SHANGHAI - Shanghai's premier shopping street, West Nanjing Road, may these
days style itself as the Fifth Avenue of Asia, but on the busy sidewalks it
still throbs with all the color and din of a medieval temple fair.
Until, that is, one steps into the hushed confines of the first Lancome concept
store to open anywhere in the world - at which point you might just feel as if
you have stepped onto the set of 2001: A Space Odyssey, assuming your
idea of a space station features sculpted sofas and ever-so-slightly pink
walls.
"We wanted to create an environment that suggests luxury, away from the crowded
department stores," boutique marketing manager Gu Yaoji told Asia Times Online.
"Our boutique customers comprise a select group of rich housewives and
xiaobailing [white collar princesses] - and they want to shop for our
products and beauty services discreetly, and in comfort."
The Shanghai boutique opened its doors in 2005; and while Japan may still
dominate the East Asian cosmetics industry in terms of turnover, as Gu explains
the decision to open first in China recognizes not only the extent to which the
Chinese market has developed, but also its potential for growth. According to
Datamonitor, a business information service, China's makeup industry last year
generated revenues of US$1.5 billion - a figure expected to rise to $2.3
billion by 2009.
It is not only the size of the Chinese market (451 million women between the
ages of 15 and 64) that attracts manufacturers - it is also the unusually large
chunks of their income individual Chinese women seem willing to spend on beauty
products.
Already, 90 million urban women spend 10% or more of their annual income on
cosmetics - and, unlike in the West, many Chinese women seem happy to spend as
much money on makeup as they do on clothes.
On one level, spending patterns reflect current living arrangements in Chinese
cities - unmarried urban young women, for example, most likely live with their
parents, perhaps in state-subsidized housing; with mother and father paying the
bills, so almost all of the single child's salary counts as disposable income.
At the same time, Chinese society has always placed a premium on female
appearance, with the meinu (the beauty) featuring as a stock character
in poetry and art; even 2,000 years ago Han dynasty princesses were buried with
a bewildering array of makeup dishes, mirrors and combs, carefully laid out for
the use of the departed soul. During the Cultural Revolution the Red Guards
were hostile to makeup precisely because it was so deeply rooted in Chinese
culture.
Anthropologists may debate the origins of the bulging makeup bags of the
contemporary Middle Kingdom. But where everyone agrees is that the dowdy days
of Maoism are long gone - looking good is once again big business in China, and
the major brands have been quick to grab a piece of the action. The two most
successful international companies in China currently are Tokyo-based Shiseido
and L'Oreal, which recently purchased Yue-Sai, a strongly branded domestic
manufacturer based in Shenzhen.
Together Shiseido and Yue-Sai count for a 31.5% market share; meanwhile,
L'Oreal's other lines and brands such as Estee Lauder, Proctor and Gamble and
Lancome all show healthy expansion. So is the conquest a fait accompli?
Not necessarily, said Lily Xu of homegrown Chinese brand Herborist. With 180
boutiques in 40 cities, her company plans to open a further 100 outlets during
this year. It's a division of a state-owned company - but you'd never know it.
The brand emphasizes its connections to traditional Chinese medicine and seems
to strike a chord with a seam of consumer keen to look beyond the Hollywood
pose. "We're the Body Shop of China," Xu said.
One possibility is that a major Chinese player will emerge with the right
combination of capitalization, marketing savvy and local sensitivity - or that
Chinese medicine will throw up the next big thing, blowing the game wide open.
With such a lucrative market at stake, the major brands are understandably keen
not to be caught napping. In September, L'Oreal opened a Shanghai research and
development (R&D)center in the Jinqiao district of Pudong to learn more
about local consumers - currently this 32,000 square foot facility is home to
43 researchers, patiently mapping the physical properties of Chinese hair and
skin, lab testing various products and trying to tease out cultural and
behavioral factors that might affect consumer habits.
This is the first phase, says L'Oreal - a second phase at Jinqiao will focus on
possible applications of Chinese medicine in beauty products. Meanwhile, the
other brands are taking similar steps. Market leader Shiseido already stresses
the way their products are tailored to Chinese needs (recognizing for example
that Chinese consumers want stronger skin-whitening products than those
marketed in Japan), and opened their Beijing R&D center in 2003; in
Shanghai Estee Lauder opened their own "innovation" research institute two
months after L'Oreal came to town.
On one level this is part of an international movement, a recognition by
international corporations that, if they are to keep the wristband generation
on side, they need to recognize the diversity of their customer base (or at
least appear to).
L'Oreal now maintains 13 evaluation centers around the globe, each with a
specific focus, and the company has even coined the term "geocosmetics",
employed to describe the study of differing uses of beauty products across
cultures. In any case, these days China is an increasingly attractive
destination for R&D - in recent months major companies such as Dow
Chemicals and Hewlett Packard have started building major research centers in
the Middle Kingdom.
Analysts predict that the cosmetic industry will continue to expand.
Datamonitor predicts that by 2010 annual growth will have fallen to about 8% -
maybe half the current rate, but still five times the market growth of Japan.
At the Lancome Shanghai boutique, Gu may well be correct to see men as a growth
market; at the same time marketers will no doubt hope to persuade girls to
reach for the lipstick at an ever younger age. (Schools and even universities
generally still disapprove of this kind of thing).
And of course away from the booming coastal cities a large part of China's
hinterland still waits to be opened up - Shanghainese women currently spend 50
times as much on cosmetics as the national average. Major barriers in the
countryside include limited distribution networks and still low standards of
living.
L'Oreal recently targeted this market with their purchase of low-cost Chinese
brand Mininurse (a $2 market leader in the up-country county towns); Shiseido,
meanwhile, is following the Kodak model, offering branded plastic shop fronts
to small-town retailers who wish to sign a distribution agreement, and
expecting to have 5,000 "voluntary chain stores" signed up by 2008.
Best positioned of all might be Avon, resuming their traditional pyramid sales
model after an eight-year hiatus, but only after promising to avoid the sort of
excesses that caused the government to pull the plug in 1998.
This includes agreeing to seek police permission for any training meeting
involving more than 100 members (raising questions of just what a meeting
before the ban may have been like), and the placing of a 20 million yuan ($2.5
million) deposit in the bank, as a guarantee of good behavior. In the medium
term the pyramid selling model might prove best equipped to penetrate the
interior, $10 bars of soap in backpacks, travelling by bus along dirt track
roads.
Whichever model proves best suited to conquer the hinterland, one thing's for
sure - it will need to be tailored to the needs of Chinese women. At the
Lancome Boutique on West Nanjing Road, the beauticians could have told you that
all along. One beautician, nicknamed "Seven", has worked there since the store
opened.
"My Chinese customers and foreign customers want totally different things," she
says. "Foreigners want heavier makeup, with more colors on the face. Chinese
customers are more interested in their skin, especially is it shiny. And
Chinese customers want bigger eyes."
We might want different things, then - but for L'Oreal, Estee Lauder and the
rest, the good news is, of course, that we all want something.
