Now, the majority of customers are white-collar workers, but the situation is also changing,” says Yu Fei, chief executive officer of Langezhiyang International Marketing and Sales, a consultancy focused on the beauty industry. “The rural market was on a very basic level before, but with financial and policy support from central government, people from the countryside have more money. It is developing and is a new power,” continues Yu. “In five years, [rural markets] will take up 30 percent of the whole market.”
Marketing firms break down China’s developing regions in terms of “tiers” based on a city’s size, development and purchasing power. With more than 100 cities of over 1 million people and a rapidly urbanizing population, such cities represent an immense potential consumer base.
Analysts at JP Morgan Chase say second-tier cities like Tianjin, Dalian, Ningbo, Wuhan, Chongqing and Xi’an are growing extraordinarily quickly and offer great potential.
“Now the distribution channel is expanding; many international brands only have stores at nice department stores in first-tier cities, but they are paying more attention to the second- and third-tier cities,” says Yu. “The countryside is a big potential market. The purchasing power of rural people is increasing along with increasing urbanization.”
Second- and even third-tier cities are developed enough that consumers follow fashion trends and have disposable income, analysts say, and they’re hungry for new products and new trends.
“If we get a good product that people have heard of or been waiting to try, I can barely keep it in stock nowadays,” says Fan Lingling, a clerk who works in the Gingko Center, a high-end mall in Kunming, Yunnan Province. Kunming is one of the new growth cities, and it illustrates how individual each of the locations are. The capital of Yunnan, which borders on Laos, Myanmar and Vietnam, much of the new wealth here is related to trade with Southeast Asia.
As different as each city is, trends remain constant with other smaller cities in China. Skin care dominates, rather than makeup, and whitening products are a priority.
Research firms, all of which have their own classification systems, say China has between 30 and 40 cities that are classified as second tier, and even more that fall into third- and fourth-tier categories. The lower the tier, the greater the potential for raw growth, if current development patterns continue. But right now, analysts say, second-tier cities are beauty companies’ prime target for retail expansion. The Chinese government has targeted many of these cities and regions, including Chongqing, Chengdu, Xi’an and other western points, for aggressive development programs, offering tax breaks for big investors and building new infrastructure. Investments are beginning to pay off, as second-tier cities and beyond grow. Along with broader development has come greater consumer buying power. In addition, growth in these cities is essential to central government plans to turn China’s economy away from basic manufacturing and toward consumer- and innovation-driven growth.
The cities themselves are growing quickly in population as well, as more former agricultural workers and farmers move to urban areas for better opportunities.
The power of China’s lesser-developed consumer markets, particularly reaching into the internal hinterlands in places like Sichuan Province, has a deep allure for international companies who are looking to China to fuel their business. More than half of the country’s 1.3 billion people still live in those parts of China, and as Yu mentions, their income and buying power is increasing by leaps and bounds. So too is their taste for imports and quality goods, including beauty products.
Another unique twist of the market here is that target buyers are significantly younger than in more developed markets. Not only are they younger, but they’re also more influential, and have taken on the role of teacher, educating their parents about cosmetics and other products, according to Yang Yan, a spokesperson for Shiseido. In the U.S. and Europe, most women learn about products from older female relatives. Yang notes that women born in the 1980s, now in their 30s, are the major beauty trend leaders in China, influencing those younger and older than they are.
In terms of sales techniques, Shiseido believes that a hands-off, gradual approach works best with Chinese customers. Shiseido shops are low-pressure, offering guidance and advice to customers who ask, but steering very clear of high-pressure sales techniques. “Shiseido is not that aggressive,” says Yang. “That’s a really different service than other companies.”
In its 30 years of business in China, the company has seen incredible change. “Buying power is growing so fast and people care very much about how they look,” says Yang.
And hence China’s beauty market will continue to grow. Analyst Gong Wenqing, a researcher from Beijing Shangpu Information Consulting Co., notes that growth will not just be in the high end. “Many years ago, high-end shopping malls were the biggest market player, with 70 percent of the market,” says Gong. “Now those malls are more used for brand promotion, while beauty retail stores and supermarkets together take up most of the market.”
“Online shopping is growing very fast recently,” Gong adds, noting that online sales account for 8 to 10 percent of the market.
For international brands, the opportunity seems boundless. Gasparrini says L’Oréal plans to double its business in China in the next three to five years. Says the executive: “What is interesting and attractive in this market is it’s still a market that allows you to have a dream that is not a dream, but an actual goal.”
The New China: 5 Key Points
Great Expectations: Chinese women see a direct link between success and looks, and hence have high expectations for product performance.
Social Studies: Rather than an individualized view, women here are still very much governed by overall societal opinions.
Growing Pains: Though the market has been growing at about 16 percent annually for the past five years, that figure is expected to decrease to 6 to 8 percent over the next five years.
Second Best: As the country urbanizes, Tier Two cities are gaining in importance for international marketers.
Young Influencers: The target demographic for beauty marketers skews younger in China than in other markets; many young people have taken on the role of educator, teaching their parents about products.