Report publisher: BOC Securities
The following is an excerpt from the original report
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1. The cosmetics industry is diverse and developing steadily
1.1 Industry Overview: There are rich categories of makeup products, meticulous makeup processes, and numerous products involved.
The cosmetics category is rich and covers the diverse and sophisticated needs of consumers. Makeup is a major category of cosmetics, which mainly refers to beauty cosmetics used on the face, eyes, and lips. Its main function is to give the skin color, correct the skin color, or enhance the shadows of the eyes and nose to increase the three-dimensional effect. Make it more attractive. At the same time, it can also be used to cover skin defects such as freckles, scars, and moles. Cosmetics can be divided into base makeup products, lip makeup products, eye makeup products, makeup tools and makeup remover products according to product functions. The specific functions of different categories vary greatly and are difficult to replace each other. Many categories of makeup products cover the diversified needs of consumers.
From the specific process point of view, the makeup process has many steps and involves a wide range of product categories. The makeup process roughly includes five stages: skin care, base makeup, eyebrow makeup, contouring, and lip makeup. 1) Base makeup: primer/isolation + liquid foundation/cushion + concealer + contouring/highlighting + setting makeup. The functions of base makeup products tend to be refined to create a compliant makeup suitable for different skin types. 2) Eyebrow makeup: eyebrow pencil/eyebrow powder + eye shadow + eyeliner + eyelash curler + mascara. The color matching of eye shadow and eyeliner is constantly innovated to easily create various makeup looks. 3) Lip makeup and blush: lipstick + lipstick + blush. Lipstick textures and colors are constantly enriched to help create makeup for different occasions. The product categories related to each link are rich, covering the comprehensive needs of consumers with different skin types for different makeup effects and products at different price points.
1.2 Industry scale: Color cosmetics maintains steady growth, with base makeup products being the focus
As one of the three major cosmetics subcategories, China's color cosmetics industry reached 65.652 billion yuan in 2021, a year-on-year increase of 10.11%, showing a steady growth trend. According to statistics, China's beauty and personal care/skin care/cosmetics market size in 2021 is 5686.05/2938.06/65.652 billion yuan respectively, with a year-on-year growth rate of 8.93%/8.70%/10.11%. Among them, color cosmetics account for the smallest proportion but the highest growth rate. During the epidemic, consumers’ travel scenes decreased, and makeup consumption was affected. In the long term, the color cosmetics market is expected to maintain steady growth as consumers' demand for beauty continues to grow in the future.
The scale of the cosmetics market is growing steadily and there is still much room for development compared with overseas markets. In recent years, except for short-term fluctuations caused by the epidemic in 2022, the growth rate of China's color cosmetics market has been generally stable, with the industry scale and its growth rate far exceeding Japan and South Korea, and second only to the United States. In 2022, the per capita makeup consumption in China, Japan, South Korea, and the United States will be 39.33/210.67/327.43/409.92 yuan respectively. Compared with mature overseas markets, the current per capita consumption level of cosmetics in China is relatively low. As consumers’ demand for beauty continues to grow, there is still much room for development in China’s cosmetics industry in the future.
Base makeup is the category with the highest proportion among color cosmetics and leads the growth rate in the segment. In 2022, bottom makeup products/lip makeup products/eye makeup products/nail products/makeup sets achieved sales of 279.52/177.81/83.56/3.74/1.066 billion respectively, of which base makeup products accounted for the largest proportion of makeup sales. As consumers pursue comfortable makeup effects, the market share of makeup products is expected to further increase. It is predicted that makeup product sales will reach 42.249 billion yuan by the end of 2027, with a compound growth rate of 8.61% from 2022 to 2027.
1.3 Competition landscape: The increased recognition of key brands has led to an increase in industry concentration, with domestic brands standing out.
