The Hong Kong skincare and cosmetics market continues to grow at an exceptional rate, boosted by the continued sales from mainland Chinese tourists, although factors such as inflation, liquidity controls in China and the Eurozone crisis will have a negative bearing on growth.
Hong Kong is New Zealand's third largest skincare and cosmetics export destination with past value exports growing at a steady rate.
- Hong Kong has a small skincare and cosmetics manufacturing sector. It is a large importer of these products and its skincare and cosmetics market serves as a springboard for other neighbouring markets in Asia.
- The Hong Kong skincare retail market is valued at around US$740 million, with premium skincare reaching over US$533 million, and mass skincare US$206 million. The skincare market is forecast to grow at a Compound Annual Growth Rate (CAGR) of five percent to reach about US$900 million in 2016 [i].
- Shopping tourism from mainland China continues to increase and is one of the key drivers of the skincare and cosmetics market in Hong Kong. According to the latest statistics from the Hong Kong Tourism Board, tourist arrivals were around 36 million in 2010, with arrivals from mainland China accounting for almost 63 percent (over 22 million).
- The major players in the market are L'Oreal, which holds just over 12 percent in company shares, followed by Procter & Gamble (about 11 percent), Shiseido (10 percent), and Estee Lauder (over nine percent). There is fierce competition among the top three companies for the leading market position [ii]. Hin Sang Hong Co Ltd, with their brand Beautymate, was the fastest growing player in the market, recording a 55 percent growth in 2011 [iv].
- The leading brands in the market by brand shares are SK-II (about seven percent), Shiseido (over six percent), Estee Lauder (about six percent), Laneige (about five percent) and Lancome (over four percent) [iii].
- The main distribution channel for beauty skincare and cosmetics products is through health and beauty retailers, which hold over half of the market share. These mainly consist of beauty specialist retailers (21 percent), drugstores (17 percent) and chemists and pharmacies (about 14 percent). Other channels are department stores (about 24 percent) and supermarkets (14 percent). Internet retailing has been developing very fast due to its high penetration rates and rapid development of internet and e-commerce in domestic and foreign marketsv. The top two health and beauty retailers are SaSa (about 90 stores, with focus on internet retailing), Mannings (over 336 stores) and Watsons (about 75 stores). The majority of beauty specialist retailers are located in urban areas that are highly accessible to tourists and domestic consumers, while their presence in rural areas is limited.
- The market is saturated, and as it reaches maturity players will start engaging in price competition, which may cause a decrease in unit prices of skincare in the future. Changes in the market, such as mass anti-agers overtaking the retail sales volumes of premium anti-agers, will also be observed as the premium anti-ager category matures. However, men's skincare continues to grow through the use of marketing campaigns that specifically target the male segment e.g. through the endorsements of male celebrities in advertisements and product promotions [v].
- International brands have a high reputation for quality assurance and are popular among local skincare consumers. Consumers have more trust in international brands than local brands. They are generally willing to spend more to ensure they get the highest quality of skincare products since this has a large impact on their appearance. The aggressive marketing campaigns of international brands are also a reason for their popularity [v].
- Facial care is the largest skincare category, worth around US$640 million. The segments of body care and hand care are comparatively smaller at US$43 million and US$13 million respectively [iii].
- Premium products continue to outperform mass products as the spending power of the middle class increases and consumers become more brand conscious. Premium skincare products account for as much as 72 percent of retail sales [i].
- Hand care, anti-agers and night mask products are experiencing high growth. L'Occitane leads the growth in premium hand care and achieved their position through an aggressive expansion into the Hong Kong market. The growth in anti-agers' products is due to Hong Kong's ageing population, the influx of shoppers from mainland China, and the result of strong marketing and promotional activities for these products. Olay invested in the promotions of its anti-agers using Taiwanese actress, Barbie Hsu, in its television and magazine advertisements [iv].
- Both whitening and concentrated serum are growing trends. An increasing number of products contain skin whitening functions, such as face masks, facial cleansers, anti-agers and toners. Concentrated serums that contain anti-ageing, anti-wrinkling, moisturising and whitening properties are popular with busy middle-aged females [iv].
- The skincare and cosmetics market will continue to be driven by tourist numbers from mainland China. Beauty and personal care are among their main shopping items when in Hong Kong as Hong Kong is well known for offering high quality products and exceptional service e.g. having service staff that can communicate in fluent Mandarin.
- Consumers are usually middle-aged females who have high spending power. However, rising inflation - including rising residential housing and rental prices - will have a bearing on the market, constraining growth and eroding spending power of domestic consumers. Other factors such as the Eurozone sovereign debt crisis and tighter liquidity controls in China will also cause growth to become more moderate[iv].
- Natural skincare and cosmetic products are increasing in popularity due to concerns over health and safety. The presence of harmful chemicals in beauty and healthcare products in the past have increased consumers' awareness and preference for purchasing products that use natural ingredients. L'Occitane took advantage of this opportunity and experienced strong retail value sales growth after emphasising safety and natural ingredients in their products.
