What’s Holding Back The Great Cruelty-Free Beauty Brand Rush To China?
When the history of the indie beauty movement is written, one of the major turning points may be China stepping away from its requirement that international cosmetics brands test on animals to sell at stores within the massive country. With the exception of special-use cosmetics such as hair dye and sunscreen, as of May 1, National Medical Products Administration (NMPA), the Chinese government agency overseeing drugs and beauty merchandise, started allowing international cosmetics brands to enter retail domestically if they have a Good Manufacturing Practices (GMP) certificate issued in their home nations and a so-called “responsible agent” in China.
Despite the welcome shift, the stampede of cruelty-free beauty brands from around the world into China has been corralled at the moment by continued confusion over the regulatory environment and the best strategies for emerging brands to do business with the second-biggest beauty market globally. “The market will change, but it will take time,” says Allie Rooke, founder of Clean Beauty Asia, a consultancy that’s been guiding beauty brands into China via cross-border e-commerce. “Still, cross-border will be the route for many brands first.” We talked to her to get a sense of the evolving landscape and what indie beauty brands should be thinking about today as they assess their approach to China.
GMP Certificate Protocols Have To Be Established
The United Kingdom and France have erected systems to digitally issue GMP certificates to cosmetics brands seeking to export to China. However, China has yet to approve the certificates generated through the French and British systems. The manner in which the GMP certification process will be handled in the United States is even more unclear. “In the U.S., every state could be different,” speculates Rooke. “They will have to submit to the NMPA, and they agree whether it’s OK or not OK.” She emphasizes, “It’s still all quite hazy.”
The haziness could be by design. The GMP approval process may be a helpful tool for China to wield in trade wars. As is, it’s regarded as a possible smokescreen to compel cosmetics companies to manufacture their products in China. “There are a lot of unknowns,” says Rooke. “If you manufacture in China, you haven’t had to go through animal testing, so this [could be] the Chinese government’s way of showing openness, but it’s actually still making it quite difficult, and brands may find it easier to move their manufacturing to China.”
Questions Persist About Responsible Agents
A responsible agent is an entity within a country that a brand outside of it designates as accountable for issues that pop up. In European countries, the idea of foreign brands securing responsible agents isn’t new. In China, the concept hasn’t been well-formed. Distributors act as responsible agents, but appointing them in that role can make brands completely beholden to their distributor partners and wreck their businesses in China should disagreements occur.
“Ideally, you don’t want to put your eggs all in that one basket, but, for a small brand, I don’t think you have a choice,” says Rooke. “We are hoping to see players arise that offer that service separately, but it’s tricky because there is a lot of liability.” In a paper from the firm King & Wood Mallesons on responsible agents, managing partner Mark Schaub and managing associate Serena Guo detail that brands should be sure to “select the right partner,” “have a clear contractual basis,” “have an audit and supervision plan in place,” and have “an exit plan in the event the relationship sours.”
Discussing GMP certificates and responsible agents, Rooke says, “There are big brands that are going through this process that will come out through the other side. As they have learnings, we will be able to pass them on to smaller brands.”
China Launches Aren’t Swift Or Cheap
Rooke doesn’t suggest brands head to China unless they’re pretty recognizable in their countries of origin. “If I search for you on [social media and shopping platform] Little Red Book or WeChat, I want people to be talking about you already and reselling your products already,” she says. “If you have no brand chatter, it costs you a lot to create that.” To stoke brand chatter, Rooke recommends brands identify influencers in their home markets with Chinese audiences to begin to raise awareness of their products in China. She says, “You can engage the China market in the U.S.”
Once they’re primed for a China launch, beauty brands shouldn’t pursue it unless they have wherewithal to execute it. “Organic traffic is not really a thing in China,” warns Rooke. “You have to really pay to drive people to you, and you do that by using KOLs [key opinion leaders or influencers] and advertising.” In the past three years, Rooke estimates marketing costs in China have quadrupled. “You can’t see China as a quick win,” she says. “I know that, in the last 12 months, brands have piled in because, with COVID, the market has recovered very quickly. Most of beauty has been at pre-pandemic levels since March of last year. It’s quite incredible how beauty has done in China, but with increased competition comes increased cost.”
