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How to Break into China as a Niche Beauty Brand

Niche is all the rage in the world’s second largest beauty market. Here’s how brands can cash in on the opportunity.
Xiaohongshu posts by users 石大小姐,木易杨Alyssa, 小西丸, Niki0204, 美妆情报局, 极光少年Forvi, Jojoqye, 买手客Buyerkey, 能能耶, 肥西肥西, 林允Jelly, Luna为美妆倾家荡产, Michaelia丁三岁 | Collage by BoF
By
  • Zoe Suen,
  • Casey Hall
BoF PROFESSIONAL

SHANGHAI, China — The word "niche" often dooms brands to a sad fate — one where their products appeal to few and return little in the way of profit. In China, however, things are different.

The right kind of niche brand can have mass appeal in the mainland. And the prospect of reaching a critical mass starts to look very attractive when the local beauty market is worth $57 billion.

The country's burgeoning consumption culture — or what Beijing in 2015 coined its "consumption upgrade" — has broadened its younger and most lucrative shoppers' perceptions of value and status. Gone are the days where consumers covet brands on everyone's tongues; the coolest brand, for China's post-90's and younger cognoscenti, is one that no one has heard of yet.

“Consumers aren’t buying [niche brand] lipsticks because they lack beauty products at home,” says Ellie Wang, co-founder and general manager of Little B, lifestyle brand The Beast’s new concept store in Shanghai. “They’re buying them because the colour was spotted on an actress in a TV drama or posted by a celebrity on social media. It’s a status symbol and niche brands feel more special.”

The Little B concept store in Shanghai | Source: Dezeen

This development is a big opportunity for foreign brands looking to break into the world’s second biggest beauty market. “The younger Chinese consumers — especially well-travelled ones in tier one and two cities — are looking for niche brands,” echoes Elisa Harca, co-founder and Asia chief executive of Shanghai-based digital marketing agency Red Ant. “I really think it’s the moment for them to crack through.”

But to assume that niche brands get an easy ride in China would be naïve. As is the case for any non-native market, navigating the Chinese market is fraught with challenges as well as opportunities, and for smaller brands, the stakes are especially high. Here’s how to get started.

Niche Is What You Make It

“Niche in China does not have to relate to a business size, it’s more about the identity being non-mainstream, bold, expressive and highly specialised,” says Chloé Reuter, founding partner at Shanghai-based Reuter Communications. As such, just about any brand can position itself as exclusive and under the radar, be it a genuinely small independent name or a brand belonging to a multinational giant.

Case in point: self-proclaimed "slow perfumery" Le Labo is still perceived as niche to Chinese shoppers despite being owned by Estée Lauder, says Harca. Similarly, Wang lists Charlotte Tilbury as one of Little B's best-performing niche brands, though the line is available on Alibaba-owned e-commerce platform Tmall and is widely known in the West.

https://www.instagram.com/p/BrsTKGPD94w/

“[Le Labo] still has that cool edgy vibe, it’s not over-exposed and you can’t find it everywhere,” notes Harca, who says limiting access to products is key. Avoiding travel retail, releasing special edition collections and limiting SKUs are good starting points, though developing a targeted long-term distribution strategy is necessary to sustain a brand’s niche identity.

Choosing a good local partner can help elevate a brand to niche status. For Charlotte Tilbury — which hasn’t set up stores in China due to local regulations clashing with its cruelty-free ethos — partnering up with hip, millennial favourite Little B has benefitted the brand by cultivating a ‘need to know’ identity while allowing it to test demand in the Chinese market.

Though brands should take advantage of the opportunity to appeal to Chinese shoppers with a niche identity, the country’s top beauty consumers are a well-travelled bunch and can be put off by inconsistent marketing. “Brands still need to stay true to their original spirit,” says Wang. “Targeting China shouldn’t mean telling a different story.”

Pace Yourself

China’s beauty market is no quick win. “Whether niche or not, no brand should ever plan to ‘enter quickly’ into this market. That’s simply a recipe for disaster,” says Reuter.

“It’s important not to rush,” Harca agrees. “I met some of my clients around two years ago and we’re just starting to work with them now.”

It's very hard for brands to establish [themselves] on every channel and be present and active on every channel.

This doesn’t mean that brands can afford to slack off. Rather, it is important to carefully identify the target audience within the Chinese market and be prepared for the level of investment needed to engage with them pre-launch, and focus on sustaining the momentum thereafter. “It’s an extremely fast-moving market,” says Wang. “Plan for stable growth and lay down a good foundation, but stay agile in targeting what consumers need.”

This rings especially true for a brand’s digital strategy. As Chinese internet companies churn out viral apps at an unprecedented speed, brands may be tempted to stay relevant by establishing themselves on every major platform from Douyin to Kuaishou.

However, Harca recommends that newcomers begin by focusing just on Weibo, WeChat and Xiaohongshu. “It depends on the brand, where their distribution is and how they measure their KPIs and objectives,” she says. For example, Tmall’s direct link to Weibo can be a benefit for brands stocked on the Alibaba-owned e-commerce site.

