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Inside China’s $25 Billion Plastic Surgery Market

Social marketplace app SoYoung’s recent IPO has drawn attention to one of the world’s fastest growing markets for cosmetic surgery.
Collage by BoF
By
  • Zoe Suen,
  • Aijing Wang
BoF PROFESSIONAL

Hello BoF Professionals, welcome to China Decoded. Leveraging our rare access and local knowledge, the BoF China team demystifies the world's largest fashion market with weekly industry analysis and the wider socio-cultural context you need to seize the opportunity.

SHANGHAI, China — With the highest per capita rate for cosmetic surgery procedures, South Korea is widely recognised as Asia's plastic surgery mecca. According to local reports, one in three South Korean women between the ages of 19 and 29 has had work done.

But Dr Li Yu, China’s national secretary for the International Society of Aesthetic Plastic Surgery (ISAPS), disagrees. “I do not think South Korea is Asia’s plastic surgery capital,” Li tells BoF. Rather, the Shanghai-based doctor reckons China could become a hub for those looking to go under the knife.

While some dispute his prediction, Li isn’t alone. “China will become the largest medical aesthetic markets in the world by 2021, and will soon be the new [global] hot spot,” echoes Frost & Sullivan’s Greater China President Dr Neil Wang. “Medical aesthetics” encompasses treatments from the non-invasive to surgical.

China's medical aesthetic industry has been making headlines, after SoYoung — the five-year-old Tencent-backed operator of a marketplace app connecting prospective patients with clinics and other users — made its Nasdaq debut in early May. The Beijing-based "Yelp for plastic surgery" saw its shares surge up to 44 percent on the first day of trading, before settling at 32 percent higher than its offer price.

Now boasting a market value of $1.8 billion, the SoYoung app is armed with over 2 million user entries, and receives 240 million page views a month, according to its prospectus. US sites RealSelf and Spotlyte (launched by medical aesthetic giant Allergan) provide similar community-driven, review-based content for their users, but are more consumer and education-centric than the likes of SoYoung, which simultaneously facilitates bookings and uses marketing to boost business.

A screenshot from SoYoung's beauty diary page | Source: SoYoung

Though other apps exist in China — Gengmei and Yuemei have similar functions — local media reports that the app has an 80 percent market share. And SoYoung's breadth already extends beyond the Chinese market. The company claims it has connected its users with clinics in 351 cities across China, Japan, South Korea, Thailand and Singapore. SoYoung has not responded to BoF's request for comment.

The firm’s blockbuster stock market debut shone a spotlight on China’s nascent medical aesthetic industry, which is “one of the fastest growing medical aesthetic service markets in the world,” says Wang.

The size of the wider medical aesthetic market remains unclear: having surpassed total revenues of 121.7 billion yuan ($17.69 billion) in 2018, Wang expects the figure to reach 360.1 billion yuan ($52.3 billion) by 2023. However, Deloitte reported that the cosmetic surgery market alone had surpassed the 176 billion yuan ($25.5 billion) mark in 2017, and is slated to exceed 464 billion yuan ($67.4 billion) by 2020.

A recent report released by Allergan estimates the per capita medical and aesthetic consumption of Chinese women to be $690, already placing China in first place ahead of South Korea. And unlike countries such as the UK, where the average age of patients was gauged as 39 in 2017, Gengmei reports that consumers under 28 made up 54 percent of the total 22 million Chinese people that went under the knife in 2018.

China will become the largest medical aesthetic markets in the world by 2021, and will soon be the new global hot spot.

According to Li, China's plastic surgery boom can be traced back to China's growing economy, a competitive job market (certain companies have come under fire for hiring women for their attractiveness), a spendy millennial population and better advertising.

Social media, Korean pop culture and the country's fixation on selfies have also played a part in a nationwide epidemic of beauty dysmorphia — which in many cases fuels the surgery boom. Take Meitu Inc's photo doctoring app Meitu Xiu Xiu, a cutesier version of the West's Facetune, which the New Yorker's Fan Jiayang said "almost literally transformed the face of China." Meanwhile, viral short video and live-streaming apps such as Douyin (known elsewhere as Tik Tok) have made it imperative to look good in motion.

