1. Evolution and History of Cosmetics Retail Channels

History of Channel Evolution

The evolution of cosmetics retail channels in China has gone through a transition from a single model to a more diversified one, and from offline to online. Initially, cosmetics sales were primarily reliant on traditional offline channels such as department stores and supermarkets. With the rise of the internet, especially in the early 21st century, e-commerce platforms began to emerge, gradually reshaping the retail landscape of cosmetics.

• Early Stage (1990s to Early 2000s): Department stores and supermarkets were the primary sales channels for cosmetics. According to data, during this period, department stores and KA (Key Accounts, large supermarkets) channels accounted for over 70% of cosmetics sales.

• E-commerce Surge (Mid to Late 2000s): As e-commerce grew, online sales channels for cosmetics started to expand rapidly. After 2010, the market share of e-commerce channels increased from 19% to 30% by 2019, surpassing KA channels and department stores to become the largest sales channel for cosmetics.

• Diversification (2010s to Present): In addition to e-commerce platforms, emerging channels such as social media, content-sharing platforms, and short video platforms have also become key sales avenues for cosmetics. These platforms not only facilitate product sales but also enhance interaction between brands and consumers through content marketing.

Current Channel Landscape

The current retail channel landscape of the cosmetics industry is characterized by diversification and segmentation. Online and offline channels are no longer in direct competition but are increasingly complementary and integrated.

• Online Channels: Online retail has become the largest sales channel for cosmetics, with the beauty e-commerce market exceeding 300 billion RMB. Taobao and Tmall (within the Alibaba ecosystem) dominate, accounting for over 70% of market share. Other online platforms such as JD.com, VIP.com, and WeChat also hold significant shares. Additionally, according to iiMedia Research data, in 2023, consumers in China use various channels to learn about cosmetics, with e-commerce platforms accounting for 49.6% and short video platforms accounting for 42.3%. Online channels can quickly target specific consumer groups and engage them through multiple touchpoints, making them highly effective for driving traffic. E-commerce platforms, short videos, and Vlogs are especially favored by consumers.

• Offline Channels: Department stores, supermarkets, hypermarkets, and specialized beauty stores remain important sales channels for cosmetics, with a market size exceeding 270 billion RMB. Notably, before the pandemic, travel retail was also a major consumption channel for Chinese consumers. However, due to the pandemic, this segment has shifted towards domestic duty-free and local channels. At the same time, new beauty concept stores, targeting younger consumers, have emerged. These stores focus on providing an experience-oriented shopping environment, emphasize value for money, and offer a wide range of brands along with professional sales advisory services. These new beauty concept stores have gained market attention and support, driven by capital investment.

• Integration of Online and Offline Channels: The integration of online and offline channels has become an important trend in the cosmetics industry. Brands are collaborating between online and offline platforms to provide a seamless shopping experience, enhancing their brand influence and market competitiveness. For example, brands promote their products online while offering in-store product trials and consultation services to boost consumer purchasing intent.

• Emerging Channels: With technological advancements, emerging channels such as live-streaming sales and social media marketing are becoming new battlegrounds for cosmetics sales. These channels offer interactive, real-time experiences, providing consumers with a fresh shopping experience, while also presenting new growth opportunities for brands.

2. Growth and Diversification of Online Channels

Online channels have become the primary driver of growth in the cosmetics industry. According to the "2024-2029 China Cosmetics Industry Deep Analysis and Development Trend Forecast Report" by CIRN, the total retail sales of cosmetics above a certain threshold reached 216.8 billion RMB in the first half of 2024, marking a 1.0% year-on-year increase. The total sales reached 479.25 billion RMB, a 2.38% year-on-year increase. This growth is closely linked to the rapid development of e-commerce platforms.

