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Cosmetics and Toiletries Industry in Hong Kong

Overview

  • 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 cosmetics and toiletries brands, such as Joseristine, are made in Hong Kong. Recently, a number of Hong Kong skincare brands have emphasised that their products are ‘made in Hong Kong’, such as JaneClare and The Preface. Overall, international brands play the dominant role in Hong Kong’s mid- to high-end market.
  • With the influx of mainland travellers under the Individual Visit Scheme and the related surge in Hong Kong’s cosmetics sales, many businesses are now eyeing 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 skincare products to the male market.

Industry Features

 Manufacturing
(2018)
Import-export trade
(2018)
No. of Establishments
110
2,590
Employment
650
14,700

Note: Industry statistics cover activities in Hong Kong only.

The cosmetics and toiletries manufacturing sector in Hong Kong is small, with most manufacturers concentrating on the production of mid-priced toiletries and perfumes, particularly for markets such as mainland China, Southeast Asia and the United States. These are usually produced under their own brands.

Most companies in the industry are traders, acting as agents to sell to mainland China, the US, Macao, 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, serving as 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 entry procedures for goods being imported, with these tending to require the disclosure of confidential information, such as product formula.

Export Performance[1]


20172018Jan - Jun 2019
HK$ (mn)Growth (%)HK$ (mn)Growth (%)HK$ (mn)Growth (%)
Domestic Exports172+62401+133262+99
Re-exports18,672+2625,228+3514,077+24
of Mainland China origin
4,528
+275,543
+221,873
-24
Total Exports
18,844
+26
 25,629 +3614,339
+25

Source: Hong Kong Trade Statistics, Census and Statistics Department

 

Total Exports by Major Market
20172018Jan - Jun 2019
Share (%)Growth (%)Share (%)Growth (%)Share (%)Growth (%)
Mainland China44.9+6153.7+6360.9+49
Macao19.5+1819.6+3720.5+18
Japan8.3-26.6+95.7+4
ASEAN8.1+97.0+195.1-14
Singapore4.4+62.8-142.3-3
Philippines0.8+120.7+180.6+12
US8.9+55.7-122.3-47
EU (28 countries)3.8+382.8-21.4-43
Taiwan
2.0-171.3-161.2
+3

Source: Hong Kong Trade Statistics, Census and Statistics Department

 

Total Exports by Category
20172018Jan - Jun 2019
Share (%)Growth (%)Share (%)Growth (%)Share (%)Growth (%)
Beauty or make-up preparations for skin care77.0+3177.4+3781.0+32
Perfumes and toilet waters9.5+199.2+326.3-27
Preparations for use on the hair3.9-34.1+454.3+27
Perfumed bath salts and other bath preparations2.3+192.3+362.2+26
Preparations for oral or dental hygiene2.2+32.1+292.0+15

Source: Hong Kong Trade Statistics, Census and Statistics Department

 

Sales Channels

Most companies in the industry are traders who act as agents for international cosmetics brands looking to sell to mainland China, Macao and Southeast Asian markets. Hong Kong is home to a large number of experienced distributors, many of whom are well versed in regional market conditions and regulations. They are capable of acting as distributors for popular brands, targeting the general public and devising comprehensive marketing initiatives. Hong Kong’s cosmetics and toiletries manufacturers, such as Choi Fung Hong, tend to highlight the Hong Kong origin of their products, which are targeted at the retail markets in mainland China and Southeast Asia.

Large numbers of mid- and high-end foreign brands have established sales counters in local department stores and opened outlets in shopping malls. Their experience stores at shopping malls provide customers a learning platform for using their products. Many international cosmetics and toiletries brands have also set up offices in Hong Kong to assist in market development.

Specialty cosmetics chains are well developed in Hong Kong, with Sasa, Bonjour, Aster, Colourmix and Angel Beauty Bar taking the lead. These companies mainly sell international brands with deep discounts, offering private label products as well, and they are very popular among consumers. Health and personal care chains, such as Watson’s and Mannings, have shifted their focus more towards cosmetics and skincare products in recent years, selling mainly international brands.

Social media has become an important feature of modern living in recent years. Many cosmetics and skincare brands have begun to promote their products through social media, such as Instagram and YouTube. Some brands have even invited internet celebrities or key opinion leaders (KOLs) to review their products for marketing purpose.

Industry Trends

The world cosmetics market, especially the upper-end segment, has long been dominated by a number of global giants such as P&G, Unilever, Shiseido, L’Oreal and Estee Lauder. Armed with technology and cost advantages and supported by global production plants, they occupy the top tier of the market. Yet, in recent years, cosmetics from other regions, notably South Korea, have been gradually gaining popularity among Asian consumers. These brands’ products mostly come in a diverse mix at a price lower than those of international brands. They are, therefore, highly appealing to the young generation, who usually have lower income but a stronger appetite for novelty and a notable preference for product personalisation.

