After years of rapid growth, the Chinese cosmetics market has hit the brakes.
Since last year, there have been signs of slowing growth in the total retail sales of cosmetics. The overall performance of the Chinese cosmetics market in the first quarter of this year is also not optimistic. According to data released by Chaileedo Intelligence, the size of the Chinese cosmetics market in the first quarter of this year was 219.63 billion yuan, a decrease of 0.28% compared to the same period last year. Senior industry experts believe that in the first quarter of this year, China’s cosmetics market has shown a “slow start and slow pace,” which may also indicate that the once-thriving cosmetics industry has entered a new stage of development.
An unfavorable start to the year 2024
Under obvious pressure, the atmosphere feels cold. According to data compiled by Chaileedo Intelligence from 40 listed domestic cosmetic-related companies, in 2023, the total revenue of domestic cosmetic-related listed companies was 102.143 billion yuan, a decrease of 2.3% compared to the previous year. Among them, the total revenue of raw material companies was 35.456 billion yuan, a year-on-year decrease of 16.1%, while the revenue of OEM/ODM companies was 3.597 billion yuan, representing a year-on-year decrease of 20.8%. Brand companies and oral care enterprises saw increases of 11.7% and 13.4% respectively compared to the previous year, but at a slower growth rate.
No doubt, the annual reports of the 40 listed companies in 2023 are a microcosm of the industry’s current situation from the previous year. According to data from the National Bureau of Statistics of China, the national retail sales of cosmetics from January to December 2023 were 414.2 billion yuan, an increase of 5.1% year-on-year. This figure is significantly lower than the overall growth rate of 7.2% for retail sales of consumer goods during the same period and also falls short of the national GDP growth rate of 5.2%.
The slowdown in the cosmetics market has become an undeniable fact. Following the subdued state of the previous year, the overall performance of the cosmetics market in the first quarter of this year also appears less optimistic. According to data from Chaileedo Intelligence, the size of the Chinese cosmetics market in the first quarter of this year was 219.63 billion yuan, a decrease of 0.28% year-on-year. Among them, the online market size was 114.17 billion yuan, an increase of 3.4% year-on-year, while the offline market was 105.46 billion yuan, a decrease of 4% year-on-year.
Looking at sales channels, in the first quarter of this year, among online channels, the largest sales volume still comes from the Taobao-related channels, with sales reaching 523.8 billion yuan, accounting for 23.85%, a decrease of 9.8% compared to the previous year. Douyin (TikTok) ranks second, with sales of 397.2 billion yuan, accounting for 18.09%, showing the largest increase among all channels at 32.8% year-on-year.
In offline channels, apart from department stores achieving a marginal increase of 0.4%, all other segmented channels have witnessed a decline in sales. Among them, the KA (Key Account) channel recorded sales of 19.8 billion yuan in the first quarter of this year, accounting for 9.01%, a decrease of 13.1% year-on-year; while the CS (Cosmetics Store) channel had sales of 39.38 billion yuan, accounting for 17.93%, also down by 2.8% year-on-year.
Although data from the National Bureau of Statistics of China shows that from January to March of this year, the total retail sales of cosmetics (above designated size) reached 108.6 billion yuan, with a year-on-year growth of 3.4%, this growth rate is rare and lower than the overall growth rate of retail sales of consumer goods (5.9%). Furthermore, the 3.4% growth rate is significantly lower compared to the 41.4% growth rate for the cosmetics category during the same period in 2021.
According to data from Magic Mirror Market, in February and March 2024, sales of skincare products declined by 37.6% and 29.6% respectively; while sales of cosmetics/perfumes decreased by 29.6% in February and 12.8% in March. Recent data from the General Administration of Customs also shows that both the import volume and value of cosmetics in the first quarter of 2024 have declined by over 17%. Therefore, whether from the category or import data, it reflects that consumers’ willingness to spend on cosmetics is decreasing.
“The beauty business this year is becoming increasingly difficult” has almost become a common sentiment among industry insiders. Some industry insiders point out that the phenomenon of slowing industry growth is not accidental but the result of various factors at play. On the one hand, after the epidemic, consumers’ consumption concepts and purchasing habits have undergone significant changes, becoming more cautious about non-essential spending. On the other hand, competition in the cosmetics market is intensifying both domestically and internationally, with brands competing for market share through price wars, quality wars, and marketing battles, squeezing the industry’s profit margins.
The cosmetics market was once considered a representative of consumer upgrading and quality of life, and its rapid growth was also seen as an important manifestation of China’s economic vitality. However, the data for the first quarter of this year has cast a shadow over the industry.
A wave of cosmetics companies’ deregistration and bankruptcies has been happening one after another
Not only that, in the first three months of this year, at least 23 cosmetics companies have either filed for bankruptcy, entered bankruptcy liquidation procedures, or been formally declared bankrupt due to insolvency. Among these 23 companies, 11 are cosmetics sales/retail enterprises, accounting for 48% of the total, while 9 are involved in the production and sale of cosmetics. Among them, there are also some well-known and long-established enterprises. For example, the parent company of the popular beauty and makeup store “Only Write” has declared bankruptcy and is currently auctioning off assets; several companies that have been established for over 20 years, including Shanghai Huayimei Cosmetics Co., Ltd., the parent company of the well-known acne treatment brand “Zeping,” have also been declared bankrupt due to insolvency.