A focused approach is more sustainable than being everywhere, she says. “It’s very hard for brands to establish [themselves] on every channel and be present and active on every channel.”

Don’t Underestimate Your Budget

Companies that generate buzz in the West will often have a presence on Xiaohongshu — reviews, demos and the like — before they formally enter China, but assuming that a brand can ride on its success outside China is a mistake.

“Brands are always surprised by how expensive China is,” Reuter says. “Whether you’re looking at digital solutions, marketing, engaging celebrities, the numbers are high [but] so is the opportunity.”

The Little B x Charlotte Tilbury WeChat mini programme and game | Collage by BoF

In Harca’s experience, even small brands would need to spend a minimum of 2.5 million yuan (around $355,000) in their first 12 months to cover agency fees for content, community and campaign management, advertising costs on WeChat and Weibo and hiring KOLs (the local moniker for influencers.) The latter can be especially costly when compared to influencers in the West, with a “good” KOL charging up to 50,000 yuan for a WeChat post (around $7,100) and 20,000 yuan (around $2,800) for a Weibo post.

Minimums can also limit a niche brand’s activity. Although Weibo has no minimum cost for advertisements, brands must spend over 50,000 yuan (around $7,100) to run ads on WeChat.

According to Wang, niche brands should outline a channel-first strategy to inform their budgets. “Brands need to consider online and offline traffic channels and how much it’ll cost for marketing and brand development to develop a realistic financial plan,” she says.

Choose Your Storefront Wisely

Choosing one or more Chinese partners is one of the most important decisions a small brand will make. This is especially important in beauty: where local regulations prevent cruelty-free players from selling directly to consumers, third party options are a valuable workaround.

“The distribution channel a brand chooses makes the ultimate first impression,” says Wang. “Consumers will automatically associate a brand with its distributor and a good partner can boost a brand’s positioning... It’s all in the details.”

Brands may not make it on to Tmall because they can't afford the business development costs, or Tmall doesn't accept them.

Often, Harca says, brands will be fixated on Tmall or JD.com, the two largest e-commerce players in the country. Tmall in particular is popular with international beauty brands — skincare favourite Drunk Elephant recently announced it would be partnering with the platform for its China debut in September.

However, a partnership is not always meant to be. “Brands may not make it on to Tmall because they can’t afford the [business development] costs, or Tmall doesn’t accept them,” she says.

Taking part in Tmall and JD.com’s glitzy shopping festivals can be especially costly for smaller companies, and though it is not a well-trodden path, Harca reckons that brands can still find early success without the help of China’s usual e-commerce suspects by opting with popular luxury beauty stockists Lane Crawford, Space NK, Joyce Beauty, or concept stores such as Little B.

Hosting pop-ups can raise consumer awareness and help brands test the waters. “Brands don’t need to ink a deal [as soon as] they enter the market,” says Wang. “It’s more important to pinpoint the brand’s core customer and the channels they engage with to grow steadily.”

Localise Inside and Out 

Considering the cases of consumer backlash that has befallen big players from Dolce & Gabbana to Zara, most brands know better than to enter China without reading up on Chinese culture, be it beauty or business players.

Eyeshadows by Yes!IC | Source: Yes!IC

In the long run, brands should of course aim to build a strong Chinese team. “Hiring a trustworthy and professional local team is the key to succeeding in the Chinese market,” says Wang. Doing so will also help niche beauty brands compete with a plethora of local rivals, such as brushmaker Qin Zhi and makeup brands Yes!IC, Jill Leen and Hedone.

However, niche brands without extensive experience operating abroad can sometimes get blinkered. Setting up a Chinese team immediately “is not a life or death [issue], as long as [brands] have done their due diligence and have conversations with partners and get references with partner’s other clients,” says Harca.

“If you immediately create a team on the ground, you [immediately] have a human resource issue,” Harca offers. “Who’s going to manage that team? Are you going to send over someone from your home country or hire someone locally?”

This is why linking arms with a local agency or trade partner can be what some niche brands need to get started, she suggests.

To localise effectively, brands need to go beyond translating existing content or cut-and-paste strategies. They need to carefully and holistically reconsider both their identity and branding strategies through the lens of a Chinese consumer.

“Some western brands have failed after simply implanting their operations exactly as they were overseas, simply assuming that the brand itself is enough,” says Reuter. “It isn’t.”

Additional Reporting by Aijing Wang. 

时尚与美容
FASHION & BEAUTY

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Uniqlo to Boost Store China Count and Add More Local Elements to Its Designs

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科技与创新
TECH & INNOVATION

Source: Alejandro Ortiz

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KOL WeChat Campaign Spend Jumps 

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消费与零售
CONSUMER & RETAIL

Crowds at a shopping mall | Source: Shutterstock

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China Retail Sales Soar in June

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政治,经济与社会
POLITICS, ECONOMY, SOCIETY

A cargo ship on the South China Sea | Source: Shutterstock

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China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Shanghai-based Asia Correspondent casey.hall@businessoffashion.com.

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