Japan Cosmetics Sector: UBS Evidence Lab inside - Premiumisation in China cosmetics market

While the Japanese cosmetics markets is showing signs of downtrading, on-the-ground data from our China 360 team as well as UBS China cosmetics sector analysts suggest that premiumisation remains intact in China and is likely to remain a structural trend. However, the main beneficiaries so far are local brands and premium western brands, while Japanese brands seem to be struggling to keep up with product innovation and alternate sales channel investments. While China continues to be a fast-growing market for cosmetics, underpinned by strong structural growth expectations, we expect Japanese brands to benefit less from these trends.

UBS Evidence Lab's survey of cosmetics consumers in China suggests 1) a structural shift to premium skincare brands, while makeup consumption by young people is easing; 2) conditions for preference include aspects best suited to oneself, such as cost performance and scientific evidence; 3) the positioning of local brands in China increasing; and 4) alternate sales being driven by new platforms. Together with penetration of medical aesthetic treatments, skincare products recommended by dermatologists are highly valued. The market is expected to grow at a 15.2% CAGR in 2020-2023. For Japanese brands, we believe investments in medical skincare will be essential to compete effectively with local and western brands.

The medical aesthetics market in China is estimated as 227.4bn RMB in 2021. The China medical aesthetics market has grown to a size comparable to the China premium beauty market.