The beauty industry in Asia Pacific is rapidly evolving with the digitalisation of its value chain to the products themselves. From social commerce to smart cosmetics devices for beauty on-the-go, it is no surprise that APAC alone contributes to 51% of total global beauty sales, where the skincare and cosmetics category is projected to reach US$60 billion by 2020.
Despite this large potential, APAC’s beauty industry is highly fragmented, both in terms of the platforms for which beauty products are made accessible, and the profile of APAC beauty consumers. However, with the beauty industry still expected to continue booming, brands all want a pie of the growth. Yet not all succeed as challenges remain high to enter these markets. Aside from having to build their brand presence in the region, brands need to overcome country-idiosyncratic networks and nuances.
Retail in Asia had the pleasure to interview Dr. Wolfgang Baier, Group CEO of Luxasia, to talk about the emerging trends of APAC’s beauty industry and how beauty brands are keeping up with the fast-changing market.
Luxasia is an Asia Pacific’s retail and e-commerce platform for beauty and luxury, and for over 30 years has played a role in shaping the face of beauty in the region. Working with some of the most trusted names including La Prairie, Bvlgari, Guerlain, Elizabeth Arden and Hermes, Luxasia makes available over 150 international fragrance, cosmetics, skincare and professional salon brands to the 15 APAC countries it operates in.
RiA: Luxasia specializes in the retail and distribution of beauty and fragrance brands in APAC. What has been the biggest challenge so far?
Dr. Wolfgang: Simply put, the challenge here is to connect brands to consumers.
Here, or anywhere else in the world, it is simply not enough to make brands available. It is about making sure that there is a connection between the brand and the consumer, both online and offline.
This is a clear problem statement yet it does not come with an easy solution. Asia Pacific is fragmented, and heterogeneous. It is a place where annual per capita ranges from SGD 1,146 in Nepal to SGD 77,914 in Singapore, with a varying levels of urbanization, infrastructure maturity, and human development. Complexity is compounded by disparate cultures, ethnicity, legislations, and languages, giving rise to vastly different preferences. In short, no two markets are alike.
To overcome the challenge of connecting brands to consumers demands nothing less than in-market presence, with a deep local network for both trade channel partners and supply chain partners, founded on deep local understanding. Consumer-centricity is key; we need to understand local consumer preferences and how to reach them effectively in local retail formats, across the preferred e-commerce and social media platforms. It is about telling omnichannel brand stories to consumers in a way that resonates deeply and memorably.
RiA: As fragrances are a very personal product, how do you engage the consumers?
Dr. Wolfgang: In beauty, retail is still king but online is catching up.
While a robust online and social media presence is necessary, online sales in Asia Pacific beauty ranges between 5% to 20% of total sales, according to Statista and Luxasia Industry Intelligence. In the fragrance segment, it is in the lower portion of that range. Online brand and product story-telling such as digital marketing, influencer marketing, and social media engagement are important as they accelerate awareness and interest. However, what seals the deal and lands the dollar is the retail olfactory experience – smelling the scent itself in a novel retail format, with excellent customer service, that makes the overall experience unforgettable.
In recent years, Millennials prefer to experiment and try out products from different brands, at different price points. As affluence increases in Asia Pacific, there is also the rise in preference for niche and cult brands. As such, collaborating with Robinsons in Singapore, Luxasia created a Fragrance Gallery, a multi-brand retail concept, where we offer a much wider than usual selection of both niche and luxury fragrances.
Novel retail pop-ups and animations, coupled with packaging customisation (e.g. engraving, bottle selection) and consumer events that complement the product story telling (i.e. floral arrangement, resin coaster-making, water-colour painting, portrait drawing) enhances the experience. Beyond this, there are also digital fragrance profiling tools available in the market that enriches the fragrance selection process.
RiA: As you have been operating in the market for quite some time, how would you define the evolution of customers?
Dr. Wolfgang: Consumers are trading up, in terms of both consumption and expectations.
In Asia Pacific, we observe an unprecedented growth of the middle-class, with poverty dropping from 14% to under 3% in just 10 years. This is coupled with an exponential growth in internet penetration and literacy. As a natural outcome of this, consumers are evolving in sophistication and moving up the luxury ladder, armed by greater access to information. They are trading up as they increase in the level of affluence.
