china online retail market study part 2: personal care & beauty products
TRANSCRIPT
China online retail market study
2014.11
2014
Part 2
– personal care & beauty products
Personal Care and Cosmetics Online Retail Market – Overview
International brands account for 40% of the high-end market, amounting to RMB31.8 billion. There are over 300 global consignment sellers certified by Taobao. Not only can users buy products of international brands locally, they can also go for cross-border purchases online.
Consumers have shown a preference for international brands. Apart from purchasing domestically, many also make cross-border purchases online
It is often seen in the e-commerce industry that the growth in transaction volume has outpaced that of web traffic implying the bottleneck in getting the users to visit the site. One useful tactic is to introduce more low and mid-priced products to induce trial for new online shoppers.
Low and mid-priced products are attractive to consumers, thus increasing website traffic
Because of the increased in household income, the per capita consumption of personal care and cosmetics has been growing in China and will be at par with that in the developed markets in the future. The size of China's personal care and cosmetics online retail market is expected to exceed RMB100 billion by 2014, with the men's personal care products online retail market slightly surpassing Asia's average.
The personal care and cosmetics market in China has great potential.The surge in consumers’ per capita consumption is seen as the key in driving market growth
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Part 2
2
Personal Care and Cosmetics Online Retail Market Study
Personal care and cosmetics retail sales will increase steadily over the next five years
The online retail market will continue to grow in size
China’s per capita consumption is relatively low compared to the developed countries
The demand from male consumers is gradually growing
The penetration rate of physical stores is low in lower-tier cities
B2C e-commerce has a lower share than C2C
The most popular sub-category among consumers: facial mask
International brands account for a significant piece of China’s market. They are also preferred by consumers for cross-border online purchases
The growth of e-commerce site traffic is generally weak
The successful case of iClick and recommendations for brands and marketers
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
Source: Ping An Securities Research Institute, “In-depth Cosmetics E-commerce Industry Report”, 2014.4
Personal care and cosmetics retail sales will increase steadily in the next five years2.1
3
YoY ( % )China's cosmetics retail sales ( RMB100 million )
According to Frost & Sullivan, China’s personal care and cosmetics retail market witnessed a rapid compound growth of more than 15% from 2001 to 2011. Cosmetics retail sales in 2013 was around RMB220 billion. The annual compound growth is estimated to surge up to 14.3% from 2013-2018, and the market size is expected to exceed RMB400 billion.
-
-
2016e2015e2014e2013e201220112010 2017e 2018e
20%
15%
10%
5%
25%
0%
300
200
100
400
500
0
CAGR of China's cosmetics retail market from 2013-2018 = 14.3%
Growth rate (%)Cosmetics online retail transaction scale (RMB100 million)
Source: i.wshang.com, "2013 China's Cosmetics Industry Annual Review," 2014.1
The online retail market will continue to grow in size2.2
4
China’s e-commerce industry continues to prosper as a result of the steady growth of the country’s overall retail market. The personal care and cosmetics online retail segment grew rapidly in 2014 and is expected to reach RMB100 billion.Personal care and cosmetics are different from other products in which they have a higher repeat purchase rate, smaller in product size, and a higher degree of standardization, leaving it a huge potential to generate rapid demand and becomes one of the key factors for market growth.
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The transaction scale of China's cosmetics online retail market in 2010 - 2015
2014e2013201220112010 2015e
100%
80%
60%
40%
20%
120%
0%
120
80
40
160
0
Source: Ping An Securities Research Institute, “In-depth Cosmetics E-commerce Industry Report”, 2014.4
The per capita consumption of cosmetics is still lower than that in the developed countries, it is around 1/8th of Korea, 1/10th of Japan, and 1/16th of the U.S.The growth in China’s personal care and cosmetics retail market has been triggered by the country’s overall economic progress that has empowered consumers with more purchasing power to afford a better lifestyle and spend more on their personal image. These changing habits are key opportunities for brands to catch on.
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China’s per capita consumption is relatively low compared to the developed countries2.3
5
China's per capita consumption of cosmetics is lower than developed countries (2012)
China Korea Japan U.S.
