner, the better.
The change in animal testing requirements has many ethically minded brands considering the market. Others have already launched in China, looking to expand beyond the cross-border channels to capture the full market opportunity. What impact do you expect this change to have on how brands launch and plan their China strategies?
The domestic market a brand can reach once in China with a hygiene permit is much bigger—we estimate 10 times bigger than the cross-border market. Securing a hygiene permit allows you to actually sell in China. The ability to access distribution points requiring hygiene permits provides better penetration for a brand in the market because you are selling to Chinese consumers in China rather than Chinese consumers outside China, which is the principle of cross-border. So, you move faster, react quicker.
Securing a hygiene permit is not easy. It is typically about $3,500 per SKU and can take up to one year. The registration process is a very lengthy and costly project, especially if you are dealing with a SKU-intensive category like makeup, but the market becomes so big once you enter China with the hygiene permit, it’s worth the expense. This investment is insignificant compared to the growth potential.
We have also seen the emergence of C-beauty brands like Flower Knows, Perfect Diary, Judy Doll, and Florasis that have scaled fast and represent billions of dollars of market share. What impact have these brands had on the beauty landscape? How can international businesses compete with these brands?
It’s a moving target. What we see happening today is just the beginning, the tip of the iceberg—the rise of C-beauty is coming. More and more investments are happening in the beauty sector in China, and the Chinese want a piece of it. In order to secure their place, they've started acquiring foreign brands, lots of them have done so, but as the pool of foreign acquisition targets shrinks, the next step will be to create locally incubated brands. We've already seen this happen in the makeup category. The same thing is currently happening in fragrance with big players like IFF and Givaudan all setting up factories in China to supply local brands who ask for a domestic OEM.
In skincare, it's a bit different because domestic players have always filled the lower-end skincare segment with cheap products. In this category, it’s almost impossible for imported foreign brands to compete. However, imported brands have fueled the premium and luxury skincare segment because the Chinese consumer values the ingredients, the formulation, the marketing, and the design of the foreign products. But the low-end skincare opportunity is gone for international brands.
"As soon as you can do it, do it. Don’t waste time. Start building your reputation in China; the sooner, the better."
By Jean-Philippe Benoist, Founder and CEO, GED China
As a distributor, we are not worried about the local competition. We've always played the long game and plan to remain competitive with a great portfolio of premium and luxury brand partners.
Well, that’s certainly a sobering assessment, but exciting for those brands who can lock in the opportunity in the luxury segment of the market with their science and ingredients, right?
Science is very important, along with technology and design. The creativity developed by western brands in the cosmetic industry is still an asset that the Chinese cannot match. They still lack creativity in many sectors. The evolution in the launch of domestic brands we've witnessed historically starts with copying and then creating a "me too," and then creating something original, but we are not yet at this stage. Current C-beauty skincare brands are just not that original at the moment.
Tmall has been the first stop for most brands entering China for many reasons, but the emergence of other platforms/marketplaces makes launching far more nuanced than it once was. Has the launch playbook changed in the past 12 to 24 months, meaning is it no longer just Tmall?
Yes, a couple of new platforms have emerged in China, such as TikTok, that require consideration in a launch strategy. These platforms can be phased into a launch strategy. It's not necessary to launch across all these platforms at the same time. Alibaba remains important—between Tmall and Taobao it owns 60% of the market. Once you solidify your presence with Alibaba, you grow from there, progressively adding platforms while supporting the expansion with PR.
We see more brands working with and/or launching their own WeChat networks. These are closed groups so they are difficult to monitor, but consumers are buying on them. Entering WeChat networks provides immediate access to tons of subscribers and tons of potential customers. They are their own community with opportunities to access and engage consumers, but there is a downside. Because they are closed groups, you are limited to those people that are part of the network.
Additionally, the people managing these networks typically want some level of control over the brands, some ownership, some active participation that ensures their investment in developing the brand isn't lost if the brand quits. And here there is something of a paradigm shift as they want guarantees, which was not the case a year ago.
Building a brand in China has changed, but COVID caused lots of parallel imports coming from all over the world finding their way into China, putting downward pressure on the prices and, therefore, increasing marketing costs. It has become more difficult to emerge in this massively sourced market with competition coming from all over the world. The market is flooded, and now the cost of launching a brand is stratospheric.
"More and more investments are happening in the beauty sector in China, and the Chinese want a piece of it."
By Jean-Philippe Benoist, Founder and CEO, GED China
The breakneck speed at which the Chinese market moves, the sophistication of the consumer, and cultural nuances make it an incredibly difficult market to navigate. Without the right partner, it is next to impossible to succeed. What criteria does GED consider when evaluating brand partners that you'd like to help grow and scale in the market?
First of all, the brand has to be a bit different in design, formulation, and ingredients. If it is a "me too" brand, there is no interest; the Chinese don’t need it, and it won't be successful. Second, the brand has to be established and have achieved some level of success in their home market. Finally, we like to work with brands with a bit of vision, who are patient and understand that China is a very different market, brands who are willing to listen to the consumer and who will play the long game.
China and speed are often synonymous in many people's minds, but perhaps makes some brands launch sooner and faster than perhaps they should. GED's philosophy is to de-risk market entry and to play the long game. Can you unpack what this means?