- Another major trend in the market, typically targeted at middle- and upper-class females, is 'biotechnology' i.e. skincare with the latest technology and medical approvals [v]. Product claims such as the usage of dermatological research and the addition of pharmaceutical ingredients, particularly in anti-ageing products such as anti-wrinkle and whitening qualities, are attractive to consumers.
- Digital marketing, particularly the use of social media sites like Facebook, to promote products and brands by skincare companies are increasing. It also offers the versatility of tools such as fan pages, videos and online competitions. This form of marketing is proving to be an effective channel of reaching and interacting with consumers, especially those in the 20- 40-year-old age bracket. The growing popularity of e-commerce among consumers is also facilitating efforts in digital marketing. In addition, the growth of smartphones and the internet in mainland China is encouraging companies to use this channel to market their products and brands.
Import and exports
- France is the largest exporter of skincare and cosmetics into Hong Kong, accounting for almost 30 percent share US$646 million) of Hong Kong's total world imports. This is followed by Japan (US$340 million) and the United States (US$312 million). Imports from all three countries have been increasing steadily in value since 2010. The United Kingdom experienced the highest jump in exports into Hong Kong, recording a 50 percent increase in 2012, while China's exports increased around 48 percent in the same year. However, the combined export value of these two countries is roughly only one third of France's total exports into Hong Kong [vii].
- Hong Kong represents the third largest market for New Zealand's skincare and beauty product exports, with the latest export value reaching just over US$2 million. Exports into Hong Kong have been growing at a dynamic rate, with over 110 percent change experienced in 2012 compared to the previous year.
Market entry and development
- New Zealand does not have a strong image as a supplier of skincare and cosmetic products in Hong Kong and is more known for natural, agricultural-based products such as lanolin. Therefore, skincare and cosmetic products can add value by emphasising natural or organic ingredients that are accompanied with product certification from authorised certifiers such as GMP, AgriQuality or ECOCERT. Some product traits which are highly viewed in Hong Kong are:
- anti-aging products
- high-degree UV protection / sun block lotion with skin lightening
- body firming lotions
- bath toiletries with natural ingredients, such as rose or lily concentrates
- aromatherapy products
- nail polish and lipsticks
- skin lightening products
- Understanding the Hong Kong consumer is critical to success as local tastes and preferences in terms of features, colour, smell, design and package size are quite unique. Pricing and marketing strategies should be well planned in partnership with a distributor that sells through appropriate channels, can support marketing campaigns and report regularly on sales and market conditions. Flexibility on terms such as minimum order sizes and introductory offers can help new distinctive products get onto the shelves and become accepted on their merits so that stronger positioning can be built in time.
- The current trend is concept stores. These are brand-specific beauty salons and spas that are designed to emphasise the experiential aspects of premium products through the combination of new sales processes with make-up and skincare services. Major concept store players in the market are L'Oreal, Jurlique and H20+. New Zealand companies can consider collaborating with these concept stores as well as more established outlets, such as department stores and pharmaceutical chain stores to promote their products. Advertising through local newspapers and magazines such as Bazaar, Cosmopolitan, Elle, Jessica, Sunday and Next, which frequently feature new cosmetic and skincare products to promote product awareness, is also recommended.
- Pricing of skincare and cosmetics products in Hong Kong depends on the product with indicative mark-ups as follows:
- importers or distributors - ranges from 30-50 percent on the import price
- wholesalers - ranges from 30-50 percent on the wholesale price
- retailers - roughly 30 percent.
- In Hong Kong, there is an emphasis on purchasing authentic products, so New Zealand companies need to invest in building and maintaining brand awareness and product quality for its skincare and cosmetic products. These can be done through collaboration with a trusted local partner in Hong Kong who understands local market tastes and preferences.
Market resources and contacts
As Hong Kong is a free port, there are no customs tariffs on goods imported into or exported from Hong Kong. Excise duties are levied on only four types of goods: liquors, tobacco, hydrocarbon oil and methyl alcohol.
Cosmetics and skincare products in Hong Kong are governed by Chapter 456 Consumer Goods Safety Ordinance. It is required that a person shall not supply, manufacture or import consumer goods unless the goods comply with the general safety requirement for consumer goods, or the goods must meet the approved standard if applicable. There are no strict regulations imposed on the import of cosmetics and skincare products in Hong Kong. No import licence is required.
There is a prerequisite for all pharmaceuticals, cosmetics and skincare products to list the contents on the outer package of the product. The information should be in English and Chinese. Other information that must be included on the label:
- brand name
- product name
- weight or volume
- name and address of manufacturer or packer
- statement of advice / cautions or instruction for use
- expiry date or "best before" date.
- Cosmoprof Asia Hong Kong - Held every year in November at the Hong Kong Convention and Exhibition Centre.
- Natural Products Expo Asia - Held every year in August at the Hong Kong Convention and Exhibition Centre.
[i] Euromonitor (April 2012) Hong Kong skincare market size statistics
[ii] Euromonitor (April 2012). Hong Kong skincare company shares statistics
[iii] Euromonitor (April 2012). Hong Kong skincare brand shares statistics
[iv] Euromonitor (August 2012). Beauty and Personal Care in Hong Kong
[v] Euromonitor (August 2012). Skincare in Hong Kong, China
[vi] Global Trade Atlas (2012). Hong Kong Import Statistics