22 March 2016
Cosmetics and Toiletries Industry in Hong Kong
Hong Kong has a small cosmetics and toiletries manufacturing sector, with a number of companies producing mid-priced toiletries and perfumes under their own brands. Choi Fung Hong’s cosmetic brands, such as Joseristine, for instance, are made in Hong Kong. Recently, Hong Kong skincare brands Sève and JaneClare have also emphasised that their products are “made in Hong Kong” and are covered by internationally recognised certifications. Overall, international brands play the dominant role in Hong Kong’s mid- to high-end market.
With the arrival of independently travelling Chinese mainland tourists under the individual visitor scheme and the concomitant surge in Hong Kong’s cosmetics sales, many businesses are now eying the lucrative local cosmetics market. Hong Kong, a showcase for foreign brands wishing to target mainland customers, has continued to draw new brands to establish a presence in the city.
While whitening and anti-ageing products remain popular among Asian female consumers, demand for men’s grooming products and skincare has increased substantially in recent years. A number of international brands, notably Sulwhasoo, Kiehl’s and L’Occitane, have tailored their products to the male market.
The cosmetics and toiletries manufacturing sector in Hong Kong is small, with most manufacturers concentrating on producing mid-priced toiletries and perfumes, particularly for the Chinese mainland, Southeast Asia and the US. These are usually produced under their own brands.
Most of the companies in the industry are traders acting as agents to sell to the Chinese mainland, the US, Macau, Japan, Southeast Asia and the EU. Several Hong Kong spa and beauty salons also act as agents for cosmetics and skincare products looking to sell into Asia.
A number of traders have good connections on the mainland, useful links for selling professional product lines to beauty salons on the mainland. Hong Kong traders make good partners for foreign brands, given their market knowledge, skills, connections and integrity. They are also useful when it comes to handling the entry procedures for goods being imported, with these tending to require the disclosure of confidential information, such as product formula.
Export Performance ^
Most of the companies in the industry are traders who act as agents for international cosmetics brands looking to sell to the Chinese mainland, Macau and Southeast Asian markets. Hong Kong has a number of experienced distributors, many of whom are well versed in regional markets and regulations. They are capable of acting as distributors for popular brands, targeting the general public and devising comprehensive marketing initiatives.
Most of Hong Kong’s cosmetics and toiletries manufacturers concentrate on producing mid-end toiletries and perfumes. Choi Fung Hong’s own cosmetics brands, such as Joseristine, and other skincare brands, such as Sève and JaneClare, for example, emphasise that their products are “made in Hong Kong” in compliance with international certifications requirements. In addition, Choi Fung Hong and other Hong Kong manufacturers, such as Cogi, have succeeded in building their own brands on the Chinese mainland market.
A number of mid- and high-end foreign brands have established sales counters in local department stores and opened their own outlets in shopping malls, while the more professional products are sold through beauty salons. Specialty cosmetics chains are well developed in Hong Kong, with Sasa, Bonjour, Aster, Angel and Colourmix taking the lead. These companies mainly sell international brands with deep discounts, as well as private label products. Health and personal care chains, such as Watsons and Mannings, have shifted their focus more towards cosmetics in recent years, selling mainly international brands. Meanwhile, many international brands have tapped into online sales in order to extend their reach in different markets.
Owing to high production costs in Hong Kong, many manufacturers have set up offshore production facilities on the mainland and in a number of Southeast Asian countries, notably Thailand, Indonesia and the Philippines.
The world cosmetics market, especially the upper-end segment, has long been dominated by a number of substantial global companies, including P&G, Unilever, Shiseido, L’Oreal and Estee Lauder. Their domination of the top-tier of the market segment has made it difficult for new brands to enter.
OEM production in the sector, however, is not widespread. This is largely due to the strict official requirements on quality control and secrecy with regard to product formula. Most manufacturers directly export their finished products to their overseas distributors. Recently, several international suppliers have reached licensing agreements with supermodels and fashion brands with regards to developing fragrances and cosmetics products. An increasing number of famous fashion brands have also diversified into developing cosmetics products under their own labels, notably Anna Sui, Chanel and Christian Dior.
There is a rising trend among Hong Kong companies in this sector to look to explore the mainland market. With the increased affluence and appearance awareness of Chinese consumers, the potential of the cosmetics and toiletries market on the mainland is huge, especially for branded mid- to high-end cosmetics and toiletries products. The mainland’s cosmetics market is also notably highly brand-oriented.
