In developing our new MBA in Perfume and Cosmetics Management, we focused on ensuring that the curriculum we develop meets the expectations of the industry and the evolutions of the market. The extensive qualitative research we conducted yielded a quantity of information and data illustrating patterns in the evolution of macro trends.

Here we share some of the insight we developed.

A couple of years ago, China was undoubtedly the market with the biggest potential. A study from Fung group conducted in 2012 stated that “China’s cosmetics market had registered sustained growth for the past few years”, adding that “China today is the largest emerging cosmetics market in the world” (Fung Group, 2012). Fast forward 2 years to 2014 and the trend has reversed… At least in part.

The Chinese market was already showing signs of slowing down in 2013 as the growth of China’s beauty and personal care market slowed down below 9%. This growth rate still remains above the average exhibited in mature and developed market, but the “Next Eleven” can boast higher numbers.

From a foreign company’s perspective, the recent article (April 2014) by Rob Walker from Euromonitor International points out that corporations such as L’Oreal Group and Procter & Gamble are rapidly moving towards an exit strategy from China. Walker emphasizes: “For Revlon and L’Oreal’s Garnier, things are already bad enough to warrant pulling the plug on China […] the combined pressures of a cooling economy and more aggressive competition […] have proved too much” (Walker, 2014).

The aggressive competition Walker is referring to predominantly comes from Korea, but also from Chinese local brands. Indeed, within the lower to mid-range categories of products, foreign brands are affected by a shrinking consumption as Chinese consumers are redirecting their disposable income towards local brands such as The Herborist or Innoherb. One could argue that, since products are locally made, both cosmetics companies benefit from very low cost of production. However this assumption would be very stereotypical and would propagate the old myth of “Made in China = Cheap and not durable!”.

On the contrary, these companies have managed to gain larger market shares through the improvement of their branding strategy and the enhancement of the quality of their products thanks to technological innovation, following a macro trend in China. In the past 10 years China has increased the number of centers focusing on R&D and has achieved the third place, behind the US and Japan, in terms of patents with 21,000 of them registered last year only (source from WIPO Patent Report 2013).

However not all is lost! There is still the appeal of luxury. In 2014 Shanghai has surpassed New York City and has become the number 1 city in the world in terms of spending for luxury goods. Chinese consumers still associate luxury with Western brands. Henceforth L’Oreal Group is redeploying its investments and strives to solidify the growth of its L’Oreal Luxe arm. According to a post on GCI website in 2013, the successful launch of Clarisonic as well as the opening of Yves Saint Laurent Beaute boutique, are a few examples illustrating the enhancement of the existing portfolio of L’Oreal Luxe.

The demographic evolution jumpstarted by the changes in family planning should ensure a rising consumption of high-end make-up, cosmetics and perfumes in the near future. Will we see an incursion of local brands within this market segment which has typically been “chasse gardee” of Western brands? Absolutely, but groups like L’Oreal seem to have that eventuality covered. Yue Sai, now part of the L’Oreal Luxe Portfolio, is a local brand based on high-tech extraction methods of Chinese medicine. A brand and product invented in China, for China…