Why China’s affluent young beauty consumers crave fresh new ‘niche’ products

Luxury Chinese consumers have probably bought, owned and “experienced” any global luxury brand you can name, in any category you can imagine.

Such a contention has been supported whenever a report or business forecast is released.

Today’s younger generation of affluent Chinese consumers still use the established big-name brands, yet they are also craving something new – and something niche.

This assertion was backed up by the recent China Insight Report, The New Face of Beauty in China, produced by Reuter: Intelligence, the China-focused research platform for luxury brands.

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The report research spanned qualitative focus groups, mobile ethnographies, big data analytics and a quantitative online survey covering more than 300 Chinese consumers across the first-tier cities of Shanghai, Beijing and Guangzhou.

When survey respondents and focus group participants were questioned on the differences between big, well-known brands and niche brands, there were a few clear takeaways.

Consumers clearly associate trust and overall quality with the well-established “big brands”.

However, over 60 per cent mentioned that they were very curious about niche brands, with little curiosity for the big brands.

During focus group discussions, the same trend became evident: while established brands are often top in most people’s minds, younger consumers are increasingly interested in smaller, lesser known brands.

Male beauty consumers are all about niche brands – 92 per cent responded that they prefer niche, and 76 per cent prefer the packaging on niche beauty compared with the big brands.

One of the experts quoted in the report, Shine Wei, brand general manager of SpaceNK, said: “One strongly growing trend in beauty in China is niche – customers look to explore new brands and products, especially those that are less known and even less available in China.

Niche luxury labels replace big-name brands as must-haves among China’s wealthy millennials

“The younger generation live an urban and very global lifestyle – rather than being overwhelmed by the number of brands available, they are excited to try what’s new and discover even more.

“For already well-established brands, they can still aim to meet these emotional needs of the modern Chinese consumer by continuously bringing delightful newness, [and] by bringing their brand to life through digital connectivity and innovative storytelling.”

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What does niche mean in China?

Niche products are items those that appeal to a small, specialised section of the population.

A brand does not need to announce “we are niche”. The concept of niche beauty is best created organically: through things such as the specialisation of a brand’s focus, the ingredients it uses, or the products’ applications.

One such brand is Diptyque, the French luxury goods company making high-end scented candles, perfumes, face and body care items, which has struck a chord among some Chinese consumers.

It staged a hugely popular immersive experience with its products at the Cha House in Shanghai, which led to queues of people stretching around the block.

Luxury in China and Asia does not have to mean very expensive products or services; it does not have to mean fashion, or Champagne, or yachts or fancy bling.

Luxury can mean high-quality, an independent lifestyle, or a type of personal luxury.

While niche generally means “not a big famous brand”, it can mean boutique, artisanal and essentially, for want of a better word, “cool”.

To pinpoint what niche means, we can look at just a few examples in different categories.

There are niche independent overseas brands, including the Spanish cosmetics and skincare companies MartiDerm, Sesderma and ISDIN, US natural skincare brands Calibio and Thayers, French make-up brand, PAUL & JOE and German skincare specialists, BABOR.

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Then there are overseas brands owned by major beauty players, which include professional skincare brand Dermalogica, acquired by Unilever in 2015, Korea dermatological brand, Dr. Jart+, acquired by Estée Lauder in 2015, British fragrance brand Jo Malone, owned by Estée Lauder, and Japanese skincare brand Cure, owned by Kao.

There are also Chinese brands created by local influencers, including MO·AMOUR, a essential-oil-positioned beauty care brand created by Zhang MoFan (@MoMo) and JUNPING, a natural skin care brand by Fang JunPing (@JunPing Demon King).

It should be noted that while these local creations reportedly achieved strong sales figures, they were not lauded for their high quality on social media.

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Expanding into niche beauty

The interest in niche brands in China has seen an increasing number of players, both domestic and international, entering the market.

Notable merger and acquisition involving key players in the China market include:

AHAVA, an Israel skin care brand featuring Dead Sea minerals, which was bought by the Chinese conglomerate, Fosun Group, for US$77 million in April 2016.

The group is a big player in China health care industry, covering product research and development, manufacturing, distribution and retail.