38%
25%
13%
50%
0.0%
300
200
100
400
0
22.5
167.9
216.4
350.5
USD
On the other hand, the men's grooming sector is growing rapidly in China and has an annual growth of 7%, surpassing the overall 5% growth rate of China's personal care retail market.Men shoppers in Tier 1 and Tier 2 cities of China are generally more conscious about their personal appearance and use 7.4 products every two months on average. This is slightly higher than the Asian average and comparable to Korea, where the men’s grooming products sector is already quite developed.
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The demand from male consumers is gradually growing2.4
6Source: Kantar Worldpanel, “Male Revolution – the Modern Chinese Men”, 2014.2
Number of personal care products used by Asian men every two months
Men's grooming products grows rapidly in Asia
Men's grooming products
Overall personal care products
0
VN
TW
ID
PH
CN
KR
MY
TH
Asia
5.6
6.9
7.0
7.4
7.4
7.6
8.1
8.4
7.3
1 2 3 4 5 6 7 8 109
30% 27% 24% 21% 18% 15% 12% 9% 6% 0%3%
16%
8%
6%
5%
0%
12%
6%
29%
17%
8%
7%
3%
27%
9%
7
In China, the distribution and penetration rate of physical stores are greatly different between the top and the lower-tier cities. The consumer purchasing power also varies between cities and is the main reason for the different sales results. Consumer purchasing power in lower-tier cities and rural markets will continue to rise. Instead of building physical stores to cope with this growing demand, brands would rather go for online channel as an more effective avenue to tap in potential customers.
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The penetration rate of physical stores is low in lower-tier cities2.5
Body lotionLip careHand creamEye careFacial careCleansingproducts
Facialmoisturizers
75%
50%
25%
100%
0%
Product penetration rate varies greatly within the local markets
Tier 3, 4 cities
Tier 1, 2 cities
Source: Ping An Securities Research Institute, “In-depth Cosmetics E-commerce Industry Report”, 2014.4
B2C online retail penetration rate shows an upward trend, from 1.3% in 2010 to 10.2% in 2013, and is expected to grow to RMB94.6 billion by 2018.However most brands do not have direct e-commerce channels and that caused some parallel goods, unauthorized goods and even counterfeit products to transact in the C2C market. To sustain long term sales and profitability, brand owners are advised to establish their own online stores or e-commerce channels to provide products to customers directly.
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-
2.6
2016e2015e 2018e2017e2014e2013201220112010
20%
15%
5%
10%
25%
0%
90
70
30
50
10
80
60
20
40
100
0
8
The C2C e-commerce sites account for 70% of the cosmetics online retail market share
Transaction scale and penetration of B2C cosmetics in China
B2C cosmetics penetration rate (%)
B2C cosmetics sales (RMB100 million)
Source: Ping An Securities Research Institute, “In-depth Cosmetics E-commerce Industry Report”, 2014.4
B2C e-commerce has a lower share than C2C
29.2%
70.8%
B2C
C2C
According to Nielsen, facial mask is the most popular product in the category, with 92% of online shoppers placing orders in their shopping carts. This is followed by moisturizers (56%), cleansing products (53%), eye cream (52%), and lip care products (33%).In terms of average purchase amount, consumers are seen to spend most on moisturizers (RMB255), followed by eye cream (RMB250). Average spending on top 5 most popular products is RMB168, which suggests low and mid-priced products can be used to attract consumers and increase site traffic, followed by other product recommendations for higher profits.
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Source: Nielsen, "2013 Insight Report on Double11 Cosmetics Online Shopping," 2014.1
The most popular sub-category among consumers: facial mask2.7
Which sub-category is the most popular among online shoppers?
Eye cream Lip care Others Facial mask Moisturizer Cleansing product
60%
40%
20%
80%
100%
0%
RMB
300
200
100
400
500
0
9
Average purchase amount (RMB)% of consumer picked this item into shopping cart
52%
33%
15%
92%
115
255
73
250
145
472
56%53%
31.8
In 2013, the Chinese luxury brand cosmetics market had a size of RMB31.8 billion, and 40% of the market share was taken up by 5 international brands. European and American brands are the main focus of overseas consignment purchase and cross-border shopping, and there are over 300 global sellers certified by Taobao alone.Foreign brands should actively launch their own online stores to address the needs of Chinese consumers and avoid consignment sellers from taking their customers.
