China To Replace U.S. as Top Beauty Market

2007-07-05 | 08:33

Sales to near $4 billion by 2009

China is on track to replace the United States as the most beautiful place in the world for cosmetics makers.

With rising affluence enabling more women to buy luxuries like lipsticks and skin creams, cosmetics sales in China are projected to hit $3.8 billion in 2009, surpassing the U.S., according to TNS Worldpanel China, part of the international research house Taylor Nelson Sofres.

That projection is based on expectations of continued double-digit growth in the Chinese cosmetics market and a steady low-growth trend in the U.S.

The Chinese cosmetics market expanded 17% in 2006 to $2.2 billion, helped by fast growth in second-tier cities, the popularity of anti-aging products and pent-up demand for direct sales following the end of a ban in 2006.

TNS predicts Chinese cosmetics sales should sustain a growth rate between 15% and 20% in the next three years; at the top end of that pace, the market would reach $3.8 billion by the end of 2009.

By contrast, the U.S. cosmetics market has been fairly flat, growing less than 0.2% to $3.6 billion in 2006.

“If that continues in the next three years, China is likely to overtake the U.S. Even if we see growth of 2% in the U.S. for the next three years, China will still be vying with the U.S. market in 2009 and would probably take the lead the year after,” said Jason Yu, a Shanghai-based regional account development director for TNS Worldpanel.

With a brisk pickup in direct sales, there was an extraordinary 82% increase year-on-year in sales of skin-care products in 2006 and a 92% rise in makeup, more than four times as fast as the growth for the entire market.

In the direct sales business, companies build networks of local agents who sell to friends, acquaintances and members of their communities on commission.

Anti-aging products have been a big direct-sales hit in China, accounting for nearly 21% of overall purchasing value in 2006, up from 13.6% in 2005.

Despite this high growth, direct sales still account for a small share of the overall market: one in 15 buying households, compared with one in four in Taiwan. What’s more, a mere 2.6% of Chinese households bought a full lineup of cosmetics products in 2006, from facial moisturizers, cleansers and toners to makeup.

Even more exciting for global cosmetics companies is the room for growth in cosmetics spending in China.

Average spending per household on cosmetics in 2006 stood at $26, compared with $191 in South Korea and $176 in Taiwan. Chinese women spent just $7 on each buying trip for cosmetics, compared to $31 for their South Korean counterparts and $26 for the Taiwanese.