On December 6， 2010， Coty Inc.， the world’s largest fragrance company and the fifth-biggest cosmetics manufacturer in France， agreed to acquire a majority stake in TJoy Holdings， Ltd.， a Chinese skin care company. The investment was valued at about$400 million， making it the largest among a flurry of similar acquisitions in recent years， according to a report from China Daily.The acquisition boomThis case is not unique. Over the past decade， foreign cosmetics and healthcare manufacturers have been active in local brand acquisition， L’OREAL of France， Beiersdorf in Germany and Johnson Johnson from the U.S. have all bought controlling stakes in Chinese cosmetics firms.In 2008， healthcare and cosmetics giant Johnson Johnson purchased Beijing Dabao Cosmetics Co.， Ltd. for$337 million.In 2007， Beiersdorf paid 269.45 million euros ($354.5 million) for an 85 percent stake in China-based C-Bons Hair Care as the cosmetics giant looked to penetrate deeper into the fast-growing Chinese market.In 2003， beauty brand L’OREAL， the world’s largest cosmetics company by volume， acquired local Chinese brand， Little Nurse， and then acquired another local cosmetic brand， YUE-SAI， in 2004.International brands are exploring the Chinese market through acquisitions， as China is becoming a promising platform for the development of these brands.China: a surging marketThe 2010 China Cosmetics Industry Development Trend Blue Paper issued earlier last year showed that， the sales of cosmetics in China surpassed RMB140 billion in 2009， up 7.7 percent year-on-year， making China the third largest cosmetics sales market， next only to the U.S. and Japan. China is fast becoming an arena for transnational cosmetics giants to carry out their global strategic plans.For many years already， urbanization has been a significant trend affecting China’s economic development. With government policy aimed at stimulating domestic demand， transformation of domestic consumption is becoming the primary force for a new round of consumption boost. The income levels of both rural and urban residents have been increasing rapidly， and middle-income groups have been expanding further， speeding up the transformation of China’s consumption structure. These new consumption patterns and consumer concepts will also propel the development of the cosmetics industry.With China’s economy moving into the fast lane， the cosmetics industry， as a sunrise industry， is developing much faster than the average growth rate of GDP. The increase in consumption has boosted overall economic prosperity and made China the largest emerging market in the world. Predicatably， in the future China will become the largest consumer market globally， and the cosmetics industry as a whole has changed course to follow the development trend.One sign of improved consumption is the acceleration of luxury good consumption. According to China Marketing， by the end of last year， LV already had 29 locations in China’s first-tier and coastal cities， while most of the interior provinces’capitals have no LV outlets yet. Huangqiang， manager of Hangzhou Xinziyang Daily Chemicals Co.， Ltd.， predicted that with the continuously rising levels of consumption and the acceleration of urbanization， top international brands will soon move to second and third-tier cities. If there was one LV store in each city at the prefectural level， then there would be 400.Similarly， the high-end cosmetics market in China’s first-tier cities is booming. At present， the cosmetics market in major Chinese department stores is dominated by international brands. Looking at Lancome in China as a example， the Lancome counter at Hangzhou Tower had sales volume of RMB 55 million， the highest among all global sales counters， while the Xinjiekou counter at Jinying Shopping Center in Nanjing was No.3 with RMB 48 million in sales， and the Wulin counter at Intime Department Store in Hangzhou was No. 5 with RMB 43 million.Another example， the sales volume of Estee Lauder rose 43% year-on-year， making it one of the fastest-growing brands in China’s high-end cosmetics market. The brand’s Wangfujing counter in Chengdu， had the highest sales volume in China with RMB 40 million， while Intime saw 60% growth， putting it at the forefront across the country.Meantime， the rapid increase in consumption level has also contributed to the recent prosperity of the high-end cosmetics market. Currently， second and third-tier cities are seeing a rapid upgrade in their consumption level. Mainstream consumption has moved away from joint venture brands like OLAY， L’OREAL and Aupres with average prices around RMB 200 in the past， to brands like SHISEIDO， Elizabeth Arden， Beauté de Kosé， LANEIGE， and others with average prices from RMB 300-400， and gradually moving closer to RMB 500-600 for mainstream consumer goods in firsttier cities.Expanding channels for foreign brandsAs mentioned earlier， increased urbanization is the key engine behind the prosperity of the cosmetics industry. Take Hangzhou as an example， the city’s central business district(CBD) is