Granted, China's rigid beauty standards — favouring porcelain skin, a sharp chin, small nose and lips, and doe eyes — are slowly changing, as a growing cohort of netizens show their support for natural beauty. This was brought to the fore when backlash against Zara's campaign featuring barefaced and freckled model Li Jingwen was condemned and many expressed appreciation for how the images showcased natural Chinese beauty. However, as SoYoung's growth indicates, "perfection" still sells.

Zara's beauty campaign featuring Li Jingwen | Source: Zara

For the squeamish, minimally-invasive treatments are serving as as "gateway procedures" and relaxing China's attitudes towards medical aesthetics. Hyaluronic acid injections are rapidly becoming a routine necessity rather than an occasional treatment for many, while busy workers can opt for "lunchtime lifts" in between meetings.

“With the improvement of technology, products have become more diverse and safer, and surgery results have become more natural looking,” says Wang. But the industry has undergone other changes too. Before apps such as SoYoung flooded the market, surgeries were performed in non-certified salons (hotbeds of surgical accidents) and the market was littered with middlemen businesses who would take as much as 80 percent of procedure costs, says Carrie Chen, Deloitte China’s life science and healthcare industry lead partner for Asia Pacific.

According to Chen, marketplace apps broke the wheel for “high commission” deals by making product prices and clinical costs open for review. “Now, everyone knows that, say, the price of imported Botox is three times that of local ones, and they can see the price difference between doctors and clinics.”

They can expand fast, but after they've covered first, second and third-tiered cities, how can they push the envelope?

SoYoung’s Chief Executive Jin Xing has spoken candidly and publicly about the need to look beautiful. On television, he proclaimed that medical aesthetic treatments “make the world a fairer place.” An orthopaedic surgeon’s son, Jin posts his own photos on SoYoung’s “beauty diaries” — the app’s highly-engaged space for user generated content where consumers review experiences and share photos of their recovery progress.

At last year’s fourth annual Asia Pacific Medical and Aesthetic Industry Awards, Jin voiced his plans on growing into “the world’s largest online medical beauty industry platform.” Beyond linking consumers to clinics, the ambitious firm fancies itself a go-to for consultants and manufacturers by connecting and providing professional training courses for businesses, and has introduced an AI-powered mirror to simulate surgery results.

Although SoYoung has been profitable since 2016, its future isn’t all rose-tinted. The firm’s revenues from marketing have exceeded those from booking commissions for five years, totalling 306 million yuan ($44.5 million) in 2018 — 49.6 percent of its total revenue, according to SoYoung’s prospectus. This makes the company vulnerable, and other O2O platforms in their C to D funding rounds are experiencing the same imbalance.

Where the apps’ business models are concerned, Chen reckons that “the biggest challenges lie in generating sustainable growth.” This applies to SoYoung just as it does Yuemei, which is looking to build its own fully-fledged hospitals. “They can expand fast, but after they’ve covered first, second and third-tiered cities, how can they push the envelope?”

SoYoung's Chief Executive Jin Xing | Source: Sohu

Meanwhile, marketplace apps such as SoYoung could become flooded by fake reviews and content posted by clinics, and lose their newfound trust. Importantly, with the medical aesthetics industry still in its early days, gaps in local regulations mean that when accidents occur, apps often fail to respond.

And with China’s giants eyeing the medical aesthetic space, the market is about to get crowded. Since 2014, Alibaba, Tencent, Baidu and Meituan have jumped on the bandwagon through launching healthcare arms (Alibaba and Meituan), strategic investments (Alibaba inked a partnership with Allergan whilst Tencent backed SoYoung) or partnerships (the case for JD.com and Yuemei).

However, such ventures aren’t sure wins. According to Wen Min, partner at Beijing-based Bexcel Management Consultants, the medical aesthetic market has a lot in common with general healthcare, in demanding high professionalism and trust. “It’s still relatively difficult for traditional Internet or tech companies to cross such a high threshold,” says Wen.

Chen disagrees. “The investment industry has been debating whether apps such as SoYoung are irreplaceable,” she says. “As the top player, it enjoys the biggest traffic and awareness, but we can see Meituan is catching up. The value for users ultimately depends on whether platforms can provide professional content in real time, while nurturing an engaged online community on a large scale.”

The value for users ultimately depends on whether platforms can provide professional content in real time, while nurturing an engaged online community on a large scale.

