As the coronavirus crisis has escalated in the U.S. and parts of Europe, it is likely to continue disrupting daily life for the next several weeks. China, meanwhile, is beginning to recover, and beauty brands are now looking to the country as a life preserver.
After two months of near-total lockdown, Chinese citizens are now slowly returning to work and new cases of coronavirus in the area have started to decline. This raises questions and also provides insight for the U.S. and Europe on what their economies can expect in terms of recovery. But reports about how much normal life has resumed in China are mixed. While people are returning to work, and stores, movie theaters and other public venues are reopening, people are not necessarily returning to said outings and are not making big-ticket purchases. Regardless, China is the only market that is in recovery mode, and therefore companies across categories will be reliant on sales from the region for at least the next three months.
SuperOrdinary, a distributor that works with 20 digitally native brands to sell in China through cross-border marketplaces to avoid animal testing requirements, has leaned into livestreaming to keep sales coming through. Its brand partners include Supergoop, LimeCrime and Drunk Elephant,
“We do believe that there’s light at the end of the tunnel because the consumer is back in our view, though they may be back in different channels,” said Julian Reis, SuperOrdinary founder and CEO.
SuperOrdinary experienced an increase in live-streaming purchases in February and March, comprising 40% of the company’s sales in that period — the pace of its portfolio brands have experienced up to 300% year-over-year growth in China and Hong Kong, and the company is still expecting to earn at least $100 million in 2020 revenue. This uptick in livestreaming showed Reis that customers are looking for entertainment and that shoppers still feel the desire to purchase products. Between February and March, overall sales increased by 50%, and the company has now increased its advertising through livestreaming from 15% of its ad budget to 40%. The brand is now focusing its efforts around holidays to get back on track with sales. Those holidays include International Women’s Day on March 8 and the upcoming Chinese shopping holiday called 618 Shopping Festival, held by JD.com, on June 18.
“From a brand point of view, China is still the biggest [market] for the next 10 years,” said Reis. “Any brand that’s willing to really invest in China for the long haul has to be in this market right now [despite coronavirus,] before we see a massive rush of brands enter the economy whenever the country eliminates animal testing.”
Chantecaille, for one, uses Taobao for cross-border e-commerce but the main source of the company’s sales for the past five years has been from Chinese travelers (known as Daigou) to the U.S. and Europe. Currently, the Chinese domestic market is one of the brand’s lifelines, said Sylvie Chantecaille, founder of her namesake brand. She expects cross-border business to triple in the next three months. But overall, she expects global sales for 2020 to decline by 30%.
“[Revenge buying] is what everyone is expecting, but we don’t know if that’s true,” she said, pointing to the notion that consumers will reappear in droves to buy products. “Coronavirus is changing people’s mentality and I don’t think it’s going to be business as usual.”
There are already changes taking place in the daily lives of Chinese citizens. China experienced a sudden wave of unemployment, growing to 6% in January and February, according to Aljazeera. The U.S. saw an increase of 3.3 million unemployment claims during the week ending March 21, per the U.S. Labor Department, which was the biggest jump in the country’s history. However, some economists are saying that U.S. unemployment could increase to 20%, rivaling that of the Great Depression. The death toll has also surpassed that of China. These types of developments make it harder to look to China as a guide for what the U.S. can expect, in terms of a rebound.
Chantecaille said she expects coronavirus will reduce the conspicuous consumption that has been a hallmark of the global beauty economy for the past decade. With people quarantined in their homes, they gained perspective on what was vital to their lives, which primarily revolved around family, cooking, love and day-to-day essentials.
“Less is more,” she said. “All businesses are going to have to realize that they need to produce less and expect fewer sales, but still do everything very well and with the sense of what the customer actually needs.”
For its part, Chantecaille is looking at accelerating its sustainability efforts and is currently prototyping a paper compact package instead of plastic. The brand will also eliminate bags that come with its gifts with purchases and plans to cut back on printed materials.
Jean-Philippe Benoist, founder and CEO of premium beauty distributor GED Company, said he fully expects Chinese people to “revenge buy” premium and luxury beauty products. GED works with premium and luxury brands like RéVive and Caudalie skin care and Jouer makeup. He said this is what occurred following the SARS outbreak in 2003. However, the Chinese economy and its role as a consumer market have changed drastically in the last 17 years. In 2003, China’s economy centered on exports of inexpensive textiles and plastic goods, while its consumer market was relatively young.
Since China has become the second-largest beauty market, its burgeoning middle class has benefited from the country’s rapidly growing economic output. But according to S&P Global research, retail sales fell by 21% between January and February. GDP growth has been re-forecasted by S&P at 2.9% for 2020, which is lower than the country’s growth in 2003, even after the SARS outbreak, according to reports.
Benoist said that between January and March, his company saw sales decline by about 40%, but he still expects to grow by double-digits for 2020, as the customers for GED’s portfolio brands are wealthier.
“[The Chinese culture] will see this as a bump; at end of the year, this would be forgotten,” Benoist said.