By Ally Dai. Photo credit: diptyque
Luxury Chinese consumers have bought, owned and ‘experienced’ any global luxury brand you can name, in any category you can imagine. It has long been the contention of The Luxury Conversation – one that’s been proven true whenever a report or a business forecast is released. It means that the younger generations of affluent Chinese consumers still use the big name brands, yet they are also craving something new – and something niche.
This assertion was evidenced as correct in the recent China Insight Report, The New Face of Beauty in China, produced by Reuter: Intelligence, the leader in China luxury insights & research.
The report research spanned qualitative focus groups, mobile ethnographies, big data analytics (provided by Colour Data) and a quantitative online survey covering over 300 Chinese consumers across first-tier cities of Shanghai, Beijing and Guangzhou. When survey respondents and focus group participants were questioned on the differences between big, well-known brands and niche brands, there were a few clear takeaways.
Consumers clearly associates trust and overall quality with the well-established ‘big brands’. However, over 60% mentioned that they were very curious about niche brands, with little curiosity for the big brands. During focus group discussions, the same trend became evident: while established brands are often top of mind, younger consumers are increasingly interested in smaller, lesser known brands. Male beauty consumers are all about niche – 92% responded that they prefer niche, and 76% prefer the packaging on niche beauty compared to the big brands.
One of the experts quoted in the report was Shine Wei, Brand GM of SpaceNK, who said, “One strongly growing trend in beauty in China is niche – customers look to explore new brands and products, especially those that are less known and even less available in China. The younger generation live an urban and very global lifestyle – rather than being overwhelmed by the number of brands available, they are excited to try what’s new and discover even more. For already well-established brands, they can still aim to meet these emotional needs of the modern Chinese consumer by continuously bringing delightful newness, by bringing their brand to life through digital connectivity and innovative storytelling.”
Niche – what does it mean in China?
The concept of niche beauty is created in the same vain as much of its ideally preferred ingredients – organically. A brand does not need to announce ‘we are niche’, with the definition instead stemming from an identity of specialisation; be it ingredient type, application method, or even packaging, availability or sales channel (just as the definition suggests: a specific activity for which something is best fitted). Look at the huge popularity of diptyque – their recent immersive experience (pictured above) at the Cha House in Shanghai had queues around the block.
As we explained in a recent ‘back to basics’ piece; “Firstly, luxury in China/Asia doesn’t have to mean very expensive products/services, it doesn’t have to mean fashion, or champagne, or yachts or fancy bling. Luxury can mean high-quality, it can mean an independent lifestyle, it can be a type of personal luxury. While niche generally means ‘not a big famous brand’; it can mean boutique, artisanal, and essentially, for want of a better word, it means ‘cool’.”
To further pinpoint ‘what is niche’, we can look at just a few examples under a few different categories:
Independent oversea brands: Spanish cosmeceutical/ dermaceutical brands MartiDerm, Sesderma and ISDIN; US natural-positioned skincare brands Calibio and Thayers; French makeup brand PAUL&JOE, German skincare specialists BABOR.
Oversea brands owned by big beauty players: Professional skincare brand Dermalogica (acquired by Unilever in 2015); Korea dermatologist brand Dr.Jart+ (acquired by Estée Lauder in 2015); British fragrance brand Jo Malone (owned by Estée Lauder); Japanese skin care brand Cure (owned by Kao) .
Domestic brands created by local influencers, including: MO·AMOUR, a essential-oil-positioned beauty care brand created Zhang MoFan(@MoMo); JUNPING, a natural-positioned skin care brand by Fang JunPing (@JunPing Demon King). However, it should be noted that while these local creations apparently achieved strong sales figures, they were not lauded for their high-quality on social media.
Expanding into niche beauty
The rise of niche has seen an increasing number of players, both international and local ones, making an expansion into the area. Notable M&As involving key players in the China market include:
AHAVA, an Israel skin care brand featuring Dead Sea minerals, was bought by Chinese conglomerate Fosun Group for $77 million in April 2016. The group is a big player in China health care industry, covering product R&D, manufacturing as well as distribution and retail.