Though China may well become the biggest global market for medical aesthetics, only time will tell whether the country is able to rival the likes of South Korea, the US (which had the largest volume of medical aesthetic procedures in 2017), Thailand and Brazil in attracting international patients. According to Wang, Japan, India, Mexico, Russia and Turkey are also in the running.

According to local reports, South Korea drew 50,000 so-called "medical tourists" — who spent over 639.9 billion won ($538 million) — to its shores last year. According to ISAPS, South Korea had the richest arsenal of certified plastic surgeons globally in 2017, amounting to 45.2 certified plastic surgeons per million people.

Wen, for one, is sceptical that China will become a cosmetic surgery hotspot anytime soon, citing the lack of a favourable policy environment, seasoned doctors and professionals, and an underdeveloped industry value chain and infrastructure. However, he reckons that Hainan island could become a major local hotspot, if government support is in place.

“In comparison [to South Korea], the penetration rate of medical aesthetic service market in China is still very low, but demonstrates huge room for growth,” says Wang. He remains optimistic that apps such as SoYoung will help provide transparency and promote higher standards in the lucrative but outmoded space.

“The rise of online medical aesthetic platforms will help the medical aesthetic service industry grow in a healthier way.”

时尚与美容
FASHION & BEAUTY

10 Corso Como Shanghai | Source: Courtesy

10 Corso Como to Leave Chinese Market

Chinese shoppers will bid farewell to the Milanese luxury concept store next month, as it closes its six-year-old store in Shanghai's Jingan area. Founded by gallerist Carla Sozzani in 1990, 10 Corso Como landed in Shanghai after being backed by Trendy Group in 2013, soon followed by a second store in Beijing's SKP mall. The Beijing store's closure in 2017 prompted departure rumours, and sources close to the matter cited heavy losses and frequent personnel changes at management level. Local media also reported that Trendy Group was liquidating its assets when it filed for an IPO back in 2017, but this has yet to happen. (BoF China)

Louis Vuitton Tests Waters With Xiaohongshu Debut

On May 6, the French brand was the first major luxury player to enter social e-commerce platform Xiaohongshu. Since then, Louis Vuitton has published seven posts featuring KOLs and celebrities with leather accessories (as well as plain product shots), attracting over 12,600 users to follow its account. Catering to the platform's millennial-centric audience and review-based community, the brand adopted a younger and friendlier tone to promote its posts by using emojis and internet slang, and is highlighting its more affordable handbag models to attract first-time buyers. Unlike its debut on short video platform Douyin, Louis Vuitton's Xiaohongshu entrance was much more low-key, a sign that the brand is still feeling out the platform for compatibility with its social media strategy. (Jiemian) 

Ferragamo’s First Quarter China Revenues See 21% Boost

In the three months ended March 31, the Italian luxury group's sales increased by 4.3 percent year-on-year to €317 million ($354 million), while net profits surged 23.5 percent year on year to €11 million ($12.3 million). The Asia Pacific market has been a money maker for the group, with sales up 7.2 percent year-on-year reaching €113 million ($126 million), making up 38.7 percent of global revenues, mainly driven by the uplift in China. The same can't be said for another Italian player Tod's — Greater China is now the brand's only growing market as its performance continues to slump, and overall sales decline for 12 consecutive quarters. (Ladymax) 

科技与创新
TECH & INNOVATION

Source: Courtesy

Xiaohongshu Cuts Down on KOLs

The social e-commerce platform announced new rules on May 10. To abide with recent advertising law reforms, Xiaohongshu is raising the bar for KOL (key opinion leader) certification — only those with over 5,000 followers and 10,000 monthly exposure numbers make the cut, and more documentation is required to support an application. Only certified KOLs gain access to the platform's insights but are required to disclose all collaborations, and according to local reports, over 2,000 users have lost their KOL badges. The growing platform is struggling with content authenticity and quality control — reviews and demos drive engagement and purchases on the app — but it has also fallen prey to promoters and spam accounts. Time will tell whether the move pays off. (Sina Tech)

WeChat Pay Inks Deal With Unilever

WeChat Pay — the mobile payments arm of Tencent's super app — has established a strategic partnership with Unilever, the British-Dutch owner of brands spanning food and beverage, home and personal care, from Dove to Ben & Jerry's. It has been reported that the two giants will link arms in departments such as customer acquisition and sales conversions, and that Unilever will leverage WeChat Pay's coupons and mini-programs to attract consumers and market promotions. With an increasing number of on and offline retailers jumping on the bandwagon, it's unsurprising that the transnational behemoth is hoping to tap into the tech firm's data capabilities to strengthen business in the East. (Ebrun)

