The Outlook for China’s Beauty Sector

2020 Market Performance & Trends

• Onshore cosmetics retail grew 14% year-over-year (YoY) in 2020, accelerating from 1% growth in the first half to 26% in the second half.
• Offshore (travel retail) consumption was negatively impacted by travel restrictions, evidenced by a 30% YoY decline in Korea's Duty-Free Spending as a proxy for Chinese traveler activity.
• Combined onshore and offshore consumption resulted in a 1% total YoY decline for the Chinese beauty market in 2020.
• Online penetration surged by nearly 7 percentage points to reach 38% of the market in 2020.

2021 Outlook & Forecasts

• The sector is projected to grow 22% YoY in 2021, reaching a total market size of 650 billion RMB (approx. $95 billion USD).
• Growth is driven by a recovery in offline channels and continued expansion of online sales.
• Travel retail remains a primary variable for 2021, with recovery expectations tied to global vaccination rates potentially materializing in the second half of the year.
• Online penetration is forecast to rise from 38% in 2020 to 57% by 2025.
• Leading brands are already generating 50% to 60% of sales through online channels.

E-Commerce Consumer Dynamics

• Digital reach is expanding across demographics, with consumers over age 40 increasing online beauty purchases.
• Product categories beyond skincare and makeup are gaining traction online, including body wash and hair care.
• Consumers are utilizing a broader array of platforms; there is notably low overlap between personal care buyers on WeChat versus Tmall/Taobao.

Strategic Shifts in Local Brands

• Chinese local brands are pivoting from single-brand reliance to multi-brand portfolios to mitigate short consumer brand cycles and ensure sustainable growth.
• Yatsen (Yaxin) expanded its portfolio from three brands to seven across makeup, skincare, and premium segments between early 2020 and September 2020.
• Industry peers are following similar strategies, which is expected to alter long-term competitive dynamics.

Industry Headwinds & ESG Considerations

• A shift in consumer perception could trigger "trade-down" trends, potentially mirroring a 2010 South Korean scenario where low-cost retailers caused multi-year category declines despite stable income.
• Companies are beginning to address Environmental, Social, and Governance (ESG) issues, specifically regarding animal testing.
• Shanghai Jahwa issued the first ESG report among Chinese listed cosmetic companies in February, signaling an expected industry-wide trend toward greater transparency.