Following the implementation of the third phase of the Chinese mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland at a zero tariff. According to the stipulated procedures, products that have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers if they comply with the CEPA rules of origins. For more information about country of origin, please refer to the Trade and Industry Department’s CEPA web page.
General Trade Measures Affecting the Exports of Cosmetics and Toiletries
The tariff rate of the Chinese mainland is higher than in most other markets. Product standards and quality control requirements are also barriers to the importation of foreign cosmetics products. Under China’s World Trade Organization (WTO) commitments, import tariffs on cosmetics and toiletries were reduced to 5%-10%. In order to meet the needs of administrative licensing for cosmetics, China’s State Food and Drug Administration issued a notice regarding the application and assessment guide for new raw materials of cosmetics. This took effect on 1 July 2011.
Safety and environmental issues are major trade concerns in many overseas markets. In the US, the Centre for Food Safety and Applied Nutrition of the US Food and Drug Administration (FDA) is the official body monitoring the safety of all imported cosmetics. Cosmetics exported to the US must comply with the provisions of the Federal Food, Drug and Cosmetic (FD&C) Act, the Fair Packaging and Labelling (FP&L) Act, and the regulations published under the authority of these laws. For details, please browse the FDA’s website.
The new EU Regulation 1223/2009 (Cosmetics Regulation) came into force on 11 July 2013. This strengthens the safety of cosmetics products and streamlines the framework for all operators in the sector. A number of significant changes were introduced under the Cosmetics Regulation. These include the need for manufacturers to follow specific requirements in the preparation of a product safety report prior to placing a product on the market, as well as stipulation that only cosmetics products for which a legal or natural person has been designated within the EU as the “responsible person” can be placed on the market. The new Cosmetics Regulation allows for the precise identification of the responsible entity and clearly outlines their obligations.
In Japan, the revised Pharmaceutical Affairs Act, applicable to all cosmetics, quasi-drugs, drugs and medical devices entering the Japanese market, went into effect in June 2009. Under the terms of the Act, cosmetics importers assume all quality assurance and product liability for their products. The importer must also obtain a primary distributor’s licence for cosmetics. The primary distribution business refers to the sale, rental or lending of manufactured or imported cosmetics. Any primary distributor that engages in the final packaging, labelling in the Japanese language, or storage of imported products, is required to obtain a cosmetics manufacturer’s licence.
Make-up tends to have a shorter life cycle than many other consumer goods. In advanced markets, the average product life of make-up items could be as short as one month. Colours and shades play an important role, and these elements are heavily influenced by fashion trends, tastes and seasonal moods. These trends usually originate in large-scale trade fairs in Europe, spread to the US, then Japan and Asia, through trendsetter magazines. Giant make-up companies have a huge influence on those magazines. It is important for manufacturers to offer a wide selection of colours and shades for each season.
The aging population is driving the recent surge in “cosmeceutical” products that combine cosmetics with vitamins, herbs, and sometimes pharmaceuticals, such as Vitamin-C lotions, tea tree oil-infused cleansers and collagen masks (collagen is formally used in the treatment of burn wounds). Many medicinal beauty products focus on anti-aging skincare. Dermatology is incorporated into product development, and products catering for different skin types are available. Active ingredients are being added to cosmetics and plant extracts and traditional Chinese herbs are also very common, especially among Chinese, Japanese and Korean-made cosmetics.
Organic and natural cosmetics made from mineral pigments and organic plant extracts, which provide natural sun filters, long lasting colour, and deliver a healthy-looking radiant glow, are also gaining popularity. Unlike conventional make-up, none of these products contains artificial fragrances or petro-chemicals, making them ideal for those with sensitive skin.
An increasing number of professional products with specific functions have emerged in recent years. This is in line with consumers becoming better educated in terms of product application. Such consumers pay more attention to the ingredients and functions of products, and can manage more steps and more specific applications. Many products are also moving towards adopting beauty salon standards and claiming to deliver salon quality results. A number of use-at-home body-firming products, such as those offered by Estee Lauder Perfectionist, Fancl Shape Design and L’Oreal Perfect Slim, for instance, all represent attempts to compete with salon products. This trend may continue in the long term as the persistence of the slimming trend is still driving consumer demand for firming products. Men’s skin care products are also expected to become more specific as the market develops.