China’s small-town youth offer big time potential for online sales of cosmetics

3 min read
Jet Jing, president of Tmall. (Image credit: Alibaba)

In China’s e-commerce battle for beauty, youngsters in the country’s smaller cities and towns represent an increasingly alluring market. China’s e-commerce boom plays a major role in this transition by delivering products and lifestyle, previously out of reach to many in remote areas, through online channels.

That’s according to a report released Monday by Alibaba’s Tmall and retail market research company Kantar Worldpanel, which highlighted that demographic as one of four appealing segments.

For businesses wanting to stay ahead of industry change and develop products for tomorrow, it’s crucial to capture the interests and attention of consumer groups that promise the highest and longest term growth. Success stories in locking China’s booming post-80 and post-90 groups were abundant over the past few years from video streaming giant Bilibili to e-commerce and social networking platform Little Red Book, also known as Xiaohongshu.

But now new trends are emerging that also require beauty marketers’—and those trying to sell other consumer products and services—attention.

 Youngsters living in prefecture-level cities and counties are shaping the future of China’s consumption, according to the report. The total spend of China’s 220 billion youth population—aged between 20 to 35 years old—on beauty products, including cosmetics and skin care products, is more than RMB 518 billion ($77 billion).

Small-town youngsters form a new growth point for the industry with a 7.8% growth in spending during 2018 when compared to 2017. That’s higher than a 5.4% increase shown by their counterparts who live in China’s bigger cities.

Online sales of beauty products, including cosmetics and personal care in small towns, soared 38.0% in 2018, double the growth rates in big cities.

Social e-commerce—the use of social networks like WeChat and Weibo to boost e-commerce transactions—is popular in small-town China with a 27% penetration rate in 2018. That figure was 22.7% in the country’s larger cities during the same period.

Still, small-town youth’s average spending is still 18% lower than young people who live in big cities. The contrast represents a huge growth potential for marketers, according to Jason Yu, general manager of Kantar Worldpanel China. Yu presented the report’s main findings at Alibaba’s annual beauty summit held Monday in Shanghai.  

The report also highlights three other promising markets, including Generation Z; mature female consumers; and families with babies.

The investment and return timeline for these group varies. While the small-town youth boom is ongoing and ripe for monetization, the cultivation of Generation Z will take around three to five years. The investment timeline for mature female consumers and families with babies could take between five to 15 years, according to Yu.

Gen Z: Early beauty adopters

The report also highlighted untapped potential in Generation Z, a valuable group that’s been dwindling due to the one-child policy and dropping birth rates in the country. Early signs indicate that this group forms a significant spending force that consumer brands must pivot toward. Aged between 15 to 19 years old, Generation Z female consumers are newcomers to the beauty market and are willing to spend more on high-end lipsticks than women in other age groups, representing an opportunity for cosmetics companies.

Different from their mothers, China’s Generation Z developed beauty awareness early on. Around 80% of female users in the group use facial masks and 96% use makeup. Budget brands remain popular among this group given that most of Generation Z are students and are not earning yet. This suggests great opportunities for emerging brands to lock the group, says Yu.

What makes this group truly valuable is its long-term value for high-speed growth in the near future when such consumers gain economic independence in three to five years, he added.

In the case of more mature consumers, women aged between 35 to 40 years old purchase beauty products less frequent, around 11% lower than that for all females. But they have higher loyalty, especially for premium brands.

Around 55% of the customers in this group made purchases both online and offline. To target them, brands should build their marketing strategies by leveraging new retail concepts and combing the online and offline experience, Yu said.

The rise of small-town youth is visible also in a string of popular apps like Pinduoduo, and  Kuaishou. Maternal care and child education segments have fostered a raft of tech startups such as parenting app BabyTree, and online education platform Vipkid.

By tapping into these emerging groups, Tmall announced that its sales of beauty products jumped over 60% last year, surpassing the industry’s average growth rate. Online sales of cosmetics and personal care products grew by 37% and 36% in China in 2018, respectively. This was also ahead of the fast-moving consumer goods sector average of 32%, according to the report.

“As China continues its consumption upgrade, more and more people from different age groups and geographic locations are willing to spend on high-quality beauty products,” Jet Jing, president of Tmall, said in an emailed statement. “We are looking forward to working with more brands to address the opportunity.”