Google’s New Mini-Apps Are Old News in China

Google is experimenting with a function to bring a multi-app experience to Google Search, which will free up storage space and download time. However, the concept won't feel new for WeChat users, which is home to over a million mini-programs — brands and companies have been creating "apps-in-app" to allow users to access their goods and services without exiting the super-app for years. However, Google's move is unlikely to render full apps obsolete: the mini program experience only provides a stripped-down app experience, as WeChat demonstrates. (Abacus)

消费与零售
CONSUMER & RETAIL

A viral video filmed a mother kicking her three-year-old daughter | Source: Sina

New Rule Protects China’s Child Fashion Models From Abuse

Multiple reports of rampant abuse in China's burgeoning child modelling hub (highlighted by a viral video of a mother kicking her three-year-old daughter) have prompted authorities in Zhejiang province to take action. A new regulation restricts the number of hours and days children can work as models, and prohibits retailers from using children younger than ten as spokespeople. However, considering parents are often the ones managing their child's modelling activities, the effectiveness of this new regulation remains uncertain. (SCMP)

China’s B2B Transactions to Hit $1.24 trillion by 2020

At the third annual Global Cross-Border E-Commerce Conference on May 10, Zhao Huxiang, president of China International Freight Forwarders Association and former chairman of logistics company Sinotrans, announced that transactions for global B2B (business to business) e-commerce are expected to exceed the $2.32 trillion mark by 2020. Importantly, China's B2B transactions will hit $1.24 trillion by the same year, amounting to over half of the global share. (Baijiahao)

Wanda and Tencent Launch China’s First Smart Mall

In spite of the so-called retail apocalypse, tech players like Tencent are determined to keep China's malls alive and kicking. On May 9, the WeChat owner joined forces with real estate developer Wanda Group to open the country's first 'smart mall' in Beijing. Chosen for its proximity to the city's innovation hub Fengtai Science Park, the mall harnesses Tencent's offerings across entertainment (it is the world's biggest gaming company) and big data, as well as innovative facial recognition payment options and holographic ads. The jury's still out on whether these futuristic offerings can combat China's increasingly e-commerce-centric retail shift. (36kr)

政治、经济、社会
POLITICS, ECONOMY, SOCIETY

Illustration by BoF

Global Markets Fall as China Retaliates Against US Tariffs

Global markets were hit by further losses this week after Beijing announced a new 25 percent import duty on over 2,500 US products, and implemented retaliatory tariffs on $60 billion of imports. Both the Dow Jones and S&P 500 recording their biggest losses since January, and experts reckon volatility is here to stay. President Trump took action last week after claiming that China backtracked on the countries' draft trade deal. Despite warnings from Trump, China said it would "never surrender" to US pressure, and netizens are using memes to rally public support around China's position in its trade dispute. (The Guardian)

China’s Retail Sales Grow at Weakest Pace In 16 Years

China's April retail performance came in short of estimates as tensions were re-ignited between Beijing and Washington. According to the National Bureau of Statistics, the country's retail sales grew 7.2 percent year-on-year, lower than March's 8.7 percent and the forecasted 8.6 percent. Analysts have warned that stimulus measures — aimed at giving the already slowing economy a much-needed boost — are tapering off after China's economic growth in 2019's first quarter outpaced that of 2018. With experts attributing these latest figures to poor appetites for consumer goods and cosmetics, it remains to be seen how the slowdown will affect local and foreign retailers. (FT)

University Students Are Illegally Selling Their Eggs for $14,000

Although Chinese law prohibits the trading of human eggs, a local investigation revealed that women studying at some of China's top universities are selling theirs for up to 100,000 yuan ($14,600) each. However, the price varies depending on the donor's traits — academic smarts, height and looks are sought-after, with those that possess these traits charging premiums, and those that do not maybe being paid only a tenth of the above. According to the investigation, infertility is the major driver of such illegal transactions, and even private hospitals are forging deals with agents to obtain eggs. The news follows reports that China's population will peak in 2023 due to a decline in births, which will likely affect companies selling consumer goods. (SCMP)

China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to zoe.suen@businessoffashion.com.

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