Obagi, a US professional skin care brand, was sold to Haitong International Zhonghua Finance Acquisition Fund I for US$190 million in 2017.

Limited partners of the fund include China Regenerative Medicine International, whose major business covers cosmetics and hospital management.

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Korres, a Greek natural beauty brand, sold a 70 per cent stake last December to Morgan Stanley and Profex, a Chinese brand management company working in dermatology and skincare.

MOR, an Australian bath and body care products and fragrance brand, was bought in 2015 by Uni-Asia, a major domestic original equipment and original design manufacturer. The brand opened its first store in Hangzhou in September

Carver Korea was acquired by Unilever in September 2017 for €2.27 billion (US$2.5 billion). Starting as a company supplying professional products to beauty salons, Carver Korea has quickly expanded its business via an aesthetics-based skin care brand, AHC.

Since last August it has stepped up its cooperation with Tmall – a Chinese-language website for business-to-consumer online retail operated in China by Alibaba Group, which owns the South China Morning Post.

Last June, Unilever also bought the luxury make-up brand, Hourglass, and in September launched its first colour cosmetic brand on Tmall.

Dr. Ci: Labo, a Japanese cosmetics brand, has been acquired by Johnson & Johnson, the US medical devices, pharmaceutical and consumer packaged goods company, which originally had bought a 20 per cent stake in its owner, Ci:z Holdings, in July 2016.

The brand also re-entered the China market last year, having pulled out in 2014.

Market trends in niche beauty

 A series of policies issued by China’s government have made trade easier, particularly the development of cross-border e-commerce, which means overseas brands now can be imported more quickly, which has reduced costs.

This means niche beauty brands are able to provide offer their products at more competitive prices to Chinese consumers.

Niche brands have also captured the attention of consumers using a few key tactics: leading with one clear “halo” product to help establish their name, focusing on more “exotic” ingredients and emerging technologies, and offering a novel experience – all complemented by sustainable and/or “natural” features – something that Reuter: Intelligence’s report shows is a very big plus point among consumers.

While well-established brands continue to focus on generic branding, niche brands have benefited from their ability to make bolder claims, often coupled with organic or ethical features, to help them tap into younger Chinese consumers’ interest in finding “new” products in an increasingly fragmented market.

The right sector at the right time

Niche products are popular among younger Chinese consumers because they take pride in their knowledge about new brands and their offerings – gleaned from spending many hours of research on online platforms such as Red (Xiaohongshu), which was shown to be the leading platform for learning about beauty, according to the Reuter: Intelligence’s report.

There are also a few distinctive types of beauty lover using such platforms in China.

1. Youthful middle-aged people – younger generations who, despite being born after the 1990s, (the so-called “post 90s’’ in China), are overwhelmingly passionate about preventive anti-ageing measures. In addition, growing individualism is driving the younger generations to pursue brands that are distinctive from their peers and parents.

2. Ingredient obsessor – those people who are willing to spend lots of time and effort researching the safety and effects of ingredients before buying any product.

3. Gentle cosmeceutical – an emerging beauty care category focused on higher safety, involving cosmeceutical products – cosmetics that have or are claimed to have medicinal properties – which is tapping into two consumer types: those people who regard themselves as having sensitive skin, and those who need pre/post treatment for plastic surgery.

While beauty products that claim to have outright medical benefits have been banned in China, promoting the medicinal properties in a permitted way is still seen as a plus point.

Niche luxury labels replace big-name brands among China’s millennials

Retail gamesmanship

However, attracting this younger consumer segment is not only about a brand’s online acumen.

China Insight Report, The New Face of Beauty in China reveals that physical retail is still highly desirable among mainland consumers.

This is partly thanks to China’s digital pioneering efforts, which have led to dynamic gamification and online-to-offline (or O2O) commerce, where companies create product and service awareness online – through things such as emails or online advertising – allowing potential customers to research different offerings and then visit the local bricks-and-mortar store to make a purchase.

While the Chinese beauty market is as ripe as can be, brands need to ensure that their marketing efforts remain as bold, expressive and fresh as the products that their customers are chasing.

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This story originally appeared on  The Luxury Conversation .