Brands cannot ignore the main consumer groups – the Millennials and Gen Z; with both groups’ shopping power totalling to close to US$200 billion. With this high propensity to spend, it will do brands well to understand these two groups of consumers whose habits and preferences influence trends. While these consumers can be considered digital natives, with mobile and social media a must to research on products – comparing reviews and prices, the physical store plays a crucial role in turning them into buyers, with 67% preferring to make a purchase in-store.
With this ease of obtaining information, these consumers in Asia Pacific are also increasingly more discerning in their expectations on skincare and beauty products, setting their requirements to be more sophisticated than their counterparts in Europe and the US. They not only are aware of the latest trends in the sector but also look for innovation. However, as Millennials move towards a culture in which individuality outweighs conformity, this brings them closer to their Western counterparts. With their rising affluence and willingness to pay for better products in terms of quality and ingredients, consumers also purchase products as a means to express themselves and splurge on looking good and standing out in a competitive society.
Because of their preference of self-expression and personalisation, consumers are more open to brand experimentation, and are willing to try out new or different products from different brands. Brands need to “up their game” and deliver more to ensure ‘brand stickiness’; through novel retail experiences, personalised engagements, and tactical ways of keeping the consumer journey with the brand alive. Some examples include providing customisable lighting in brick-and-mortar stores, bespoke beauty products or digital tools and devices to provide individualised experiences through VR or AR – bringing unique experiences to consumers.
The takeaway for all is that we need to get to know our consumers even better today. This was the reason why Luxasia started building up one of its two key enablers Technology, specifically our CRM capabilities, three years ago. We wanted to capture and grow both online and offline consumer footfall, and not one at the expense of the other. How? Based on data-driven consumer insights. To-date, the rich insights derived from the data of more than 1.3 million unique marketable consumers collected across Asia Pacific has helped us to sustain strong retail sales growth, while achieving exponential e-commerce growth of more than 30 times since 2016.
RiA: How is it different in serving customers across different countries?
Dr. Wolfgang: To serve them well, we first need to know them well.
There are significant market variances in the beauty sector, nuanced with shades arising from diverse cultures, preferences and trends. As mentioned earlier, even within the Asia Pacific region, there are significant market variances in the beauty sector. A hero product in one market might not be the case in another. In the skincare segment, there are many factors coming into play, such as humidity, skin type, skin tone, price sensitivity and even religious demands (e.g. halal products).
Beyond that, consumer preferences are also markedly heterogeneous. Taking skincare for example, sub-segments experience varying levels of demand across markets. In China, consumers might go for anti-pollution and anti-ageing, while in Philippines and Thailand they might desire whitening. In Indonesia, consumers demand skincare and cosmetics that enhances the natural underlying skin tones while in Singapore, consumer are leaning more towards clean beauty and organic beauty.
At the end of the day, it is about bringing the luxury touch to life uniquely in each market. How do we do that? Here is where the other key enabler comes into play – Talent.
In Luxasia, across 15 markets, we have 1,300 retail Talents and 500 brand marketing Talents, with both traditional and digital marketing capabilities, who live and breathe beauty every single day. They interact with the end-consumer, in the native languages, understanding cultural nuances, while adding insights daily to our consumer intelligence database with actual validated consumer feedback. This is how we get to know our local consumers in each market so intimately well.
RiA: How do you connect online and offline experience?
Dr. Wolfgang: Once again, it goes back to our two key enablers – Talent and Technology.
A key thrust of Luxasia’s corporate transformation since 2016 is to deliver omnichannel beauty experiences to our consumers. Since then, we have been refining how we merge the online and offline into one singular compelling offering.
On the Technology front, we have implemented our CRM engine, as mentioned. However, it is not enough. Information may be on hand and on-demand, but our Talents needed to be able to extract and leverage on the data intelligence available. Thus, we needed to enable our Talents to use this very Technology tool, and harness what is within to deliver stronger sales and consumer satisfaction. This calls for upskilling and training of retail frontline staff to collect consumer data properly through tablets equipped with the Customer Engagement App, retrieve and understand past purchase history, and make recommendations that will truly delight consumers.
