China’s beauty market is a sight for sore eyes

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An opera performer turned celebrity make-up artist has just become China’s newest billionaire. On the first day of trade for Mao Geping’s namesake cosmetics company, the first Chinese beauty brand to list in Hong Kong, shares rose as much as 87 per cent. That pop highlights a growing trend among Chinese consumers: a shift from European brands to domestic alternatives.

Tuesday’s gains give Skincare and cosmetics firm Mao Geping Cosmetics a market value of more than $3bn. The first day surge is notable given the deal had already been upsized and priced at the top end of the proposed range. The listing was over 700 times oversubscribed — the highest level of demand for Hong Kong’s IPO market this year.

This comes at a time when foreign beauty giants in China, including Shiseido and L’Oréal, are facing mounting challenges. L’Oréal reported a 6.5 per cent drop in sales in North Asia during the third quarter. That also marks the fifth straight quarter of contraction in the Chinese beauty market.

Part of this decline is attributed to a broader economic slowdown in China, which has curbed consumer spending on non-essential items, including luxury beauty products. The decline in spending on cosmetics has been especially pronounced since July this year.

Yet sales at Mao Geping have defied the downturn, rising over 40 per cent in the first half of this year, with growth remaining strong since 2018. It has been focusing on expanding its ecommerce efforts, which has complemented its well-established physical presence of more than 300 counters in department stores.

That is in line with growing demand for homegrown cosmetic and beauty products, with the combined market share expected to hit a fifth of the total this year. A key reason for this trend has to do with national pride and the desire to support domestic industries but a bigger reason has been affordability, with local brands offering lower priced options.

Yet that is not Mao Geping’s selling point. The brand keeps prices of its products, from face powders to creams, closer to those of premium international brands, in line with L’Oréal’s Lancôme and Shiseido’s Nars. The rise of a domestic premium brand points to a significant shift in mainland shoppers’ buying habits as well as highlighting improvements in the quality of domestic products.

If Chinese shoppers are plumping for homegrown — and are willing to pay up for beauty — that bodes well for the growth for local brands, including shares of Mao Geping Cosmetics.

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