The Chinese Men's Cosmetic Market: Guangzhou, Hong Kong and ...

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shares. Therefore, it is essential to be able to identify any secondary cities that would become the next Shanghai or Beijing, which has over 6 million and 8 million visitors per year respectively (Facts and Details). There are a few secondary cities that show a huge potential growth in cosmetic market and long term profit. Those secondary cities are Guangzhou, Macau, and Hong Kong. Guangzhou is the key national transportation hub and trading port and it is the third largest city in China as well as the largest city in southern China. Economically, Guangzhou is one of mainland China’s leading commercial and manufacturing regions. In 2009, the GDP reached $133.5 billion, with total income per capita around $13,111. Additionally, Guangzhou has the International Beauty Expo annually, which is the most influential beauty trade event in China. The expo attracts visitors from all over China, Asia, Europe, America, and the Pacific region. With 10 exhibition halls presenting a wide spectrum of beauty and related products, each edition recorded over 200,000 entries by trade buyers and professional visitors in 2010 (CantonFair.net). The Guangzhou Beauty Expo has become one of the best known beauty industry events in the world. The men’s cosmetic market within Macau and Hong Kong are expected to see significant growth for several reasons. First, the mainland granted all Hong Kong and Macau products tariff-free treatment under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). All goods made in Hong Kong, including cosmetics and toiletries products subject to the CEPA’s rule of origin, can enjoy duty-free access to the Chinese mainland since January 2006. Second, there are 28 million visitors and 14.6 million visitors to Macau and Hong Kong each year respectively. An estimated 58 percent of these visitors from mainland China come to Macau each, and the number of visitors has increased at a steady rate 13.4 percent since 2007 (HKTDC). With the arrival of mainland tourists under the individual visitor scheme and the concomitant surge in Hong Kong’s cosmetics sales, many businessmen are eyeing the lucrative local cosmetics market. Hong Kong is often viewed as a showcase region for foreign brands wishing to target mainland customers and has continued to attract new brands. Thirdly, Chinese men are becoming much more health and appearance cautious within the secondary cities. In addition, the demand for men’s cosmetic products has been increasing consistently since appearance takes a more important in business in China. This change has often been referred to as the “beauty economy”. Finally, the purchasing power for the middle class and the willingness to spend money on cosmetics products are ranked among the top five compared to the rest of secondary cities in China, which explains why Guangzhou, Macau, and Hong Kong are the three of the most attractive secondary cities to many cosmetic companies. Market Dynamics China currently stands as the second-largest economy in the world with $10.09 trillion in sales in 2010 (CIA). With a GDP growth rate of 9% per year and a steady increase in disposable income, there is a large market for companies interested in pursuing the market for personal care items (Nielson). Fueling China’s economic boom is the increased migration to urban areas over the past 10 years. Increased work opportunities in urban areas have lead to a steady increase in disposable income at a level 6
3 times that of rural China (Nielson). By 2025, it is projected that 59% of China’s urban households will be in the upper middle class and earning between $20,000 and $40,000 per year (Nielson). This increase will stimulate spending in areas such as food, apparel, household products, and personal products. Growing Middle Class According to The China State Information Center (CSIC), the Chinese middle class currently contains around 300 million people. While classifications differ, if a Chinese citizen has a stable income sufficient to afford an apartment, a car, a child’s education, and more discretionary purchases, they are likely to be considered members of the middle class (LiAnne Yu). As of 2010, about 25% of the population falls into this category (Nielson). There has been a 350% increase in per capita income over the last 60 years and the population is on track to create a 700% growth over the next 20 years. By 2025, there should be a consumer market of around 1.3 billion people (Nielson). Although the wealth is highly concentrated in urban areas, overall increased income is driving the spending habits of the population (Nielson). 7 China’s New Consumer China’s new consumers view products as status symbols (LiAnne Yu). Increased competition in the job market has caused a recent surge in the cosmetic industry as individuals are looking to differentiate and improve their appearance to improve their professional standing. The wealthiest consumers in China will be between 25 and 44 years of age (Nielson). China’s new consumers are young, have higher incomes, and access to more information. These shoppers frequent hypermarkets and supermarkets channels for their spending channels. “Convenient to get”, “Staff provided good service,” and “clean and hygienic stores” are the key drivers influencing where these customers choose to shop (Nielson). Chinese Consumer Confidence The Consumer Confidence Index measures the degree of optimism that consumers feel about the overall state of the economy and their personal finances. Consumer confidence levels above and below a base of 100 represent varying degrees of optimism and pessimism. Shoppers growing confidence reflects an increased willingness and ability to spend (Daily). The Nielson Consumer Confidence survey asks over 3,500 Chinese how confidently they feel in regards to their job, financial prospects, and willingness to spend (Nielson). Results from the most recent survey indicate that Chinese consumers are increasingly optimistic. In the most recent Nielson survey from 2009, China’s average consumer confidence score was 103 while the world average was only 87 (Economics). Cosmetic Market On a national level, shampoo leads the non-food spending categories with an annual growth rate of around 7%. Additionally, skin moisturizer has an annual growth rate of around 11%. Toner achieved the highest non-food growth rate with a 37% national sales
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