Overall, from retailers to brand owners and upstream raw material and packaging suppliers, the bankruptcy wave in the first quarter of this year has swept through the entire cosmetics industry.
It is worth noting that Chaileedo previously compiled data on bankruptcies in the cosmetics industry at the end of 2022 and 2023. According to incomplete statistics, 11 and 40 companies were filing for bankruptcy in 2022 and 2023, respectively. However, in just the first three months of 2024, at least 23 cosmetics companies have already filed for bankruptcy. This number is twice that of the entire year of 2022 and more than half of 2023. The challenges faced by companies this year are evident.
Moreover, some leading Chinese companies are also facing tough times. For example, according to the 2023 annual report of Jahen Household, the company’s revenue was 1.016 billion yuan, a decrease of 3.41% year-on-year, and its net profit decreased by 42.39% year-on-year to 40.16 million yuan. The company attributed its poor performance to a decline in some cosmetics OEM businesses due to lower-than-expected industry recovery and low product demand. In addition, Bloomage Biotech also recorded a decrease in both revenue and net profit for the first time in 2023, with revenue of 6.076 billion yuan, down 4.45% year-on-year, and net profit of 593 million yuan, down 38.97% year-on-year. It is worth mentioning that last month, Green Pine also announced the termination of the construction of the 148-acre Nobel project due to slowing demand and overcapacity, attracting widespread industry attention.
Industry analysts believe that, on one hand, with the implementation of new regulations and supporting regulations, regulatory scrutiny has increased, leading some companies that exploit loopholes or push the boundaries to either exit or face extinction. On the other hand, in the unfavorable macroeconomic environment, industry competition has intensified was a common sentiment in the industry.
A cosmetics R&D engineer in Guangzhou told Chaileedo that he recently considered developing a makeup remover product but abandoned the idea after market research revealed that the price for a makeup remover product comparable to a certain well-known brand had dropped to as low as 50 yuan per 100 milliliters. “After seeing such prices, we gave up on developing this product altogether.”
Many industry insiders have indicated that “low prices” have become a normalized competitive tactic. Whether it’s e-commerce platforms like Taobao, Douyin (TikTok), Kuaishou, or beauty brands themselves, they have all been drawn into the competition for lower prices. Some industry professionals have previously stated that with declining consumer purchasing power and lowered expectations for the future from both the public and businesses, the structural oversupply in the industry has become more apparent. Therefore, the phenomenon of competition at lower prices will only worsen.
Can the 618 shopping day reverse the decline?
With a challenging first quarter, can the second quarter, boosted by the “618” promotion, reverse the situation?
According to Chaileedo’s understanding, most industry insiders are currently “not very optimistic.” A professional with nearly 20 years of experience in the industry told Chaileedo, “This year not only had a difficult start, but the market situation in April was also not particularly good.” The individual also predicted, “The situation for this year’s ‘618’ promotion probably won’t be very good either.”
Chaileedo learned from inquiries with several factory managers that factories have not yet received any orders for “618.” The head of an OEM factory said, “In previous years when the market was good, brands would start preparing for the ‘618’ promotion in April and begin placing orders with factories. However, this year, brands are very cautious about ‘618.’ So far, we haven’t heard anything from our upstream.”
Many industry professionals have also expressed concerns, stating, “With the current downturn in the domestic economy, it is obvious that people are unwilling to spend. The lack of consumer confidence is the biggest problem at the moment.” “Everyone is very aware of the crisis, and the industry’s internal competition is further intensifying.” In addition, the head of a well-known packaging material company believes, “Originally, promotions like ‘618’ and ‘Double 11’ were about losing money to attract attention, but now everyone can’t afford to lose money anymore; they want to pursue profits. This is also one of the reasons why everyone is being cautious.”
It is worth mentioning that recent reports from the media have stated that during this year’s “618” period, both Taobao and JD.com have canceled their pre-sale mechanisms. The reports state, “Taobao’s ‘618’ marketing rhythm will be more front-loaded, with the first wave starting in mid to late May to recall users and drive transactions; from May 31st at 8 p.m. to June 20th will be the second wave, achieving a comprehensive outbreak.” Meanwhile, “JD.com’s ‘618’ will kick off on May 31st at 8 p.m. with direct sales of spot goods, followed by special periods, peak periods, and return periods.”
In response, an industry professional in the e-commerce sector stated that the pre-sale mechanism can help businesses reduce inventory risks. However, after canceling pre-sales, businesses need to more accurately predict demand to avoid inventory backlog or shortages. This indicates that platforms are also changing rules to enhance consumer experience, to boost sales.
Although it remains to be seen whether this year’s “618” can rescue the current sluggish beauty market, for companies themselves, improving their competitiveness is an unquestionable strategy. As one senior brand executive mentioned, “In the current unfavorable environment, it is advisable for companies to focus on upgrading their research and development, production, and organizational capabilities. Practice and improve internal strength as much as possible. When we cannot change the environment, we can only change ourselves and wait for new opportunities to emerge.”
Overall, despite the current industry facing the challenge of slowing growth, it doesn’t mean that the cosmetics market has lost its potential for development. On the contrary, as consumers’ pursuit of beauty and desire for quality living continue to rise, there remains significant untapped potential in the cosmetics market. The key lies in companies accurately grasping consumer needs, continuously innovating products and services, and enhancing brand value and competitiveness.
