Fashion/Cosmetics Industry
The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com -- Ed.
In order to check on Chinese consumption channels, we visited major shopping malls and brand stores in Shanghai. Given clear consumption polarization, entry of various imported brands and expansion of shopping channels, it’s time to boost expectations of a Chinese consumption recovery.
2Q23 represents prelude to consumption rebound
Over Apr 24~26, we visited shopping malls (IFC Mall, Galeries Lafayette, Super Brand Mall) and stores (MLB, Watsons) in Shanghai to check consumption channels in China. The intensity of recovery was slower than expected considering both a reduced number of customers and the fact that most people still wearing facial masks, but expectations for the direction of both a consumption recovery and new growth channels remain valid, in our view.
Fashion: Clear consumption polarization; pursuit of brand diversity
1) Pronounced polarization in progress: In fact, during the trip, we witnessed many Chinese consumers lining up in front of global luxury brand stores early in the morning. 2) Pursuit of brand diversity. The running of pop-up stores can introduce new luxury items that appeal to consumers who are sensitive to fashion and interested in various genres. And, outdoor/sportswear/Gorpcore looks from the US and Europe are also proving popular. 3) In the case of MLB, it has successfully established as a leading casual/street concept brand. The brand is sold at around a 30% higher price of the normal price in Korea, and a no sale price policy is being maintained. Even when considering import tariffs and VAT, the price range is higher than that of general sportswear in China, such as Adidas and Nike, indicating that the brand power is solid.
Cosmetics: Preference for local Chinese brands intensifying and new beauty channels rising
1) Global cosmetics players are still aggressively targeting the Chinese cosmetics market, and marketing costs are highly likely to rise versus the Covid-19 period amid intensifying competition. 2) Perfume represents an emerging beauty item. Perfume brands such as Diptyque, Jo Malone, Byredo, and Aqua di Parma are gradually upping their presences in stores, so spending on these items should increase (versus the past) when Chinese travelers visit Korea. 3) Cost-effective local brands are making strides in the H&B channel. As the MZ generation in China also values cost-effectiveness when consuming cosmetics, local skincare brands such as Winona, Olay, Proya, and Florasis have become Watsons’ best sellers. 4) The popularity of emerging beauty shops. Harmay is a unique kind of sample beauty select shop that is hard to find in Korea. It minimizes transactions with agents to lower product prices and deals directly with brands to select and sell only popular products, receiving favorable responses from consumers.