Consumer recognition of key brands continues to increase, which promotes an upward trend in the concentration of China's cosmetics industry. International brands such as Maybelline and L'Oreal entered the Chinese cosmetics market early, followed by the rise of domestic leading brands such as Huaxizi and Perfect Diary. Key cosmetics brands have strong brand power, are highly recognized by consumers, and occupy a large market share in the long term. CR3, CR5 and CR10 in the color cosmetics market will all show an upward trend from 2013 to 2022, with CR3/CR5/CR10 reaching 43.9%/54.3%/70.4% in 2022. In the future, as consumers' recognition of key brands continues to increase, industry concentration is expected to continue to increase.
Among the top ten brands with market share, local cosmetics brands continue to rise in rank, and domestic products are on the rise. Before 2020, top cosmetics brands were mainly international brands, with Maybelline continuing to rank first in market share. With the enhancement of cultural confidence and the rise of national fashion, domestic cosmetics brands have expanded their market share year by year by virtue of the improvement of their product quality and their price advantages over leading overseas cosmetics brands. After 2020, the market share of leading international brands such as Maybelline, L'Oreal, and Dior has declined significantly. In 2020, Perfect Diary ranked top 1 in the cosmetics brand market share. In 2021, Perfect Diary maintained a good development trend, and the Huaxizi brand accounted for 6.5% of the market. The market share ranks among the top 1 in cosmetics brands, and the advantages of domestic brands are highlighted.
Luxury brands are mainly international brands, while domestic brands are concentrated in mid-to-high-end and mass price ranges. The more prominent international brands in my country's cosmetics market mainly come from four companies: L'Oréal, Estee Lauder, Amore and Shiseido, while there are more parent companies of domestic brands. In addition, most of the luxury brands in the cosmetics market are international brands, with fewer domestic brands. Among luxury cosmetics brands, only Shanghai Jahwa's Shuangmei is a domestic brand; most of my country's cosmetics brands are mainly concentrated in mid-to-high-end and mass price ranges. Mid-to-high-end brands include Caitang, Marie Dalgar, and Mao Geping, and mass brands such as Hana and Zhu. Ben, Kazilan, etc.
2. Products: Domestic cosmetics products are localized and high-end, and each sub-category has its own trends.
2.1 China’s cosmetics market has a significant trend of localization, and marketing + products help domestic brands break through
Driven by consumption concepts, nearly half of consumers prefer national fashion cosmetics. Consumers' consumption concepts are changing with the times. Consumers in the domestic market have a gradually increasing sense of identification with domestic cosmetics, and are more willing to try new things and pursue trends and personalization. According to 2022 iiMedia Consulting data statistics, 78.6% of consumers believe that Guochao Beauty is attractive, and 49.6% of consumers believe that Guochao Beauty is creative and willing to support it. All in all, the domestic market’s recognition of Guochao cosmetics continues to increase.
The market share of major domestic brands is on the rise, and domestic high-end cosmetics brands are on the rise. In the context of consumption, in recent years, domestic brands have been scrambling to grasp national trends, create differentiated brand positioning, and gradually penetrate into the minds of consumers through marketing and celebrity items, thereby promoting an increase in market share. From 2016 to 2021, the number of domestic makeup brands ranking in the top ten by market share remains at 2. In 2022, three brands, Huaxizi, Perfect Diary, and Kazilan, will rank in the top ten. Among them, Huaxizi is rooted in traditional Chinese culture , to create differentiated brand positioning, its market share will increase to 5.4% in 2022, surpassing many major international brands. Mao Geping positions mid-to-high-end cosmetics, and its market share will increase from 0.6% in 2017 to 1.8% in 2022. On the basis of differentiated brand positioning, as the competitiveness of domestic products gradually increases, the market share of domestic brands in the Chinese cosmetics market is expected to further increase in the future.