Obagi, a US professional skin care brand, was sold to Haitong International Zhonghua Finance Acquisition Fund I, L.P. in July 2017, for $ 190 million. Limited partners of the Fund include China Regenerative Medicine International Limited, whose major business covers cosmetics and hospital management.
Korres, a Greek natural-positioned beauty brand, has sold a majority share (70%) last December to Morgan Stanley and Profex, a China’s brand management (marketing/distributing) company in dermatology and skincare areas.
MOR, an Australian bath and body care products&fragrance brand featuring indulgent sensory, was bought in 2015 by Uniasia, a major domestic OEM/ODM player. The brand has just opened its first store in Hangzhou this September.
Carver Korea was acquired by Unilever in Sept 2017 for EURO 2.27bn. Starting as a company supplying professional products to beauty salons, Carver Korea has quickly grown its business via a aesthetics-based skin care brand AHC. It has stepped up the cooperation with Tmall last August. Also last year, Unilever has bought a luxury makeup brand, Hourglass in June and launched its first ever color cosmetic brand in Tmall only three months later.
Dr.Ci:Labo , a Japanese cosmeceutical brand, has been invested by Johnson & Johnson, who bought 20% in Tokyo-based Ci:z Holdings (the maker of the Dr.Ci:Labo ) in July 2016. The brand is now re-entering China last year after quitting the market in 2014.
Market trends in niche beauty
A series of policies issued by China’s government have facilitated trade, particularly the development of cross-border e-commerce, making overseas brands more accessible to local consumers by speeding up the importing processes and reducing costs. Therefore, niche beauty brands are able to provide a price point that is friendly for Chinese consumers that, having travelled and shopped worldwide, are well aware of what the price ‘should be’ and don’t appreciate a higher in-China pricing.
Niche brands that have captured consumers’ attention have used a few key tactics: leading with one clear halo product, focusing on more ‘exotic’ ingredients and emerging technologies, and offering a novel experience – all complemented by sustainable and/or ‘natural’ features, which Reuter: Intelligence’s report also showed was a very big plus point for consumers.
While well-established brands continue to focus on the overall, generic branding, niche brands benefit from an ability to make bolder claims, often coupled with organic or ethical features, tapping into Chinese consumers’ lust for finding ‘newness’ in an increasingly fragmented market.
The right sector at the right time
Niche is ideal for the younger generation of Chinese consumers, as they take pride in their knowledge. Knowledge means research, and research means time spent obsessing on platforms like Red (Xiaohongshu), which was shown to be the leading platform for learning about beauty in the report. There are even a few well-known types of beauty lover on such platforms in China:
1) ’Youthful Middle-aged People’: describes younger generations who, despite being born after the 1990s, (so-called ‘post 90’ in China), are overwhelmingly passionate about preventative anti-aging measures. In addition, growing individualism is driving such younger generations to pursue brands that are distinctive from their peers and parents.
2) ’Ingredient Obsessor’: those who are willing to spend tremendous amount of time/efforts in researching ingredients’ safety and effect and use such information as a golden guide when buying any product.
3) ’Gentle Cosmeceutical’: refers to an emerging beauty care category that claims higher safety, mainly tapping into two consumer types: those who deem themselves with sensitive skin, and those who need pre/post treatment for plastic surgery. Beauty products claiming an outright medical benefit were banned recently in China, yet promoting similar effects in a permitted way is still a plus-point.
Attracting this consumer segment is not only about online acumen. As The New Face of Beauty in China reveals, physical retail is still highly sought after, thanks to China’s digital pioneering giving rise to exciting O2O experiences and gamification.
While the market is as ripe as can be, brands need to ensure that their marketing game, so to speak, is as bold, expressive and fresh as the beauty products that their customers are chasing.
Find out more in the full report of The New Face of Beauty in China here.