Consumer products to China (personal care, fashion)
Trends and opportunities
China’s economy expanded by 6.9 per cent in 2015. While the growth of China’s consumer goods imports slowed down in 2014, the average annual growth between 2010 and 2014 was still as high as 24.7 per cent. Retailers continue to view this market as having significant positive potential and the government plans to further boost domestic consumption and double household income by 2020. (Sources: Euromonitor International | Inside Retail Asia)
Beauty and personal care continued its vigorous growth in China in 2014, due to rising disposable incomes and growing awareness of personal hygiene and appearance. Data from Euromonitor reveals that the total retail sales of skincare and make-up products in China reached RMB142 billion and RMB21 billion respectively in 2014, achieving year-on-year growth of 8 per cent and 9 per cent respectively. In addition to strong value growth across the board, skincare, baby and child-specific products and men’s grooming recorded strong growth. According to Euromonitor, skincare products for men expanded by 9 per cent year-on-year in 2014. Baby skincare products are the most popular result from an online search of natural skincare products. Although the market potential is sizeable, competition is also fierce in this particular market. Seizing market share from existing brands that have already built up their reputation among consumers is a major barrier for new brands.
Hypermarkets and department stores continue to be the top two leading distribution channels for beauty and personal care products in China, targeting mass and premium products, respectively. Internet retailing, albeit with a later debut in the market, in 2014 has grown the fastest of all channels, to surpass direct selling to become the third most important distribution channel for beauty and personal care in China. Online retailing has been expanding rapidly, accounting for 15.5 per cent of the market share in 2014, up from only 5.3 per cent in 2011 and 0.1 per cent in 2001 (Source: Nomura Global Market Research). Convenient home delivery services, easy comparisons of products and pricing, as well as manufacturers’ active engagement in this emerging channel have underpinned the robust growth of internet retailing for beauty and personal care in 2014.
Chinese consumers are more price-sensitive when purchasing apparel, and internet retailing provides a wider choice to consumers than ever before. A number of consumers therefore tended to shop online as it provides higher discount rates than store-based outlets. In addition, a large number of players have opened online outlets and strengthened their online presence.
The increasing exposure to international fashion trends and growing personal wealth are likely to drive stronger demand for luxury jewellery in China. The jewellery category is predicted to become increasingly internationalised, with more multinational brands appearing in China.
While first-tier and coastal cities contribute most of the sales/revenue to the consumer products industry, there has been considerable increase from second-tier and north-western cities. Consumers in those cities are an emerging group, experiencing and enjoying increasingly higher incomes and living standards, enabling them to afford luxurious goods and products. (Source: Euromonitor International)
There are a number of factors in the consumer product market in China that influence the opportunities available to Australian exporters:
- Australia is recognised by local consumers as having a clean and green environment with good quality products and brands. Some Australian exporters have already taken advantage of this competitive edge and are established suppliers of skincare, baby care and hair care products.
- Food and skincare product safety is a major concern amongst Chinese consumers. Australian baby and children products have consequently been attracting greater attention amongst parents given the overall clean and green reputation of Australia. Parents are very willing to buy expensive baby care products given the strong association of price with quality.
- Chinese consumers are highly brand conscious and prefer premium consumer products. Branded and imported products are almost always regarded as being of high quality in the eyes of Chinese consumers.
- In addition to world renowned fashion labels, fashion items with fine quality, trendy styles and more unique, innovative or niche traits are starting to attract consumers in the mid-to-high-income level. This provides Australian fashion labels and more boutique creative lifestyle designers with opportunities and potential for a niche place in the China market.
- In recent years, the Chinese government has rolled out a number of favourable policies to better regulate the market for imported goods in China via cross-border e-commerce. The government has established eight pilot zones for cross-border e-commerce import services. Merchandise imported through one of the approved ‘cross-border’ ports do not pay regular import duties and value-added tax. Rather, a lower concessional postal tax is payable. Various online players have tapped into the cross-border e-commerce businesses, either though ‘direct mail’ or ‘bonded area import’ channels. Many of them also offer overseas cosmetics products. (Source: China’s cosmetics market June 2015 – Fung Group)
Austrade’s e-commerce in China: A guide for Australian business offers practical advice, facts and insights on how China’s e-commerce marketplaces work and how to access them.
