The rising of ecommerce: COSSMA

While the physical market in China suffered severely due to the lockdown at the beginning of the year, ecommerce in the cosmetics sector was able to record clear and stable growth. Rongmei Hui-Drobnik reports on the current developments.

The retail sales value of Chinese cosmetic market reached € 39.90 billion in 2019, and the growth rate was approximately 14.23%. Sales value of physical shops has reduced sharply since January 2020 because of lock-down in China, on the contrary, sales value on the internet has increased. The best case is L’Oréal. Since coronavirus, sales values of L’Oréal decreased 4.8% worldwide and 2.5% in Asia, however in China has 6.4% increase. Ecommerce sales value of first quarter 2020 of L’Oréal had a year-on-year 67% increase and accounted for more than 50% of total sales. It is estimated that sales value of L’Oréal in the second quarter in China will have two digits increase thanks to the ecommerce, not only in the 1 and 2 tier cities but also in the 3 and 4 tier cities.

Coronavirus has changed the purchase behavior of Chinese consumers on cosmetic market noticeably:

Chinese consumers are more aware of safety and quality of cosmetic products.
Eye care and eye make-up products increased of about 150% according to Alibaba statistics while the consumption of lipsticks is decreasing.
Chinese domestic brands accounted for 56% of China’s beauty market in 2019, comparing to 40% in 2016. Especial Chinese colour cosmetic brands develop rapidly. Both colour make-up brands Perfect Diary and Florasis are becoming leading domestic ones in only three years.
Because of social distancing in the corona pandemic, self-treatment products and devices of home use for skin care, hair care and bath care have more demands.
E-cosmetic-fairs/exhibitions emerge in China
Online plus offline model: You can place your order on the internet and pick up from the local store nearby
Physical shops open livestreaming to promote and sell cosmetics

Cross-border ecommerce platforms (CBEC)

According to the ecommerce wiki, the definition of CBEC is: “CBEC defines international online trade. It entails the sale or purchase of products via online shops across national borders. Buyer and seller are not located in the same country and are often not ruled by the same jurisdiction, use different currencies, and speak different languages. CBEC can refer to online trade between a business (retailer or brand) and a consumer (B2C), between two businesses, often brands or wholesalers (B2B), or between two private persons (C2C), e.g. via marketplace platforms such as Amazon or Taobao.” CBEC is the only legitimate way for European cosmetic brands to enter Chines market without animal testing. Cross-border ecommerce in China started around in 2011 and now has developed very complete and legalized ecommerce platforms with suppliers (brands/manufactures), logistics (domestic and international), bounded warehouse, online payments as Alipay and end consumers. There are different types of CBEC:

Online malls, it is similar like a physical shopping mall: Tmall Global and JD Worldwide are the top two in China.
Hyper supermarkets, they purchase directly from brand owners or manufactures and sell the goods directly on their platforms: Tmall International Import Supermarket, JD Worldwide supermarket, Amazon Overseas and Kaola, etc.
Specialty marketplaces, the best sample is Little Red Book, a social media community as well as cross-border ecommerce.
Flash sales, an outlet on internet, offering big discount within a limited time, such as VIP.

The three categories which are most bought on the CBEC are: foodstuff, cosmetics, clothes, premium suitcase and hand-bags. The transaction of Chinese CBEC reached € 1.44 trillion (CNY 10.8 trillion) in 2019 and is estimated to reach € 1,37 trillion (CNY 10.3 trillion) with slight decrease in 2020 because of corona pandemic. The well-known Tmall Global is no doubt the leading cross-border ecommerce platform in China, is also famous all over the world.

China’s premier online shopping destination

Tmall.com was first introduced as Taobao Mall in April 2008 and has become the biggest open B2C platform in Asia which enables businesses world-wide to reach China’s vast and growing consumer market. It has established itself as the destination for quality, brand-name goods catering to increasingly sophisticated Chinese consumers. It is now the most visited B2C online retail website in China. A lot of prestige cosmetic brands such as L’Oréal, Nivea, Lancôme, Estee Lauder, Olay, Shiseido, la mer, origins, biotherm, etc. have opened their flagship stores on tmall.com. Opening business on Tmall requires established business entity in mainland China. European brands can open their own flagship stores with the help of their Chinese distributors. In February 2014, Alibaba launched Tmall Global as a cross-border marketplace for foreign brands and merchants to sell their products directly to Chinese consumers. The crossborder model requires merchants no longer to have a legal entity in China nor hold stock within the country. Companies with overseas licenses are eligible for Tmall Global.

