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China beauty trends more than skin-deep

Daryl Guppy
Daryl Guppy • 5 min read
China beauty trends more than skin-deep
Foreign beauty brands remain the preferred choice of Chinese consumers, but China's domestic skincare market is steadily coming up
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It took a long time for some Western cosmetics companies to understand that the Chinese ideal of beauty is pale skin rather than the bronzed suntans favoured by Europeans. Pale skin, along with the long pinkie fingernail, showed you did not have to work in the fields, or even work at all. The focus on beauty and skincare during the Covid lockdown was an important part of the 8.2% growth in imported consumer goods in 2020.

China’s Ministry of Finance and Commerce figures published last week show imports of consumer goods grew 8.2% in 2020. As an interesting counterpoint, overall sales of domestic goods contracted 3.9%. Imported cosmetics was one of the largest components of this growth, with its value rising over 30%.

Shanghai-based marketing analytics firm China Skinny believes that paradoxically, the Covid lockdown is the prime cause of this growth. They say it is unsurprising that demand for imported beauty products has soared over the past 12 months because the normal import channels have dried up.

A typical basket of cosmetics can cost as much as 60% more in China than in other countries, so the most valued gifts of all for my Chinese colleagues were cosmetic products. I was just a small part of a much broader Chinese trend. Pre-Covid Chinese consumers bought a sizeable share of their skincare and make-up needs when they or friends travelled abroad. Those not fortunate enough to have welltravelled friends used daigou agents. Covid and the restrictions on international travel have revealed the previously hidden size of this trade.

However, the 30% rise in formally imported cosmetics, rather than informal imports in passenger luggage, masks the way that domestic China brands are increasingly eroding foreign brands’ market share. China Skinny research suggests that the growth of domestic brands is largely due to marketing strategies that are more in line with Chinese consumers’ wants and needs. Evidence of this success comes from sales on Singles’ Day.

China Skinny compiles a Skincare Tracker report that follows trends in this market segment. Foreign cosmetics brands dominated sales on Singles’ Day, perhaps because of competitive prices. There is no doubt that Western, Japanese and Korean beauty brands remain the aspirational products of choice for many Chinese consumers. However, they account for just a third of top-selling brands on Tmall during the rest of the year. Consumer habits for many products, including cosmetics, are formed through regular buying. Expanding foreign market share requires foreign brands to do more to encourage year-round purchase of their products.

That is the key message that extended beyond the confines of the beauty market and cosmetics to include other aspirational consumer products such as wine and bird’s nest. Sellers limit their market if the buying habit is largely restricted to “sale” events like Singles’ Day. The growth in domestic cosmetic and beauty product sales shows the cachet of foreign brands is beginning to slip. Short-term Covid market growth conceals the challenge of domestic products. It also conceals the need for sellers of foreign products to be more competitive rather than just rest of their laurels. China marketing is becoming more sophisticated.

Technical outlook for the Shanghai market

The momentum of the Shanghai Index breakout has slowed as the index consolidates around the resistance level near 3,620. The initial uptrend, defined with trendline A, has been broken. However, this does not signal a change in the longer-term trend direction. It signals a consolidation period and a potential retest of support near 3,540.

This is consistent with the trading band structure of the Shanghai Index. The structure is derived from the behaviour of the long-term sideways trading pattern that dominated the last half of the 2020 trading year. This pattern of trading bands suggests the current consolidation may develop in a broader pattern between support near 3,540 and resistance near 3,620.

The longer-term uptrend is welldefined with the broad separation in the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. This shows strong investor support for the uptrend. Currently there is no indication that investors have joined the sell-off and this suggests the retreat is temporary. If investors were also sellers, then the long-term GMMA would show compression.

Any fall below 3,540 finds support near the upper edge of the long-term GMMA currently near 3,518. This is the upper level of a combination of strong support features. This includes the upper edge of the long-term sideways trading band near 3,440. Additionally, the lower edge of the longterm group of GMMA average is also just above this support level. These two features provide strong support for any significant retracement in the uptrend.

Trend behaviour is constrained by the trading band behaviour. Trend analysis shows how the trend is continuing. Trading band analysis allows for the calculation of upside breakout targets and support and resistance levels. A breakout above 3,620 has a target near 3,690. This breakout target is calculated using the width of the prolonged sideways trading band. These calculations help define potential targets for the index, but they do not indicate how the breakout trend will develop.

Since July 2020, the index has oscillated around the centre line of the broad sideways trading band that has dominated the market. The first upside target near 3,540 is calculated by measuring the width of the upper section of the trading band and projecting this value upwards. The second target takes this value and projects it above 3,540, to give a target of 3,620. These short-term targets have been achieved.

The full width of the trading band is 235 points. The longer-term target of 3,690 is calculated by taking the full width of the trading band and projecting this value upwards from 3,450.

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