Chinese consumers can’t get enough of cosmetics, especially when it comes to high-end foreign brands. Hong Kong is benefitting from this insatiable demand and exploiting a loophole in China’s regulations.
When Typhoon Mangkhut hit Hong Kong last September, it caused so much damage that the city’s shops, including its beauty retailers, were forced to close for several days, much to the horror of their mainland Chinese clients. “Customers from China were calling us, begging, saying, ‘Please open and serve us!’” says Harriet Lee, vice-president of retail operations and beauty at Joyce. The luxury beauty retailer, owned by the Lane Crawford Joyce Group, is one of Hong Kong’s prime bricks-and-mortar destinations for cosmetics aficionados who are in search of niche Japanese and international brands, including the likes of Tatcha, Subtle Energies and Nuface.
Others in the industry tell similar stories. Kavita Khosa, founder of Hong Kong-based beauty brand Purearth (which uses ingredients sourced from the Indian Himalayas), also recalls getting a desperate phone call from a Chinese customer. “It was a Wednesday and a public holiday but she said, ‘I need your products by tomorrow night!’ In the end we delivered them to her hotel.”
When it comes to beauty, China is ravenous. In 2017 the beauty industry’s sales amounted to €708bn globally; China accounted for €33bn. It is now second only to the US in terms of cosmetics consumption, and, according to New York-based research firm Gartner L2, the Asian nation will bump the US off the number-one spot next year.
Hong Kong plays a uniquely important role in the equation. China’s strict law that all beauty products sold must be tested on animals means that many major industry players don’t sell their products on the mainland. There are no such testing requirements in Hong Kong so for brands wanting to take an ethical stance, the city is a gateway to Chinese shoppers, including its rapidly growing middle classes and their considerable spending power. Some brands, such as Charlotte Tilbury, Aesop and Buly 1803, operate their own Hong Kong shops, while others rely on multibrand outposts such as Joyce Beauty or Beyørg, the city’s first dedicated sustainable beauty shop. In 2018, Hong Kong’s cosmetics sales came to a whacking €1.9bn.
Part of the reason for this, of course, is Hong Kong’s proximity to China. “Only 10 per cent of Chinese have passports at the moment but that’s still more than 130 million people,” says Allie Rooke, who formerly worked for Chanel and Burberry in Shanghai before setting up her agency, Clean Beauty Asia, to help independent brands enter the region. “When they get their passport they don’t go to Europe straight away. They go to Hong Kong, Macau, Japan and Korea.”
Of these four, Hong Kong and Macau have the edge of being culturally familiar, says Mariana Kou, head of China education and HK consumer at investment group CLSA, who adds that Macau is where established beauty brands go to capture sales from holidaying Chinese tourists. “But if you want to build a brand, Macau is not really a consideration. Hong Kong has long been the gateway for brands that are looking to test the water.”
And now the journey from China to Hong Kong is even easier for shoppers: both the Hong Kong-Zhuhai-Macao Bridge (HZMB) and the first high-speed trains between mainland China and Hong Kong opened late last year. “People used to come from Shenzhen because it’s so close but now it seems reasonable to come from Guangzhou, because it’s only an hour by train,” says Kou.
Chinese shoppers don’t just come to browse. These beauty connoisseurs have done their research and make pilgrimages to the island in pursuit of their coveted creams, which they buy in bulk. “The purchase value for Chinese consumers is much higher. If a Hong Kong customer is willing to spend hk$1,000, a Chinese customer will spend hk$2,000 or $3,000 [in one go],” says Brenda Lee, founder of Beyørg. “When they like something they want to buy lots of it so they can take it home. They share it very quickly with their friends and family.”
“We have a discerning group of mainland Chinese customers who are very loyal; they travel to Hong Kong for particular products,” says Ingrid Chen, general manager of marketing and communications at Joyce. “They often come in and swoop up 15 of the same thing – or they’re looking for something new.” Harriet Lee adds, “They come religiously, again and again, to stock up on products,” noting that 50 per cent of Joyce’s customers are mainlanders. Some shoppers destined for bigger department stores, adds Chen, are armed with up to 10 pieces of luggage in preparation for their impending spree.
Many Chinese customers are looking for overseas brands says Rooke. “‘Foreign’ equals better quality. Japanese and Korean brands are very popular, as well as western – they see these countries as having higher standards and, therefore, better quality.” Hong Kong is the most convenient place for Chinese shoppers to access sustainable vegan beauty products.It’s a growing trend in the industry, whereby small-scale brands are using all-natural ingredients such as rose oil and seaweed in their potions.
“The demographic that buys our own-brand products are in their twenties and thirties, perhaps because of their more evolved understanding of current issues surrounding pollution, waste and animal rights,” says Khosa. “This increased insight on such matters naturally extends to their choices in skincare and beauty.”
Stefanie Gebauer, managing director for Asia Pacific under US brand John Masters Organics, which has a shop in Hong Kong’s ifc mall, agrees. “The Hong Kong Chinese consumer is extremely savvy with beauty purchases, and local lifestyle trends point to a demand for and interest in organic and natural beauty brands.”
China’s animal-testing policy is clearly preventing the nation’s beauty industry from making the same strides that it is elsewhere. It is out of sync with global efforts to advance the industry in eco-friendly ways, such as by banning microbeads (small particles of plastic that are released into the ocean when washed down the sink). These were banned in beauty products in the UK in 2018 and the US in 2017.
But the Chinese policy is somewhat understandable when you consider the roots underpinning it. In every other country, if a product causes harm to a customer, the liability resides with the brand; in China, the government is held equally responsible. They consider animal testing a matter of citizen protection.
Slowly, developments are being made. European brands such as Estée Lauder (which owns Tom Ford Beauty and Mac) and L’Oréal contribute cash to lab-based programmes that aim to eliminate animal testing. Estée Lauder sponsors the American Institute for In Vitro Sciences, which seeks to educate countries such as China about the ethical alternatives, while L’Oréal has its own lab, which is developing synthetic materials that mimic human tissue.
In September, China’s National Institute for Food and Drug Control released a statement on its WeChat account indicating it is willing to move away from animal testing, and is investing in new laboratories and training in alternative methods. Details, however, remain hazy.
“With China and regulations, you never know; everything changes on a daily basis. That’s why we came to Hong Kong,” says Marc Ardisson, managing director for the Asian branch of beauty e-retailer Feelunique. Rooke agrees. “Despite the government’s measures, I don’t believe [changes to the law are] imminent, and what I’ve read recently supports this.” To some extent, the Hong Kong loophole means there is less urgency for the Chinese government to eradicate the law. “They’re promoting cross-border commerce as a channel to purchase goods from overseas directly, so customers in China can still access the cruelty-free brands they want,” says Rooke.
If and when the regulations do change, however, there will be an army of beauty brands – and Hong Kong boutiques – poised and ready to storm the castle.
Three players on selling in China:
Founder, Susanne Kaufmann (sells in Hong Kong retailers such as Beyørg)
“As long as there is a law in China for animal testing, we cannot sell there. We also don’t buy any ingredients from China. Hong Kong is the gateway for Chinese customers interested in natural cosmetics. There is a huge community of green retailers.”
Founder, Beyørg (eight shops in Hong Kong)
“If the regulations change, we would love to open further locations in China.”
Founder, Buly 1803 (opened his first Hong Kong shop last year; due to open a second soon)
“[Our first shop did] 30 per cent better than expected but animal testing is not helping our advance in China. For now we’re more interested in creating a real fan base in Hong Kong.”