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International brands account for a significant piece of China’s market. They are also preferred by the consumers for cross-border online purchases
2.8
10
Top 5 brands among different categories in alphabetical order LancômeEstée Lauder CHANEL Dior
60%
40%
20%
80%
100%
0%
200
400
600
0
The No. of Taobao global consignment sellers (Cosmetics)
Source: Bain & Company, "2013 China's Luxury Market Research," 2013.12
Luxury goods spending (Cosmetics) in China
346
502
432
350
Unit
LancômeSHISEIDO
Estée Lauder
CHANELDior
RMB100 Million
Personal care and cosmetics retail sales will increase steadily over the next five years
The online retail market will continue to grow in size
China’s per capita consumption is relatively low compared to the developed countries
The demand from male consumers is gradually growing
The penetration rate of physical stores is low in lower-tier cities
B2C e-commerce has a lower share than C2C
The most popular sub-category among consumers: facial mask
International brands account for a significant piece of China’s market. They are also preferred by consumers for cross-border online purchases
The growth of e-commerce site traffic is generally weak
The successful case of iClick and recommendations for brands and marketers
The growth in e-commerce site traffic dropped after 2012 but the growth of transaction volume began to exceed that of site traffic. This shows that online retailers are generally facing the problem of sluggish growth in traffic.Instead of spending huge amount in media to drive traffic to the sites, e-commerce owners should now turn their investment to adopt precise audience buying to capture the targeted segments and convert them into new customers.
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Source: i.wshang.com, "2013 China's Cosmetics Industry Annual Review," 2014.1
The growth of e-commerce site traffic is generally weak2.9
(No. of interested people/No. of transactions) Conversion rate (right axis)
Growth rate of number of interested people (left axis)
Growth rate of transactions (left axis)
11
2012Q4 2013Q2 2013Q32012Q32012Q22012Q12011Q42011Q32011Q22011Q1 2013Q1 2013Q4
20%
15%
10%
5%
25%
30%
0%
60%
40%
20%
80%
100%
120%
0%
2011- 2013 cosmetics site online shopping conversion
An international cosmetics brandLaunched online store in Q3 2013 with the aim to increase website traffic and maintain brand imageIncrease conversion rate and online salesSEM + Display advertisements executed for 3 months
Client:Background:
Campaign Objectives:iClick suggested strategies:
12
The successful case of iClick and recommendations for brands and marketers2.10
Display Ads
Precise audience buy – Capture new customers Retargeting – triggers existing customers to visit online store again
SEM ( Over 10% of search was converted from display ads )
Number of orders increased over
103%
Conversion Rate increased over
160%
To target audience based on some specific demographic and behavioral factors, e.g. high income female users who have browsed cosmetic websites and shared content about fashion and apparel in their social network.
1.2.
3.
High potential customers who have made purchases General potential customers who have visited the site and browsed products without purchaseInterested customers who have registered to receive newsletters
Existing customers were divided into three categories:
Recommendations for brands and marketers
13
How does a brand stand out from the crowd in this fast-changing market environment? iClick has the following recommendations for marketers:
Advertising to the mass no longer works to increase site traffic
For online retailers, the growth in transaction volume has outpaced that of site traffic since 2012. Advertising to the mass no longer works to generate traffic but will only lower the advertising ROI. Marketers should instead turn to precise audience buying and devise new marketing strategies to acquire new customers.
Repeat purchase rate is the key to increasing consumers’ per capita consumption
Inducing repeat purchase and upselling high-priced products are the keys to boost sales. There are many ways to lure consumers to repeat purchases, such as membership systems, time-limited promotions, reward point promotions, etc. When more purchasing patterns and intelligence are collected, online retailers can then base on these CRM analytics to advance its upselling and cross-selling effort appropriately.
Consumers prefer top international brands, setting cross-border online shopping a new trendAs Chinese consumers become wealthier, they now look for international brands for personal care and cosmetics products. In order to avoid the consignment purchasing channels from taking away the profits, brands should quickly set up their own online stores and increase exposure through advertisements. They can also launch and promote new products simultaneously with overseas markets, as well as adjusting prices to meet the need of local consumers.
Apparel, footwear, hats, and bags online retail update
Part 3 is coming soon . . .
Thank youWebsite: i-click.comOf�cial Weibo: Weibo.com/iclickasiaE-mail: [email protected]: iClick_China
The content and the conclusions in this report represent the Company's viewpoint only. The content is intended to be accurate and reliable. However, the Company does not guarantee the accuracy and completeness of both the content and the citations.