Think Tank: Top 10 Predictions for Beauty and Fashion Sales in China in 2019

Arthur Zaczkiewicz and Franklin Chu

Mon, December 24, 2018 at 2:59 PM UTC

American and foreign beauty and fashion companies selling to China through cross-border e-commerce, or CBEC, can look to 2019 with optimism. That’s because the Chinese government’s decision to lift CBEC purchase limits will make it easier to access the world’s biggest retail market. To help U.S. and foreign retailers and brands, here are Azoya Consulting’s top 10 predictions for 2019 China retail trends.

Reduced tariffs and trade restrictions

China’s expanded scope for CBEC will improve product tracking and taxation compared to gray market (daigou) purchases, and protect consumers from counterfeit and inferior merchandise. CBEC purchase limits rose to $720 per transaction and $3,750 per year, up from $290 and $2,900, respectively. The government lowered taxes on inbound postal shipments from 30 percent and 60 percent to 25 percent and 50 percent, respectively, and will relax more trade restrictions in 2019.

Chinese shoppers’ consumption upgrade fuels growth

Young professionals in China’s tier 1 and tier 2 cities buy premium-quality imports, including U.S. and foreign beauty, cosmetics, apparel and healthy, natural products. AliResearch found average spending on online marketplace Tmall Global exceeded $80 for tier 1 cities (versus $58 in 2014). Cosmetics and skin care account for nearly 40 percent of Tmall Global’s total sales (versus 25 percent in 2014), according to Deloitte.

Demand for specialized products

Chinese consumers once flocked to the same mainstream brands; now they consider long-tail products catering to specific needs. For instance, Chinese women recently added more products to their makeup routines, and niche sub-categories like probiotics are emerging within health and nutrition. Fortunately, focusing on niche markets also means less competition for retail companies.

New creative marketing tactics

To stand out in the competitive China market, retail companies need unique ways to engage Chinese consumers. Brands now mix e-commerce with games, live-streaming and short videos to keep shoppers interested. L’Oréal live-streamed Chinese influencers at the Cannes Film Festival on its mini-program for integrated social commerce and Dior designed an interactive Tetris game to promote its lipsticks.

Gray market shake-up

China’s new e-commerce law forces individual gray-market sellers on WeChat and Taobao to obtain business licenses and file tax returns, including daigou agents using personal accounts to sell online. Smaller daigou may forgo selling to act as micro-influencers, helping larger daigou organizations market products on WeChat in return for a commission. Many daigou may exit the market completely, so the quality of daigou agents will improve and their supply will shrink, as more consumers buy from official CBEC channels.

Alternatives to online marketplaces

China’s large e-commerce platforms — Tmall Global, JD Worldwide and Netease Kaola — procure their own inventory directly from brands and stock them in bonded warehouses closer to China. This efficient process results in lower prices, faster logistics, and a superior customer experience.

Third-party retailers selling the same brands on these platforms will find it difficult to compete on price and logistics, and may launch their own independent web sites instead. Macy’s recently left the China market after closing its Tmall store and official China web site. In 2019, more retailers may leave Tmall Global and JD Worldwide to launch their own e-commerce platforms.

Faster shipping

To boost agility, leading CBEC platforms now purchase more inventory directly and stock them in bonded warehouses in China and Hong Kong. JD.com pledged to purchase $15 billion in imported goods, and Kaola announced plans to spend more than $3 billion on European goods. As a result, shipping times have fallen drastically, raising consumer expectations of fast shipping.

Strategic partnerships

E-commerce has grown more competitive, as Alibaba and JD offer lower prices, wider product selections, and faster shipping than smaller rivals. In response, smaller players are partnering with Alibaba and JD for the major marketplaces’ stronger logistics capabilities, while the smaller platforms offer a niche focus and authentic marketing. For instance, Little Red Book contributes product reviews to Taobao and Farfetch partners with JD.com.

More physical stores

Since off-line retail effectively drives brand awareness among shoppers who rarely buy online, JD.com recently opened an experience center as an off-line CBEC store. Customers can browse and test products at the store, and JD.com can ship the products from bonded warehouses the same day. Similar stores will open in 2019 as big players — Tmall Global, JD Worldwide and Netease Kaola — expand their reach.

Cross-border WeChat shops

For small brands, WeChat stores are cost-effective for building a China e-commerce presence without paying large upfront fees for marketplace platforms or developing a Chinese web site. Big brands use WeChat mini-programs to launch limited collections, live-stream makeup tutorials and design creative games.

Smaller brands will enter China e-commerce through WeChat mini-programs, and bigger brands will design more creative marketing campaigns to attract Chinese consumers.

China’s cross-border e-commerce outlook for 2019 remains positive thanks to consumer demand and favorable regulations. Beauty and fashion brands and retailers need an appropriate market entry model, targeted marketing strategy and distinct brand image to succeed in China.

Franklin Chu is managing director of Azoya USA.

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