GED has been building global brands in China from the ground up for over a decade by staying one step ahead of the ever-changing consumer. This foresight helps us roadmap successful growth strategies for our brand partners and minimize investment in expensive PR campaigns, avoid reliance on overly promotional sales strategies that damage brand equity, and carefully manage pricing and distribution channels across multiple social commerce and content channels, all the while expanding and segmenting our ecosystem of avid Gen Z and millennial beauty and wellness consumers.
Because everything moves so incredibly fast in China, we believe it’s better to start, even if you are not fully ready or what you would consider fully ready in your domestic market. It’s better to find the right partner and take some positions in China and grow from there. Nothing will ever be perfect so it's better to start and grow—don't wait. Waiting is probably the worst thing to do in China when things are moving so fast. It will only get more competitive. Use the time to create something, learn something, build something, no matter how small it is. Get subscribers on your social networks, get reviews in the press, start building your brand pre-Tmall launch.
The alternative is to launch by massively investing and making a big splash. Keep in mind that a massive investment is temporary and will only last for a couple of days and it’s impossible to reach everyone. Unless you can sustain this level of investment, you're not establishing a presence long term.
We recommend jumping in and learning from the experience you gain as you grow. We don't believe in launching big because it’s impossible to be massive in China by definition—brands are too small. There are 50 cities as big, as large as Hong Kong in mainland China. Are you going to cover all of these 50 cities? No, you can’t. Being big in China requires a huge, sustained investment. None of the brands we work have that level of financial resources, so we have to be flexible in finding solutions and imaginative ways to build brand awareness in the market.
Developing omnichannel strategies is the foundation for success in most markets today, but each market is unique, so it's not a plug-and-play scenario. What are the elements of building an omnichannel strategy with a long view on growth in China? How have the requirements evolved?
China is different than Western markets where offline distribution is well established with online penetration following and happening slowly. This is not how the Chinese market was built. We have extensive experience building brands in a physical setting, but we believe in starting online first—that’s where the consumer is.
Furthermore, I am skeptical of the word omnichannel when applied in China. Omnichannel is probably a word that has been created for those brands who were offline and then moved online but are not willing to go entirely online. Here, in China, online penetration is extremely high—everybody went online at the same time, and offline distribution is minimal. There are a couple of stores, including a couple of Sephora stores, and new stores are being built, but there is not a big offline presence. In China you need to succeed in e-commerce first and then expand offline. But don’t expect offline sales to be as significant as online.
Some of the high-profile missteps in the Chinese market should give brands a healthy respect for cultural nuance. What advice do you give brands on how to balance localization vs maintaining the DNA of their brand?
Striking the appropriate balance between customization around tentpole events and specific shopping festivals vs relying on existing packaging is an art form and one the brand partner should lend guidance on. Not all customization is welcome: too much customization and the consumer may not trust product origin; similarly, if not culturally sensitive the brand image may be tarnished; conversely, too little, and the brand may appear tone-deaf.
I’ve seen so many brands make packaging red just because they learned that Chinese like red, or they leverage Chinese zodiac signs. The Chinese are not stupid; they know why brands do this. For a localized product to be effective, it has to be done subtly and appear authentic and culturally relevant. Some decisions made by Westerners when it comes to Chinese taste simply miss the mark altogether, with unintended consequences.
We have our ear to the ground. We are constantly listening to where the market is going. Consider that Alibaba didn't exist 15 years ago and TikTok didn't exist two years ago. Lots of these platforms are new, so if you’re not constantly monitoring what's happening on a daily basis you may be quickly lost. It’s a little like surfing: if you don’t surf with the wave, you’re done, you’re taken to the bottom of the sea.
We keep close to these platforms and distributors, monitoring where they are going, what they want, and how they will be marketing products. Changes can happen very quickly, and if you don’t follow what is happening closely, your brand might disappear just as quickly. Most of the distributors who were exclusively offline don’t exist anymore because they did not adapt to the new market conditions.
Skincare is the largest category in China and has been witnessing strong growth globally. GED has deep category experience in skincare. How do clean beauty and sustainability claims resonate in this market? What are the current category trends, and how do you see them evolving?
It’s not as developed as in the Western world, but it’s coming. COVID-19 prevented the Chinese from traveling, which probably delayed the trend, but clean beauty is coming to China. The Chinese are ready to pick up on any new trends that take hold. What works in the West will eventually be adopted in China; it may be adopted quickly in some cases, and in others it takes time. The Chinese have become more focused on living a healthy life, and clean beauty is a tool. We've already seen some clean beauty brands having success. One success opens the door for others. So yes, clean beauty is coming to China.
Building on that emergence of clean beauty, given that skincare is the largest beauty category in China, and GED has really deep experience in skincare, where do you see skincare going in terms of clean, sustainable, and wellness trends? What is the consumer looking for?
The consumer is looking for efficiency. They love technical science and products that deliver benefits that they can see and feel. But at the same time, they are not going to put dangerous products on their skin; they want clean, elegant textures that are safe.
Some of the sectors flourishing in China are gyms and organic food, which are part of the bigger health and wellness trend. The young generation is constantly listening to what is happening elsewhere. When it comes to wellness and clean beauty, they have not missed the trend; in fact, you might say the market is perfectly primed for the trend. Traditional Chinese medicine and Western medicine coexist in China, so there is an opportunity for clean beauty, ingestible beauty, brands that are rooted in wellness and a lifestyle built around wellness.
Don't try and be Chinese in China. The Chinese are Chinese, and they will smell cultural appropriation when they see it and will question your authenticity.