Dominance of E-commerce Platforms

E-commerce platforms are playing an increasingly important role in China’s cosmetics retail channels. Their growth momentum is strong, and they have become the primary battleground for cosmetics sales. According to data from iResearch, the market size of China's cosmetics industry reached approximately 516.9 billion RMB in 2023, a 6.4% year-on-year increase. It is expected to grow to 579.1 billion RMB by 2025. This growth trend indicates that the importance of e-commerce platforms in cosmetics sales continues to rise. E-commerce platforms like Tmall and JD.com have become the main sales channels for cosmetics. These platforms not only offer a more extensive sales channel but also drive market growth through various shopping festivals like "Double 11" and "618". For example, during the 2024 Tmall "Double 11" pre-sale, domestic beauty brands like Proya saw their transaction volumes exceed 100 million RMB. Among them, Taobao and Tmall still dominate, accounting for over 70% of the market share. JD.com, VIP.com, and other e-commerce platforms also occupy a significant share of the cosmetics market. The competition among these platforms has further accelerated the expansion of the online cosmetics market.

Diversification of Online Channels

Beyond traditional e-commerce platforms, social media platforms like Weibo, Xiaohongshu (Little Red Book / RED), and short video platforms such as Douyin (Chinese TikTok) and Kuaishou have had a significant impact on the cosmetics retail landscape. Through content creation and social interactions, these platforms have enhanced brand-consumer engagement, reshaping the marketing and sales model for cosmetics, and becoming new growth points for cosmetics brands. Brands collaborate with KOLs (Key Opinion Leaders) and KOCs (Key Opinion Consumers) to leverage content marketing and word-of-mouth promotion, rapidly boosting product awareness and sales. According to data from Feigua, in 2022, the GMV (Gross Merchandise Volume) of beauty products on Douyin grew by 491% compared to 2021, with its market share rising to 16%. Due to the high level of user engagement on these platforms, users not only learn about product information but also participate in reviews, shares, and discussions, generating a powerful word-of-mouth effect. This helps brands build a loyal consumer base and provides the possibility for precise marketing through user data collection.

Development of Cross-Border E-commerce

With growing consumer demand for international brands, cross-border e-commerce has emerged as a new channel for cosmetics retail. Platforms like Tmall Global and JD Worldwide offer direct overseas shipping services, catering to consumers' desire for international brands.

3. Challenges and Digital Opportunities in Offline Channels

Traditional offline retail channels, such as department stores and supermarkets, are facing multiple challenges, primarily driven by changes in the market environment and shifts in consumer behavior. However, offline channels still play a significant role in the cosmetics industry, particularly in offering consumer experiences.

Challenges Facing Traditional Retail Channels

• Increased Market Competition: With the rise of e-commerce platforms, traditional retail channels have seen their market share squeezed. Data shows that, in the early 2010s, the market share of e-commerce channels increased from 19% to 30% by 2019, while the market share of department stores and large supermarkets (KA channels) declined correspondingly. This shift has forced traditional retail channels to adapt in order to thrive in the new market environment.

• Changes in Consumer Shopping Habits: Modern consumers, especially younger generations, tend to favor the convenience of online shopping. According to data from iiMedia Consulting, in 2023, 49.6% of Chinese consumers gathered information about cosmetics from e-commerce platforms, nearly the same as the 50.2% who relied on offline retail, indicating a growing dependence on online channels.

• Rising Operating Costs: Operating costs for traditional retail channels, including rent and labor, have been rising year by year, putting pressure on profit margins. At the same time, e-commerce platforms enjoy the advantage of lower operating costs, placing traditional retail channels at a disadvantage in terms of price competition.

• Brand Strategy Shifts: Many established brands are increasingly shifting from offline to online channels in response to market changes and evolving consumer demands. This shift has led to a decline in the number of counters in offline channels, though some brands continue to expand, suggesting there are still growth opportunities in the offline market.

Opportunities in Emerging Offline Channels

Despite the challenges faced by traditional offline channels, new offline channels, such as beauty concept stores and experiential retail, are presenting fresh opportunities in the cosmetics retail market.