Domestic cosmetics create a differentiated brand image and position the oriental aesthetic advantages. As the national confidence and cultural identity of the new generation of consumer groups represented by Generation Z in the domestic market increase, national trend culture becomes increasingly popular, and oriental aesthetics gradually penetrate into the minds of consumers. Domestic brands represented by Hua Xizi, Caitang, and Mao Geping have an insight into fashion trends, position themselves for oriental aesthetics, and conduct differentiated marketing and product R&D and design based on national trends. The differentiated brand positioning attracts consumers' attention and meets consumers' personalized aesthetic demands. .
Take the cosmetics leader Huaxizi as an example, positioning itself on oriental aesthetics and differentiated positioning to help the brand break through. Hua Xizi was founded to focus on Chinese style and position oriental women's makeup. In terms of product development, we use ancient Chinese prescriptions as inspiration and select Chinese herbal extracts. Product design and packaging incorporate national style elements. For example, the star product Air Powder is inspired by the ancient recipe "Peach Blossom Red Skin Cream". The engraved lipstick replicates the Oriental micro-relief technique for a unique look. Huaxizi leverages its unique products and marketing channels to position its national style deeply into the minds of consumers. In 2021, it surpassed many international traditional brands and ranked first in China's cosmetics market with a market share of 6.5%, showing that consumers have a strong interest in local national style. Cosmetics brand recognition.
Caitang combines Chinese classical aesthetics with international makeup fashion, and master IP helps product sales. Caitang was founded by Chinese celebrity makeup artist Mr. Tang Yi. The product design focuses on customizing the Chinese face with the skills of masters, and the product packaging applies oriental aesthetics. For example, the star-studded highlighter palette is specially customized for Asian faces and accurately targets domestic consumers. It ranks first on Tmall’s highlight repurchase list. Oriental positioning and makeup master IP help the brand grow rapidly. Caitang has grown rapidly since its inception, achieving operating income of 246 million yuan in 2021, and revenue in 2022 increased by 132.04% year-on-year to 572 million yuan.
Mao Geping specializes in oriental characteristics and creates a "high-end, professional" brand image. As the eponymous brand of Chinese classical makeup master Mao Geping, the Mao Geping brand carries the master's skills and aesthetic concepts, and designs products based on the different facial characteristics of Oriental women. For example, the star product Caviar Flawless Cushion Foundation is designed for Asian women's skin color, focusing on strong effects and master recommend. Mao Geping accurately locates consumer groups and uses the IP of the founder master to create a "high-end, professional" brand image to help product sales. In 2022, the Mao Geping brand achieved revenue of 1.572 billion yuan, with a compound growth rate of 44.33% in 2 years from 2020 to 2022. Its major brands The single product performed well, and the two-color concealer ranked No. 1 in Tmall’s “Double 11” concealer product sales.
2.2 China’s cosmetics market is transforming to high-end, and high-end cosmetics have greater room for development
Domestic cosmetics consumption is upgrading, and high-end cosmetics have great development potential. In recent years, domestic consumption of cosmetics products has shown a trend of consumption upgrading, and the sales of high-end price products on the Tmall platform have shown an increasing trend year by year. The sales volume of high-end price products in 2022 will increase by 7.44pct to 13.01% compared with 2019. From a brand perspective, the share of high-end makeup brands in the Chinese market increased from 22.1% to 36.2% from 2017 to 2022. As consumer concepts further mature and the proportion of high-end makeup products increases, China's high-end makeup products will have greater room for development in the future.
2.3 There are various types of cosmetics products, and the trends of sub-categories are differentiated.
There are many types of cosmetics products, and the product trends of sub-categories are gradually diverging. Cosmetics products are mainly divided into three categories: eyes, lips, and face. Different categories focus on different application parts, and their efficacy and needs are also quite different. Eye and lip products are mainly applied locally and used for contouring and color shaping, focusing on personalized needs. Facial products have a relatively large application range and are used to improve skin texture and stabilize makeup, and are more focused on functional needs. In terms of product development trends, sub-categories are also differentiated. Eye and lip makeup products pay more attention to marketing and give products cultural attributes and social attributes through multiple channels, while facial makeup products pay more attention to quality, and adding skin care attributes to products has become an important development direction. .