As a result of the above factors, there is growing demand for premium products in the following categories:
- Skincare products with multi functions such as moisturising, whitening and anti-ageing
- Maternity and baby care products
- Men’s care
- Make up and colour cosmetics
- Hair care
- Apparel and footwear
- Jewellery with unique and modern designs (diamond, Pentium gold, pearl, etc.)
Key challenges for Australian business in China include:
- A growing number of scams or unqualified leads to Australian companies
- Due diligence and non-payment issues – letters of credit, etc.
- Market access – product registration issues
- Strong competition from other countries
- Tightening of regulations and non-tariff barriers
- Intellectual property and trade mark issues
- A potentially strengthening Australian dollar
- Cultural and language barriers
- Increasing cost of doing business in China including HR, property, marketing and promotions, and other operational costs.
Tariffs, regulations and customs
China has slashed import duties on a number of consumer products including suits and fur garments, ankle boots and sneakers, nappies, cosmetics and skincare products. The move is intended to boost imports and discretionary spending. This tariff reduction may be subject to change by government authorities in the future.
China has significantly reformed its trade policies, reduced tariff barriers and generally conformed to international practices after accession to the World Trade Organization (WTO), however, there are non-tariff barriers that impede the import of consumer products.
All imported personal care and cosmetics products must have Registration Credence of Imported Cosmetics of Non-special Purpose or the Document for Hygiene Permit for Imported Cosmetics for Special Purpose from the Chinese State Food and Drug Administration (SFDA).Further information in Chinese is available on the SFDA’s official website.
The China-Australia Free Trade Agreement (ChAFTA) came into effect on 20 December 2015, resulting in two rounds of tariff reductions on various consumer products on 20 December 2015 and 1 January 2016 respectively. Examples of tariff cuts and their timelines for consumer products are as below:
||Base Rate before ChAFTA
||20 December 2015
||1 January 2016
||1 January 2017
||1 January 2018
||1 January 2019 onwards
For more details on ChAFTA tariff schedules, see the Department of Foreign Affairs and Trade website.
ChAFTA product tariff rates are available through an online tool available at https://ftaportal.dfat.gov.au/
Marketing your products and services
There are a number of actions that will help you succeed as a supplier:
- Get to know the market – Visit the market, establish a price range for your products, understand the sales and distribution channels, and know your customers’ preferences.
- Proper due diligence – due to increased incidence of scams in China, Australian companies are urged to investigate enquiries from China and consult with Austrade for assistance and referrals to professionals specialising in due diligence checks and investigations in China.
- Find a local partner or agent – Choose carefully and cautiously; look for a partner with a proven record, and ensure that the partner is able to handle import formalities.
- Test the market – Be aware that everything is different in China, even between different cities and provinces.
- Adapt your product to the local market – Adapt your product to local tastes, including making small adjustments to the product if necessary.
- Invest wisely in market promotion – Participate in industry specific trade shows, and make frequent visits to China.
Department stores are a good platform for brand building and can attract high end customers who are willing to pay for luxurious products, however, the investment required in counters is huge and the cost can be prohibitive for suppliers. Flagship stores in department stores are still a key channel to expose fashion brands to high end consumers and for brand building, while online retail has become a much more appealing and major channel for increasing sales volume.
Shopping at professional stores for skincare and cosmetics has become trendy among young Chinese ladies. Stores such as Sephora, Sasa, Gialen, and Watsons provide a one-stop-shop for consumers. These stores tend to display products of different levels of quality and price, which can satisfy different customers and their needs.
Recently Business to Consumer (B2C) online retail markets have achieved great success given the changes in customers’ purchasing behavior. According to market research, 25 per cent of the cosmetics market in China consists of online stores. Dedicated cosmetics websites such as Lefung.com, Jumei.com and Tiantian.com are popular. (Source: Hong Kong Trade Development Council, ‘China’s cosmetics market’, 17 July 2014)
Supermarkets are traditionally a very good platform for low to mid-range personal care products. However, higher-end cosmetics products are trying to tap into this channel as the supermarkets upgrade their profile to meet the increasing and changing demands of their customers.
Links and industry contacts
State Food and Drug Administration
General Administration of Quality Supervision, Inspection, and Quarantine
China Ministry of Commerce
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