Niche Perfume brands : Shanghai Market Analysis

Global Market Situation:

Today the global perfume industry is a $25 billion market. There is a $9 billion market in Europe and $4 billion market in the USA, but only a $1.2 billion market in China, which represents a big potential opportunity. Of the entire beauty market in China, only 5% is contributed by the perfume industry, while in Western countries perfume is already involved in all aspects of life: from educational activities (mostly from family influences and society customs), to all kinds of daily necessities (from daily work to private life).

Take for example the French market, which is mature and stable. In France, perfume is an important element of life:55.5million bottles are sold/year and about one person will consume a bottle/year. Furthermore the fragrance market can be segmented by the following categories: age (from children to seniors), by gender, or by the types of fragrances(eau de parfum, eau de cologne…). In contrast, in Shanghai, the market of users is most often only female from age 20 to 50 (and even age 25 to 45 just 5 years ago).

Customers in Western countries use perfume almost every day and may change the perfume depending on their circumstances (day/night, week/weekend). Some of themeven have more than 2 types of perfume. However in China, most people use perfume only because of specific situations, for example only if they have a date, are meeting somebody, or will attend an important activity. Those users only have one bottle and due to the occasional use it takes a long time for a bottle to be finished.

Brand awareness:

The best selling brands in France are: Chanel Coco, No. 5, J’adore from Dior, Angel from Thierry Mugler and Tresore from Lancome. This range is very similar to the top 10 perfume brands in the Chinese market.

People in China know about these brands because they are linked to the reputation of their fashion counterparts like Chanel, Dior,Hermes,Marc Jacobs, Burberry, CK,Ferragamo,Versace… or their international beauty counterparts such as Lancôme, Estee Lauder, Mary Kay and Avon. Normally the prices are between 400 to 1000 RMB / bottle.

Meanwhile, regarding the prestigious luxury perfume company, knowledge of perfume brand is still limited,such as Serge Luttens, Penhaligon’s, Annick Goutal or Creed. Average prices are also higher from 1000 to 2000 RMB/bottle.The few peoples who know these niche brands only know so because they have either had an education abroad, have lived a long period of time in western countries, or are very interested in the beauty & luxury industry.

How can these prestigious niche brands enter the Chinese market?

Type of Product: Luxury and niche fragrances brands (Serge Luttens, Penhaligon’s, AnnickGoutal, Creed…) Average price: 1200 RMB /bottle

Characteristics:

  • Family owned or private collection perfume
  • Have a long history
  • Appreciated by famous stars, royal families, or upper class people
  • Have a rare scent, that is different from typical fragrance brands

Potential Clients / Target:

1) This target group has very strong purchasing power but has no knowledge of these brands:

  • People who have a car that is valued at more than 400.000 RMB (BMW, Mercedes-Benz,Audi, Ferrari, Lamborghini, Porsche, Maserati, Aston Martin, etc.)
  • Have an apartment or house valued at more than 5 million
  • Travel abroad more than once a year
  • Frequently visit high beauty salon (nails, hairs, massage, etc.)
  • Attend private clubs (private parties, meetings, etc.)

Strengths: Can easily purchase more than 1 bottle/year, and may become a repeat buyer

Weakness: Needs to be educated about luxury fragrance brands, especially males in this demographic

2) This target group includes people who have less income per year, but because they have great interest in these niche brands are still willing to purchase one or more bottles per year:

  • People who have study abroad & high education experiences
  • Frequently read fashion blogs, websites, and magazine
  • Often visit lifestyle stores
  • Share their discoveries on social media (weibo, wechat, douban, etc.)

Potential Distribution Channels:

1) In-Store:

  • Beauty retailors
  • High-endshopping malls
  • Outlet Malls (For example in Shanghai: Florence village, Suzhou Yioulai village)

2) On-line(Morethan 80% population having high incomes have online buying experiences):

  • Nationally famous sites(like Tmall)
  • Online luxury retail sites (like SECOO, Zhengpin, Youhuo)
  • Brands own official website

Potential Communication Outlets:

People who have already heard about these brands will often search their names on websites like Douban, Baidubaike… These search results will have general information such as brand background or historical introductions.

A brand that has no local awareness can be promoted by the following:

  • Influential people andfamous bloggers on Weibo (some bloggers have more than 4,500,000 following their fashion photo shots)
  • Subscriptions from Wechat public accounts (more and more Western brand use this kind of communication)
  • Recommendations from beauty TV shows (a lot of people like to look at the beauty TV show from Taiwan which is becoming a very popular purchasing guide!)
  • Books or websites published by famous stars or praised publicly (such asMeiliShuo)
  • And finally the most traditional way: magazines & newspapers

Developing market opportunities in Shanghai:

Shanghai is one of the cities in China that have the strongest purchasing power. Many young peoples are willing to accept new “lifestyle” elements and to consider that perfume is an important luxury element alongside beauty products like skin care & cosmetics, and the fashion products like clothes & accessories. According to fashion market research, perfume will continue to attract more and more people(larger segmentation of ages, gender, interest…) There are also an increasing amount of local distribution channels. For example, there are already 130 shopping centers in Shanghai, and 36 more will be opened in 2015.

Shanghai’s population exceeds 25 million and the yearly disposable income is increasing stably every year. It is estimated that the average income in 2014 is 47,710 RMB/person, and this number has increased 55% since 5 years previously(which was 28,830 RMB/person). The average family income of the top 20% of the population is 200,000 RMB, and they may purchase a 1000 RMB (or more) perfume bottle per year.

Therefore, because of this research and analysis, there represents a large potential for growth and profit in the Chinese market. Due to the eccentric and unique target groups in Shanghai, the niche luxury brand market potential should not be neglected as it has a good potential to be discovered and marketed long-term.

Ronald, Daxue C. 

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