Cosmetics in the time of COVID-19: Impact on China’s beauty market, from Shiseido and L’Oréal to national brands
Retail sales of cosmetics in China in January and February this year dropped 14.1% from the previous year to 38.7 billion yuan (US$5.6 billion), according to China’s National Bureau of Statistics. The severity of COVID-19 has impacted the previously steadily-growing Chinese beauty industry in a number of ways. Although the virus is currently dying down in China, let’s take a look at how different aspects of the industry have been affected so far.
Global conglomerates continue to place importance on the Chinese market
Given that Shiseido’s performance in China had been going well, the impact of COVID-19 has been severe in the company. Sales of their four main brands (SHISEIDO, Clé de Peau Beauté, NARS, and ELIXIR) at their leading stores during the 2020 Chinese New Year period were down 55% from the previous year. Sales from foreign tourists in Japan also dropped by 40%.
However, even under such circumstances, the importance Shiseido lays on the Chinese market hasn’t budged. On March 16, they announced the opening of a new R&D base — the China Innovation Center — in Shanghai’s “Oriental Beauty Valley”, a special industrial zone for beauty and health products.
Also, at their shareholders’ meeting held on March 25th, it was announced that with over 90% of their Chinese business clients reopening for business, signs of recovery are showing.
L’Oréal China took part in a joint discussion with other foreign companies headquartered in the Jing’an District of Shanghai on February 28th. Vice President of L’Oréal China Lan Zhen Zhen revealed that only 40% of their stores remained operative and that around 70% of production had restarted. However, the drop in sales due to these limitations have been made up by strong online sales. L’Oréal China’s sales during an event held in tandem with International Women’s Day, and through Alibaba Group’s e-commerce platforms Taobao and Tmall, exceeded 240 million yuan (US$34 million). This was an 89% increase from the previous year, and in the event, L’Oréal ranked the strongest among the other brands.
L’Oréal China also announced their “HUGE” strategy. CEO Fabrice Megabane stressed the importance the company lays on the Chinese market and said that by using new technology and data as an axel he wants to introduce a more individualistic beauty and respond to consumers’ expectations faster, and in doing so create a new type of consumerism.
Estée Lauder on the other hand, due to the spread of the virus across China, is doing a downward revision in terms of the entire group’s earnings forecast. The drop in the company’s sales in China has been significant, with their sales on Tmall between February 8 and 21 decreasing drastically by over 75% in comparison to the previous year. However, thanks to their focus on digital marketing, their performance has since started to pick up.
Estée Lauder has also kept firm in their stance on China is an important market for them. They’re currently moving forward plans to establish a new world-class R&D base in China.
Turning a challenge into a chance
For P&G, the spread of the virus across China affected their product supplies on a global scale. They have 387 suppliers in China that supply over 9,000 varieties of materials to the world, however, as of February 20, over 17,600 of their products were apparently being affected. On the other hand, P&G’s sales within China appear to be good, particularly for hygiene products.
Kao has also seen growing sales of hygiene products. General manager of Kao (Shanghai) Products and Services Shintaro Oka told local media that he believed the impact on the Chinese market was short-term. On February 12th, Kao announced three new Bioré sunscreen products, overall sales of which on Tmall exceeded 15,000 units within the first 10 days.
For Chinese brands as well, those with a strong online presence have been able to escape the effects of the crisis. CHICMAX’ s sales in January and February saw a 95% drop for normal offline stores, but online sales increased by 107%. As a result, overall sales during that period were up by 15%.
JALA didn’t have a lineup of hygiene goods before the crisis, but by the end of February their skincare brand Spring Summer had released a hand gel with 75% alcohol constituents. Despite restrictions, the product was developed and released at an astonishing speed.
Corporate social response and responsibility
When a disaster strikes in China, contributions by companies immediately make the news. However, in this case, where the affected region has been much wider-reaching than with an earthquake or typhoon, companies have also been badly impacted. Though despite this, already by January 28th — just a short time after the crisis had begun — a list of companies making contributions was released.
Contributing the most at the top of this list was LVMH with 16 million yuan (US$2.32 million). Next was the Chinese brand PROYA, which donated 15 million yuan (US$2.14 million) and set up a charity fund, then L’Oréal, which contributed 5 million yuan (US$725,400), and they were followed by JALA.
Shiseido gave a million yuan (US$145,000) to the Wuhan Charity General Association and 10 million yuan (US$1.45 million) to the Shanghai Charity Foundation. Kao donated adult diapers, tampons, and hand soap, along with many other companies that also gave away necessities.
High-end products’ stagnation?
As of the end of March, contagion in China has passed its peak and most industries are on the road to a gradual recovery. However, there’s still a level of unease. According to consulting firm Bain & Company, total transactions on Tmall during Chinese New Year were down 30% from the previous year, and high-end goods especially saw a large drop of 40%. Luxury brands are expecting to regain their sales post-corona, however, some media outlets are predicting that high-end products may see long-term sluggishness.
Not only has demand fallen from Gen-Z, who before the crisis had been strong consumers, demand for gifts has also decreased. During this year’s Valentine’s Day season, which occurred right in the middle of the crisis, high-end goods apparently took a considerable tumble. Even though the situation has now died down, there’s a mental barrier among people who are still wary of the situation, thus the revitalization of the high-end gift market is likely to take some time. Brands without a substantial mid-range or cheaper-priced lineup may have hard times ahead of them.
Another cause for concern in China is that the spread of the virus across Western countries may cause obstructions in the procurement of raw materials, even in the cosmetics field. The suspension of factories in China delayed supplies for a range of products in many industries around the world. However, in this globalized era, the opposite situation is also a possibility.
Text: Ching Li Tor
Original text (Japanese): Team Roboteer