expanding rapidly. In the past， there was only one business district， while in the future， there will be 5 or 6.In the meantime， large chain department stores， an important channel for cosmetics， are also expanding. Intime already has 5 stores in Hangzhou and will have another 5 in the near future compared with only one just a few years ago.Department stores in second and third-tier cities will also follow the trend and upgrade themselves， while wellknown chain department stores are marching into these cities as well. Meanwhile， in order to satisfy the higher demands of consumers， promote their own image and enhance competitiveness in the market， stores will be eager to introduce more high-end foreign brands. In the future， these cities will likely bring in more foreign brands to keep up with first-tier cities.Department stores in county-level cities will also be rising soon. Currently， across China there are about 2，000 counties with a few large department stores. These counties are transitioning to medium-sized cities with populations of over 100 thousand or even hundreds of thousands.Cosmetics stores are another strategic channel for Chinese cosmetics and are taking new approaches such as expanding their networks， upgrading their store level， etc. Throughout China there are hundreds of thousands of cosmetics stores， which are undoubtedly an important channel for cosmetics sales， with networks covering all of the large and medium-sized cities and key towns. In Zhejiang Province alone there are more than 6，000 cosmetics stores.Presently， cosmetics stores are the main sales venue for foreign cosmetics brands and will likely be the most promising sales channel in the future. Some secondary stores， specializing in domestic brands， should introduce more foreign brands and lift the consumption level.However， the Blue Paper pointed out that although traditional channels are still the mainstream， new channels are emerging. Among the new channels， e-commerce deserves the most attention. Last year， high-end products like Lancome and BIOTHERM were testing online sales. Estee Lauder was also developing an e-commerce platform aimed at the consumers in second or third-tier cities， which it could not cover in an all-round way. The activities of these big brands show the great potential of online shopping in the future.Foreign brands in consumers’ eyesWith their expanding share in the Chinese market， foreign cosmetic brands are attracting the attention of more and more consumers， some of whom have become fans of certain brands.As the Chinese Lunar New Year is fast approaching， many department stores in Beijing are launching promotions. Juntai Department Store and Zhongyou Department Store， the ground floors of which are dominated by foreign cosmetics brands， are seeing a growth in the number of consumers coming and going. As are the foreign brands， just a month ago Juntai introduced MISSHA， a korea-based brand from ABLE CC.A college student， choosing her favorite cosmetics at Juntai， told the reporter that the cosmetics products she uses are mainly foreign brands， with brands like L’OREAL and CLINQUIE as her favorites. “In a traditional view， foreign brands are performing better， so I prefer them and I will continue to choose them，” she said.Another young lady said that due to advertisements and her friends’ introduction， she preferred foreign brands since she was at middle school. “Foreign brands usually do better in advertising， introduction of their products’ application， packaging and especially， RD.”A middle-aged woman said that in her daily life she uses both domestic and foreign branded products. “Though domestic brands’ advertisements， packaging， popularity and research should catch up with those of foreign brands，” she shared her opinion with the young lady.Another girl said her cosmetics products are mainly of domestic brands. She said， “Domestic brands can meet my needs with their cost performance. But if I had more disposable income， I would like to try foreign brands.”“Foreign brands， with their good brand image， advertisements， RD， and most importantly， product effects， are popular with Chinese consumers，” said He Lixia， the manager at the Planning Department of Xidan Department Store.According to a report from Baidu Data Research Center for mass-market cosmetics brands in Q3 2010， L’OREAL PARIS took the lead with the highest attention at 10.16%， while OLAY and ZA were rated as second and third， with 5.45% and 4.39%， respectively. In the top 10 brands， L’OREAL PARIS， MAYBELLINE NEW YORK and GARNIER all belong to L’Oréal， indicating its strong position in mass-market cosmetics brands. Among the top 10， only Chcédo was domestic.For high-end cosmetics brands in Q3 2010 the level of attention for the top 4 brands was very close， with only a disparity of 1%. Lancome ranked first with the attention of 11.23%. Dior， Estee Lauder and CLINIQUE ranked second through fourth with attentions of 10.69%， 10.39% and 10.22%， respectively.Here， ANNA SUI took the place of Shu Uemura as No. 10 on the