• The Rise of Experiential Retail: Consumers are increasingly focused on the shopping experience. Emerging beauty concept stores are attracting large numbers of consumers by offering professional consultation services and product trials. According to iResearch, from 2019 to 2021, new beauty concept stores gained investment from primary market capital, with their market scale continuing to grow.

• Multi-Brand Strategy: Beauty concept stores typically carry multiple brands, offering a wide range of choices for consumers. This multi-brand approach not only meets the demand for personalized and customized products but also increases foot traffic and market exposure for retailers.

• Specialized Services: Sales consultants at beauty concept stores typically possess specialized knowledge and are able to offer personalized advice and solutions, playing a key role in increasing customer satisfaction and loyalty.

• Potential in Lower-Tier Markets: As residents in second- and third-tier cities experience growing incomes and shifting consumption habits, lower-tier markets present significant growth potential for cosmetics retail. Domestic brands, by focusing on segmented markets and strengthening product innovation and marketing strategies, are expected to capture larger market shares in these regions.

Digital Transformation Driving Upgrades

• Digital Integration: Offline stores are introducing digital tools, such as AR makeup try-ons and virtual shelves, to enhance the consumer shopping experience. Additionally, brands are using online-offline integrated marketing activities, such as online reservations for offline experiences, to improve consumer engagement and increase purchase intent.

• Enhancing the In-Store Experience: Offline stores are no longer simply places for product sales but have become centers for brand experiences. Brands are strengthening customer loyalty by offering professional consultation services and personalized customization options. For example, some high-end brands have set up counters in department stores to offer expert beauty advice, enhancing the overall consumer experience.

4.Impact of Channel Transformation on Businesses

Challenges in Supply Chain Management and Logistics Distribution

• Increased Supply Chain Complexity: With the diversification of online channels and the digital integration of offline channels, the supply chain for cosmetics companies has become more complex. Companies now need to manage a larger number of stock keeping units (SKUs) and distribution channels, while also ensuring timely delivery and inventory accuracy. According to data from the CIRN, the cosmetics industry faces challenges due to the large number of SKUs and distribution channels, which complicates supply chain management.

• Higher Demands for Logistics Efficiency: Consumers expect fast delivery and convenient services when shopping online. Cosmetics companies must enhance logistics efficiency to meet these consumer demands. The rapid growth of e-commerce platforms requires companies to process orders and manage deliveries quickly, especially during major shopping events.

• Demand for Supply Chain Transparency: Consumers are becoming more concerned about the origin of products and the transparency of the supply chain. Cosmetics companies need to improve supply chain transparency to build consumer trust. This includes disclosing information about raw material sourcing, product manufacturing, and distribution processes.

Adjustments and Innovations in Brand Marketing Strategies

• Multi-Channel Marketing Integration: Companies need to integrate marketing activities across both online and offline channels to provide consistent brand messaging and consumer experiences. This involves combining online advertising, social media marketing, offline events, and other forms of marketing.

• Emphasis on Content Marketing: As the influence of social media and content platforms continues to grow, cosmetics companies are placing increasing importance on content marketing. By creating valuable content, brands can attract consumers, boosting their visibility and reputation.

• Personalized Marketing Strategies: The growing diversity in consumer demands requires businesses to adopt more personalized marketing strategies. Through data analysis and consumer behavior research, companies can precisely target specific consumer groups and offer tailored products and services.

Consumer Relationship Management and Personalized Services

• Increased Importance of CRM Systems: To better manage relationships with consumers, cosmetics companies need to establish and improve CRM systems. By collecting and analyzing consumer data, companies can gain deeper insights into consumer needs and offer more personalized services.

• Promotion of Personalized Services: Cosmetics companies are beginning to offer more personalized services, such as customized products and exclusive discounts, to meet consumers' desires for uniqueness and differentiation. For example, some brands provide personalized skincare solutions based on skin tests, enhancing the consumer purchase experience.

