The beauty industry, a realm often characterized by rapid changes and intense competition, finds itself navigating a challenging landscape in the latter part of 2024. According to the National Bureau of Statistics, the total retail sales of cosmetics in China during the period from January to December 2024 reached 435.7 billion yuan, reflecting a year-on-year decline of 1.1%. This downturn is echoed in various industry reports highlighting a pervasive downward trend in prices through the first three quarters of the year, suggesting a complex interplay of market dynamics at play.

As the industry grapples with these shifts, a stark divergence emerges among different players within the cosmetics sectorWhile iconic international brands such as Shiseido and Amorepacific report declining sales figures in China, local companies like Proya and Shangmei have experienced impressive double-digit growth rates during the same periodThis phenomenon raises critical questions regarding consumer preferences and market strategies in an industry that routinely demands innovation and adaptability.

Delving into the performances of international giants reveals a concerning trendShiseido’s latest financial disclosures reveal a significant decrease in core operating profit, with the figure plummeting by 25.6% year-on-year in the first three quarters of 2024. Sales in China specifically faced a 2.4% decline, marking a troubling trend for this once-dominant playerSimilarly, Amorepacific's third-quarter report indicated a staggering 34% drop in sales within the Greater China area, underscoring the challenges international brands face in a market that has become increasingly competitive.

Contrastingly, L’Oréal's results tell a nuanced storyWhile the global giant recorded overall sales of 32.4 billion euros, reflecting a 6% growth, the North Asia region, which includes China, saw a 3% decrease in salesThe first half of 2024 for L’Oréal in mainland China yielded modest single-digit growth, highlighting the turbulent waters that even established brands must navigate

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L’Oréal acknowledged the difficulties, stating that the mainland market was underperforming, particularly in the second quarter, where signs of negative growth overtook prior expectationsEven as luxury segments managed to gain market share in niche areas, the overall sentiment in the market remained notably challenging, with significant pressure in regions like Hainan affecting travel retail.

In stark contrast, local brands have emerged as formidable competitors, showcasing resilience and agility that international players have struggled to replicateProya, for instance, reported a remarkable revenue increase, reaching 6.966 billion yuan with a growth rate of 32.72%, and a net profit rise to approximately 999 million yuan, marking a robust 33.95% surgeShangmei’s financial results highlighted an even more staggering growth, with its half-year revenues ballooning from 1.587 billion yuan in 2023 to 3.502 billion yuan, alongside a profit leap from 100 million to over 400 million yuan.

Experts attribute this growing gap in performance to shifting consumer demands and preferencesZhang Yi, CEO of iiMedia Consulting, remarked on the flourishing appeal of domestic cosmetics, particularly those harnessing traditional Chinese herbal ingredients that resonate deeply with local consumersThis alignment with cultural sentiments has strengthened the connection between domestic brands and their customer base, fueling their rise amid a challenging marketplaceIn contrast, many international brands still predominantly cater to an older demographic, primarily targeting consumers aged forty and above, while the new wave of consumers, predominantly those born in the late 90s and early 2000s, exhibits marked differences in purchasing behavior and expectations.

Interestingly, the demand for high-end products has diminished, further contributing to the disparities in market performanceGao Jianfeng, founding partner of Shanghai Bogay Consulting, noted a contraction in the consumer base willing to invest in luxury beauty products, creating a polarized environment where brand performance drastically varies

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The emergence of budget-friendly, local alternatives adds competitive pressure to established brands, as consumers turn towards products that offer better cost-performance ratios.

Research from Bain & Company shows that in the first three quarters of 2024, the sales of personal care items experienced a drop greater than the previous year, indicating an expanding trend towards affordabilityThe report indicated that the average selling price across personal care categories fell significantly, with prices decreasing from 3.3% in 2023 to 9.6% in 2024. Factors contributing to this decline include an increasing awareness of value-for-money, heightened competition from discount channels, and the aggressive promotional strategies employed by emerging local brands.

Bruno, a senior global partner at Bain, emphasized the criticality of online penetration within the beauty market, highlighting that many e-commerce platforms engage in extensive promotional activities that influence overall pricingHe noted a shift in consumer behavior, with buyers becoming increasingly discerning about functionality and ingredient quality, often favoring products that deliver substantial value for a lower priceThis rational purchasing behavior marks a departure from the previous impulse-driven buying patterns, spotlighting the shift in consumer expectations.

Despite the challenges, the overall market for cosmetics remains in a growth phase, with predictions suggesting the industry size in China reached approximately 516.9 billion yuan in 2023, anticipated to rise to about 579.1 billion yuan by 2025. This growth represents an array of opportunities for brands looking to forge their paths in a competitive landscape.

Lin Han, founder of Xunhui Design, noted that China retains an enormous potential market, characterized by diverse consumer needs across different regions and demographicsFor example, in Xinjiang, where shipping costs can be prohibitive, offline shopping remains prevalent, steering local brands to perform exceptionally well in these markets

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His insights underscore the importance of localized strategies that resonate with regional consumers while addressing specific pain points.

The surge in new brand entrants further illustrates the market's vibrancyAs per a report from Cosmetics Observers, the year 2024 saw the introduction of 56 new brands, more than double the number from the previous year, highlighting the ongoing trend towards innovation and diversification within the sector.

International companies are not backing down but are actively looking to strengthen their foothold in ChinaL’Oréal’s North Asia president, who also serves as CEO for China, expressed optimism that China will emerge as L’Oréal's largest global market, driven by robust development and immense consumer potentialThe group’s recent operational center in Suzhou, designed to efficiently handle over 50 million packages annually, suggests a commitment to scaling operations to meet rising demand.

Shiseido’s commitment to the Chinese market remains unwavering, with ongoing investments reinforcing their long-term strategyTheir establishment of exclusive funds to support key developments, such as their investment in collagen biotechnology, signifies a tenacity to innovate and adapt within this crucial marketIn fact, their initial funding in this sector was near a significant scale, reflecting determination to harness emerging trends.

Despite current pressures, international giants are doubling down on high-end segmentsShiseido unveiled a flagship store for its premium skincare brand The Ginza on Tmall in early 2024. Similarly, Amorepacific is making inroads in the luxury skincare segment with its AP brand, indicating an unrelenting pursuit of opportunity in a shifting landscape.

Looking forward, industry specialists like Bai Yunhu forecast a revival of growth rates for 2025, driven by evolving marketing techniques and increased digitalizationHe proposes that as the industry evolves, there's a high likelihood that domestic brands will grow to dominate the market, mirroring trends observed in other mature markets where local brands eventually take precedence as the market landscape stabilizes

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