list. Of the top 10 brands， the ever present three brands by Estee Lauder had been reduced to two. Fortunately Estee Lauder and CLINIQUE were still among the top brands， while Lancome from L’OREAL still topped the list due to its interactive online activities from last year. It can be seen that the top 10 were all foreign brands， which dominate the high-end market in China.For natural cosmetics brands， domestic brands have their own advantages due to a better understanding of the domestic market. The brand Sinoway Herb took the lead with the attention of 14.58%; another domestic brand HERBORIST was the second with the attention of 13.48%; the third was Avène with the attention of 11.58%， and the remainder were all foreign brands.Looking at skin care products， the report showed that in Q3 2010， L’OREAL PARIS ranked first with the attention of 6.37%， while the following No. 2-10 were all within 4%-2%. The runner-up was Sinoway Herb with the attention of 6.37%， third was CLINIQUE with 4.05%. The others in the top 10 in order of attention were， HERBORIST， OLAY， Estee Lauder， Avène， Neutrogena， MENTHOLATUM and SHISEIDO.For color cosmetics， MAYBELLINE NEW YORK， ZA and Shu Uemura were the top 3 with the attentions of 11.51%， 9.03% and 4.98% respectively. The others in the top 10 were Dior， REVLON， SKIN79， Lancome， DHC and opera. All the brands were foreign.As for perfume， the report shows that CHANEL and Dior were the top 2 brands given the most attention， with 13.56% and 13.50% respectively， well ahead of others in the top 10. The other brands in the top 10 were as follows: Elisabeth Arden， Calvin Klein， Lancome， BURBERRY， ANNA SUI， VERSACE， adidas and BVLGARI. CHANEL and Dior were the best known by domestic consumers for their classic fragrance， so its no wonder they took the top 2 spots. adidas was given more attention than before due to men’s increasing attention on fragrances.Nowadays， men are paying more attention to cosmetics. This was shown in the Q3 2010 report， where men’s favorite brands were L’OREAL， NIVEA and METHOLATUM. The others in the top 10 were GF， BIOTHERM， OLAY， Biore， GARNIER， CLINIQUE and UNO in terms of attention.Foreign brands’ strengthsForeign brands are trying to take a larger share of the Chinese market. It seems consumers’ favorite brands are mostly foreign brands， so how have these brands realized such success? After analysis here are the following reasons:First， foreign brands tend to adjust their market strategy according to the social formation of the target market. Now China is an M-shaped society which means the rich and the poor occupy the two ends of the spectrum with a not that large middle class.For instance， L’OREAL has carefully studied Chinese society. Its high-end， low-and-middle products focus on different consumers. It is said that two-thirds of its sales volume is derived from third-tier cities， and 61% of its skin care products’sales are from third or even fourth-tier cities. Another example is MAYBELLINE， which reduced the price of its products to compete with domestic brands. This is the transformation strategy that foreign brands rely on to attract more consumers.Second， foreign brands invest much more into research and development of new products， which are continuously upgrading and improving. Take Crest as an example， when it entered China in 1996， it had a rough time as it did not fully understand the target market well. After a while， Crest learned to take consumer demands as the starting point for its RD effort. Through adequate market research， Crest’s RD team launched new products with natural ingredients， like herbal toothpaste， making its share in the Chinese market surge and allowing it to overcome Colgate， thereby taking the lead in the toothpaste industry.Third， foreign brands’ subdivision has a specific aim with consumers as the clear target. For instance， L’OREAL has over 10 brands and more than 400 different kinds of products that it needs to provide customer service for. However， domestic brands have only several dozen products at most.Last but not least， foreign brands have a big say in international and domestic fashion. Things like advertisements， brand image， and brand story all contribute to their success in the market， while domestic brands still have a long way to go in this field.With foreign brands grabbing a greater share of the Chinese market， domestic brands are worrying about their future. As the saying goes， “Necessity is the mother of invention”， domestic brands are trying vigorously to implement innovation.The first national brand established in 1862， Kong Feng Chun， is focusing more attention on RD. The products it has developed in just a few years are equivalent to the advances it had made over the last century.“Though foreign brands have taken a large share of the Chinese market， the future of domestic brands should be much better due to their hard work and diligence. We all have confidence，” said Ma Ya， the President of the Chamber of Beauty Culture Cosmetics at the All-China Federation of Industry Commerce.