Largest CBEC platform in China

Tmall Global has more than 20,000 international brands and 4,000 categories from over 77 countries. On Single’s Day (11.11) in 2019, more than 22,000 brands from 78 countries and areas offered over 620,000 unit products, and the sales value amounted to € 35.79 billion (CNY 268.4 billion) on this day. Sales revenue of Alibaba grew 22% in the first three months of 2020, despite corona-related restrictions. Revenue growth of 27% over the next twelve months is expected, compared to 35% in the prior year. Cosmetic products are one of the core categories on Tmall global, some famous brands have their own flagship stores there. Cost of flagship store on Tmall Global is enormous. It is worthwhile if the brand is well-known in the origin county and China and has a certain number of consumers already.

Social media as well as ecommerce players

Nowadays it is hardly to distinguish between social media and ecommerce, because almost all the social media platforms are ecommerce players as well. Little Red Book (Xiaohongshu in Chinese) was founded in 2013. It was only a social media community at the beginning. Its original intention was to provide a platform for users to review and share products experiences and modern lifestyle in the community. It has become one of the world’s largest social media community with ecommerce platform and owns 450 million users and 1 million of monthly active user. 70% of the users are born after 1990s, that means Generation Z, 80% of the users are female. It is the best social media community to promote cosmetic products because of its user’s profiles and character of the community in China. Little Red Book established its own cross-border e commerce platform, where Chinese consumers can buy products from overseas directly. Content marketing on Little Red Book for cosmetic products is a must have nowadays. It is one of the most important social media community for brands to increase brand awareness and communicate with sophisticated Chinese end-consumers, not only for prestige brands but also for small and niche brands as wells. Little Red Book began the ecommerce Livestreaming at the beginning of this year. Louis Vuitton, Lanvin, Givenchy and Tiffany have had their

ecommerce livestreaming sales on the little Red Book in March 2020. WeChat (similar as WhatsApp in Europe): WeChat was released in January 2011 and was originally a chat service for smartphones. It offers various additional services besides the pure instant messaging service, such as WeChat pay, a daily payment tool used by Chinese consumers around the world with over 800 million monthly active users. Users can also operate their own mobile stores. Some foreign cosmetics brands have their own WeChat accounts to launch new products on the platform and to communicate directly with their customers. Watsons, the biggest drugstore chain in Asia, has its own We- Chat account to inform its customers about their promotion and new products directly. By the end of 2019 the monthly active user of WeChat amounted to more than 1.1 billion. WeChat app is becoming the most used app in China Douyin (TikTok in China) is a music short video community platform focused on young people (Generation Z who has become an important consumption segment) which went live in September 2016. Users can choose songs, shoot short music videos, form their own works, and update their favourite videos according to their preferences. Gross Merchandising

Volume (GMV) of Douyin ecommerce livestreaming in 2020 is estimated to reach € 27 billion (CNY 200 billion). Cosmetic brands in China often use this platform to increase brand’s exposure and promote their products.

Ecommerce platforms

Most social media platforms build up their own ecommerce platforms to sell products in the advantage of their own enormous data. Ecommerce livestreaming started on Taobao platform in China in 2016. Since the lockdown of corona pandemic, ecommerce livestreaming is becoming the main stream/marketplace of ecommerce especially for cosmetics in China. Now a lot of ecommerce and social media platforms have opened their own livestreaming for selling goods, as Little Red Book, Douyin, Kuaishou, and more. Chinese gouvernment now advocates ecommerce livestreaming for economic recovery after corona pandemic. Perfect Diary is a Chinese colour cosmetic brand that writes a successful story with ecommerce and social media. It was established by an ecommerce agent in 2017 and opened its flagship store on Tmall platform in the same year. In 2018 Perfect Diary became very successful on social media community and has gained more than 1.732 million followers on the Little Red Book and enormous fans on other social media communities such as Taobao, Microblog, Douyin, etc. Within three years it has become number one domestic colour cosmetic brand among young followers and has been ranked top three most popular Chinese brands with Huawei (mobile phone) and Lining (sport clothes) among the Chinese Generation Z consumers. Perfect Diary has opened its physical flagship stores in 2019 and is planning to open 600 shops in the coming three years. The brand was the first Chinese cosmetic brand ever to win the championship in beauty category with its colour palette, lipstick, mascara and eyeliner on Singles’ Day on Tmall in 2019. Internet celebrity economy in China is enormous. One of the most successful examples is Jianqi Li (Austin Li), a Chinese internet celebrity, who endorses beauty products through livestreaming. The so called Lipstick King began his career from a beauty assistant of L’Oréal counter in department store and now is ranked as the top-selling live streamer for lipsticks in China. He has amassed an enormous audience on numerous Chinese social media platforms. Jiaqi Li made € 470,000 (CNY 3.53 million) within 5.5 hours and sold 15,000 lipsticks within five minutes. He raised more than US$ 145 million in sales on Singles’ Day for Alibaba in 2018. He is the highest paid male beauty icon on Taobao, ranks in the top three Taobao live streaming anchors, and is launching his own cosmetics brand and applying the trademark ”oh my god” for his catch phase. Jiaqi Li is now becoming promoter for Louis Vuitton parfums in China.