The homogeneous competition in eye and lip cosmetics is fierce, and differentiated marketing creates product features. Eye and lip cosmetics are mainly color products with low industry manufacturing thresholds, which makes the eye and lip cosmetics track face relatively fierce homogeneous competition. With low technical barriers, brands are committed to creating product features and differentiated competition through multiple channels and means. Huaxizi conducts product research and development and design around Chinese style, and its Tongxin Lock lipstick was ranked 13th on Tmall’s lipstick V list. Perfect Diary's classic products have cooperated with well-known and personalized IPs many times. In 2023, the eyeshadow palette jointly branded with McDull ranked third on Tmall's sales list of similar products. Combining co-branding with popular elements and innovating product details has become an effective marketing method for cosmetics brands to compete in differentiated competition.
The technical threshold for facial makeup is relatively high, and major brands are actively launching skin care base makeup products. Facial makeup products that mainly focus on base makeup have high technical barriers, relatively basic cosmetic effects, large application area, and are closer to skin care products. Therefore, quality consumers tend to have higher requirements for their quality and efficacy. On this basis, major brands have paid more attention to their investment in research and development of facial makeup and continued to build technical barriers. At the same time, many brands have successively added essential oils, Chinese herbal medicines, minerals and other skin-nourishing ingredients to their base makeup products. Such as Proya's new dual-antibody skin-nourishing foundation, Lancôme Pure Cushion, Estee Lauder Platinum Foundation, etc.
Skin-care base makeup products are well recognized by consumers, and product functionalization and skin care-oriented products have become an industry trend. According to the "2022 Beauty Trend Insight Report" released by Douyin e-commerce, the content playback volume and search scale of skin care cosmetics have been increasing since 2022, and consumers are paying more and more attention to the skin care effects of foundation makeup. Various brands have performed well in launching skin-nourishing foundation products. As of July 1, 2023, 7 of Tmall's top 10 best-selling foundation products contain skin-nourishing ingredients, and Douyin's top 10 best-selling foundation products include skin-nourishing ingredients. There are up to 6 items with skin-friendly ingredients. At the same time, according to user statistics, sales of skin-nourishing liquid foundation on Taobao and Tmall from 2021 to 2022 will be 1.582 billion yuan, a year-on-year increase of 2.11%, and the market penetration rate is as high as 21.64%. Facial makeup products, represented by foundation makeup, are functional and skin-care-oriented, which meet the needs of consumers and have become a major trend for brands to create unique products with competitiveness.
3. Channels: E-commerce channels are growing rapidly, driving changes in cosmetics sales channels
3.1 Overall situation: Cosmetics sales channels are diversified, and e-commerce channels are large in scale and have high growth rates.
There are four main sales channels for cosmetics, among which e-commerce and department stores account for a relatively high proportion. The sales channels for makeup in my country mainly include department stores, KA, CS, and e-commerce. The department store channel refers to the cosmetics brands setting up counters in large department stores (such as Intime, Parkson, etc.). Foreign brands began to enter China by setting up counters in the 1990s, mainly mid- to high-end foreign brands. In recent years, the sales share of department store channels has declined, but it still maintains its lead. The KA channel refers to chain shopping malls and supermarkets, such as Wal-Mart and Carrefour. It is the main position for affordable domestic brands such as Little Nurse, Xiangyi Herbal, Pechoin, etc. Cosmetics are placed together with skin care products and personal toiletries. E-commerce channels use mainstream social and media APPs to attract traffic and interoperate with e-commerce platforms such as Taobao, Tmall, JD.com and other sales methods, covering almost all beauty brands with high, medium and low positioning, gradually squeezing department stores and KA channels, and occupying a dominant position. The CS channel is a specialized sales store for cosmetics, including traditional beauty brand chain stores and new beauty collection stores, such as Watsons, Kazilan, KKV, Huamei, etc.
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