OEM production is not widespread in the cosmetics sector. This is largely due to the strict requirements on quality control and secrecy with regard to product formulas. Many manufacturers have set up their own R&D departments to develop unique formulas for their products. As mainland China has gradually grown into a major market, a substantial number of international brands have set up R&D bases on the mainland to develop specific products for mainland consumers and those in other Asian regions.

Several international suppliers have reached licensing agreements with supermodels and fashion brands with regard to developing fragrances and cosmetics products. Some have also collaborated with top fashion brands to offer more personalised choices to consumers under their private labels, notably Anna Sui, Chanel, Christian Dior and Armani.

The growing importance of online sales and digital marketing has drawn widespread concern from the sector regarding the impact of new retail formats on sales performance. In the meantime, the ease of online access to product information has posed a challenge to cosmetics brands in maintaining consumer brand loyalty. They are therefore keen to publicise the unique values and ideas of their products so as to gain the approval of consumers and retain their customer base in the long run.

CEPA Provisions

Following the implementation of the third phase of the 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 zero tariffs.

In December 2018, mainland China and Hong Kong entered into the Agreement on Trade in Goods under the CEPA framework to enhance the arrangements for CEPA Rules of Origin. With effect from 1 January 2019, all goods of Hong Kong origin enjoy zero-tariff preference when imported into the mainland. The new Agreement on Trade in Goods allows products currently not covered by the CEPA Rules of Origin to enjoy tariff-free treatment provided they comply with the general rule of origin requirement calculated on the basis of Hong Kong’s value-added content.

The Agreement also allows companies the flexibility to choose between the original CEPA build-up method or the newly introduced build-down method in calculating the value-added content in Hong Kong. For details about the rules of origin requirements, please refer to the Trade and Industry Department’s CEPA webpage.

General Trade Measures Affecting Cosmetics and Toiletries Exports

Since 1 July 2018, China has cut import tariffs on a range of consumer products. The average import duty on toiletries, cosmetics (including skincare and hair products) and certain medical/health products has been reduced from 8.4% to 2.9%. In order to meet administrative licensing needs for new cosmetics materials, the former China Food and Drug Administration (now reorganised into State Administration for Market Regulation) issued a circular regarding the application and assessment guide for new raw materials of cosmetics. The Guide came into force on 1 July 2011.

Product 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’s 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 and the Fair Packaging and Labeling (FP&L) Act, as well as regulations published under the authority of these laws. In December 2015, the US Congress passed the Microbead-Free Waters Act, and a new provision was added to the FD&C Act to prohibit the use of plastic microbeads in rinse-off cosmetics (including toothpastes). Full implementation of the new provision took effect on 1 July 2019.

The EU Regulation 1223/2009 (Cosmetics Regulation) came into force on 11 July 2013. This strengthens the safety of cosmetics products and streamlines the regulatory 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. There are also additional requirements on the chemical contents of cosmetics products such as colouring and preservatives.

In Japan, the revised Pharmaceutical Affairs Law, applicable to all cosmetics, quasi-drugs, drugs and medical devices entering the Japanese market, came into effect in June 2009. Under the terms of the revised Law, cosmetics importers assume all quality assurance and product liability for their products. The importer must also obtain a primary distributor’s licence for its primary cosmetics distribution business, including 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.

Product Trends

Cosmetics tends to have a shorter life cycle than many other types of consumer goods. In advanced markets, the average product life of cosmetics items could be as short as one month. Colours and shades play an important role, and these elements are heavily influenced by fashion trends, popular tastes and seasonal moods. These trends usually originate in large-scale trade fairs in Europe, spread to the US, then Japan and other Asian regions, through trendsetter magazines. Giant cosmetics companies always have a huge influence on those magazines. It is important for manufacturers to offer a wide selection of trendy colours and shades for each season.

The ageing population is driving the recent surge in ‘cosmeceutical’ products that combine cosmetics with vitamins, herbal extracts and sometimes pharmaceuticals, such as vitamin-C lotions, tea tree oil-infused cleansers and collagen masks (collagen is formally used in the treatment of burns). Many medicinal beauty products tend to highlight their anti-ageing skincare functions.

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 sunscreen or long-lasting colour, and deliver a healthy-looking radiant glow, are also gaining popularity. Unlike conventional cosmetics, none of these products contain artificial fragrances or oil by-products, making them ideal for those with sensitive skin.

An increasing number of professional products with specific functions have emerged in recent years, in line with consumers’ increasing knowledge on 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 beauty salon standards and claiming to deliver salon quality results. A number of at-home body-firming products, such as 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 skincare products are also expected to become more specialised as the market matures.


[1]  Since offshore trade is not captured by ordinary trade figures, these numbers do not necessarily reflect all the export business managed by Hong Kong companies.

Content provided by Picture: HKTDC Research
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