• Integration of Online and Offline Services: Companies need to integrate online and offline services to offer a seamless consumer experience. For instance, offering online appointment booking for offline experiences or facilitating online purchasing after an offline experience can help strengthen consumer brand loyalty.

5.Opportunities and Challenges in Channel Transformation

Expansion into Emerging Markets and Localization Strategies

As the global cosmetics market continues to grow, emerging markets have become a key area of growth for the cosmetics industry. However, expanding into these markets poses challenges such as cultural differences, consumer habits, and regulatory requirements. Therefore, developing and executing localization strategies is essential.

• Localization in Product Development: According to iiMedia Research, Chinese consumers prioritize product ingredients and efficacy when purchasing cosmetics. Companies must develop products that cater to local consumer preferences and needs in emerging markets, such as customized products suited to different skin types and climate conditions.

• Localization in Marketing Strategies: Companies should gain a deep understanding of the culture and consumption habits of emerging markets. Collaborating with local KOLs and KOCs and incorporating localized language and cultural elements into marketing campaigns can enhance brand recognition and consumer acceptance.

• Localization in Channel Layout: Companies should consider establishing localized distribution and retail networks in emerging markets. Partnering with local retailers and leveraging local channel resources can help increase product penetration and market share.

• Compliance with Local Regulations: Regulatory and standards requirements vary by country and region. Companies must monitor regulatory changes in target markets and ensure compliance throughout product development and distribution to avoid penalties or market restrictions.

Impact of Regulatory and Standards Changes on Channel Strategies

Changes in cosmetics industry regulations and standards have a significant impact on companies' channel strategies, requiring businesses to adapt promptly to stay compliant.

• Increased Compliance Requirements: With regulations such as the "Cosmetics Supervision and Administration Regulations," regulatory oversight in the cosmetics industry has intensified. Companies must strengthen internal compliance management to ensure product quality and safety while aligning their channel strategies with updated regulatory requirements.

• Stricter Rules on Product Labels and Claims: New regulations impose stricter requirements on product labeling and claims. Companies must ensure compliance with these standards to avoid misleading consumers and facing legal penalties.

• Adjustments in Channel Selection: Regulatory changes can affect the viability and profitability of certain channels. Companies need to evaluate compliance risks and market potential across channels and adjust resource allocation accordingly.

Building Consumer Trust and Brand Loyalty

In the context of channel transformation, fostering consumer trust and enhancing brand loyalty are critical objectives for companies.

• Product Quality and Safety: According to iiMedia Research, consumers are highly concerned about the safety and ingredients of cosmetics. Companies must prioritize product quality and safety through transparent supply chain management and rigorous quality control to gain consumer trust.

• Brand Transparency: As consumers increasingly focus on the origins of products and production processes, companies should enhance transparency. Disclosing information about raw material sourcing, production processes, and testing results can strengthen consumer trust in the brand.

• Customer Service and Experience: Providing high-quality customer service and shopping experiences is essential for building consumer trust and loyalty. Companies should deliver consistent service across multiple channels, including online consultations, offline experiences, and swift responses to customer feedback.

• Brand Story and Values: Companies should craft compelling brand stories and articulate core values that resonate emotionally with consumers. Aligning with consumer values and building emotional connections can significantly enhance brand attractiveness and loyalty.

Conclusion

The cosmetics industry is undergoing a profound transformation in its channel landscape. The rise of online channels, the emergence of content e-commerce, the trend of channel integration, and the strong rise of domestic brands all present new demands on brand channel strategies. Brands need to establish a presence across multiple channels and leverage content marketing, live streaming, and other methods to enhance market visibility and conversion rates. At the same time, building private traffic and executing refinement operations to increase user loyalty and repeat purchase rates will become key drivers of brand competition. As the government strengthens its regulation of the cosmetics industry, the sector will move toward high-quality development, providing more market opportunities for capable brands.