Rooke instructs brands they should expect their marketing budget alone to be at least $500,000 when they enter China. “If you are going the classic route with a trade partner and Tmall Global, $500,000 is not a punchy number. It’s a decently conservative number,” she says. Another way of factoring costs is that Rooke figures a minimum of 30% to 40% of a brand’s revenues in the country should be set aside for marketing, but the percentages can go up to 60% to 70%. Typically, brands lose money in China during their first year in the country. They’re lucky if they break even in the second year, and they expect to make money in the third year.
Beauty Brands Should Get To Know The Retail Scene
While e-commerce constitutes around half of retail sales in China, physical retail remains highly valuable for brands introducing themselves to Chinese consumers. Rooke mentions there’s scant brand discovery online in China. “If you are in a physical retail environment somewhere that encourages trial and discovery like Harmay and Colorist, people are discovering you by being there, and there are so many things you can do with events and pop-ups,” she says. “Also, there’s just the scale of it. Tmall Global is a small percentage of the sales in China. It’s 5% of Alibaba.”
With the easing of the animal-testing policy, Rooke outlines, “There’s a mass scramble over who can you partner with at physical retail, and there aren’t that many options.” She believes beauty brands should be examining the retail scene in China and pinpointing the retailers that could be fits for them. Sephora China has more than 240 stores, but Rooke isn’t bullish on it for indie beauty players. “They are continuing to expand quite aggressively, but they don’t have the image of bringing new, cool, trendy niche brands to market,” she says.
Rather than Sephora China, Rooke identifies Harmay, The Colorist and Bonnie & Clyde as multibrand beauty chains indie beauty brands should be evaluating. Harmay only has eight stores currently, but it’s made a splash with them. The stores are very industrial and feature samples that customers buy to experiment with several products at home prior to plunking down for full sizes. “They are taking self-service to a whole new level and really driving customers to come back regularly,” says Rooke, noting 60% of customers repurchase within 45 days. Harmay’s assortment contains La Mer, La Prairie, Valmont, Charlotte Tilbury and Pat McGrath Labs.
Private equity-backed Ushopal, a builder of brands such as Anastasia Beverly Hills, Juliette Has A Gun, Chantecaille and Natura Bissé in China, is the owner of Bonnie & Clyde, a multibrand concept with five stores. In the stores, where Ushopal presents the brands in its stable, shoppers order online and have products promptly delivered to their doorsteps. According to a recent Glossy article, plans call for 11 Bonnie & Clyde locations by the end of this year.
Run by the KK Group, The Colorist has around 60 stores in China. It has bright interiors that inspire social media posts. KOLs are constantly livestreaming from The Colorist, and they have plenty to talk about. The stores feature some 6,000 stockkeeping units and thousands of people stream flood them daily. Other retailers making waves in China are Wow Colour, H.E.A.T. and NOISY Beauty.
Clean Beauty Isn’t Big In China
There are rumors Tmall Global is going to be rolling out a dedicated clean beauty initiative, indicating the category is making inroads in China, but Rooke cautions it’s in its infancy in the country and not an impactful purchase motivator. For clean beauty brands traveling to China, she says their clean beauty positioning “is not something we want to hide, but we have to pull out what it is that the customer is going to latch onto. It’s normally efficacy or looking at a star product and really digging into what it gives you.”
In China, where influencers are crucial, Rooke hasn’t encountered influencers concentrating on clean beauty. Instead, she’s increasingly spotting ingredient geeks. “They are influencers that aren’t specifically about clean, but they are very into ingredients, and they do talk about clean,” she says. “Five years ago, that didn’t exist. Before, the influencers were very generic.” Health has ascended as an important topic for influencers to touch upon as well.
Rooke predicts Chinese consumers may skip the significant clean beauty wave that occurred in the West and go straight to focusing on effective products that simultaneously boast clean ingredient decks. Clean or not, she anticipates niche beauty brands having greater relevance. “We have seen the niche fragrance business really change over the last 12 to 80 months with gen Z really wanting niche fragrance,” says Rooke. “I used to work in fragrance in China with Chanel and Burberry, and it was very much the third fiddle. People bought it for gifting, but now gen Z is buying it for themselves. There’s a whole change of people wanting to be individuals whereas before they really wanted to be like other people, so there’s a lot of opportunity for niche fragrance.”