Ensuring the omnichannel retail experience on both online and offline fronts, we are also able to lead our consumers who browse online to our stores to experience our products. Similarly, for who are not ready to make an in-store purchase decision, we will educate consumers to find us online, on official brand e-stores, across all the different e-commerce platforms, which replicate the same luxury shopping experience.
Furthermore, through our Talents’ expert local knowledge, we are able to effectively leverage social media to deepen consumer engagement through influencer marketing and Key Opinion Leaders (KOLs). In China alone, Luxasia has successfully unlocked online selling to accelerate the successes of skincare brands such as Peter Thomas Roth and Dr. Brandt – creating more than 200 million social media impressions and 1.6 million engagements in a single year, multiplying brand sales and recognition in China.
Beyond simply listing brands on China’s popular marketplaces like TMall, Little Red Book, JD.com, and Sephora.com, Luxasia engages celebrities and KOLs on Weibo, Douyin, and WeChat to amplify its brands’ reach and resonance among Chinese consumers.
RiA: If you have to define the current status in beauty and fragrances consumption in APAC, which trends would be emerging? What categories do you see on the rise and which ones in decline?
Dr. Wolfgang: As a result of consumers trading up, as well as speaking from our expertise and experience, we are looking at a very bright future for the luxury beauty segment, particularly in skincare.
In the Asia Pacific luxury beauty market (excluding personal care), we are looking at a SGD 190 billion market, growing at around 5%, with the largest segment being skincare at about 45% share.
China will remain to account as the largest market in the global beauty industry, taking up 19% of total global retail sales, followed by Japan and South Korea in the Asia Pacific region. Driven by a population that is highly engaged digitally, China will also be the largest online skincare market in the future economy.
We have observed and continue to expect a good growth in the skincare segment all across Asia Pacific, with China expected to be the highest at 7.2% compounded annual growth rate over the next 4 years. While China is a highly promising market, many international skincare companies are also widening their focus to Southeast Asia, including key markets like Indonesia, Thailand and Malaysia, where sales of skincare are expected to be above industry average.
To all to these, here are 3 trends for each segment for 2020:
For luxury fragrances, trends are: Layering of different scents for a more individualistic scent profile; Travel-friendly compact-sized fragrances i.e. smaller sized bottling, non-
aerosol, rollerballs; Genderless fragrances – focusing on evocative themes and experience association, as opposed to gender-based categorisation
For luxury skincare, trends include: Back-to-basics shift in consumer need (not want); Good hydration is a need across all markets; Efficacy-based derma-skincare, with scientific backing, is also on the uptrend – more male consumers as a % than other sub-segments due to perceived gender neutrality; Clean, vegan, and eco-friendly products.
For luxury make-up, there is an increasing need for increased speed to adjust to consumer preferences and launch an updated range – the litmus test is whether a brand can obtain consumer feedback and produce a fresh new line that appeals to consumers within 3 to 6 months; “More than just cosmetics” products i.e. multi-efficacious, cosmetics, such as lipsticks that are nourishing and moisturising, foundation with sun-care and moisturising properties, primer that is a setting spray and a hydrating mist, makeup removers that cleanse and tone, or day creams which provides triple benefits of pore-reduction, UV protection, and hydration; Up-cycling for eco-friendliness, linked to the zero-waste movement – using natural by-products and recyclable ingredients for products e.g. using coffee grounds for facial scrubs, fruit waste for lip balm, extracts from grapeskins from winemakers for skincare
Niche and Cult Beauty segment
Niche fragrances on the strong uptrend such as Diptyque, Byredo, Maison Francis
Kurkdjian; Scent-pairing at home including pairing body fragrances with home fragrances – candles and diffusers – for a more holistic brand experience; Perfume in accessories / wearables such as Diptyque Pret a Perfumer collection,
MFK x Fendi Collaboration;
Interestingly, brands with skincare, cosmetics, and fragrances tend to experience a more loyal customer base, are better received by Retailers, and experience greater pick-up via social listening and search-ability online. E.g. Guerlain skincare, Guerlain fragrances, Guerlain cosmetics, the brand name Guerlain is mentioned thrice.
RiA: What is next for beauty and fragrances in APAC?
Dr. Wolfgang: In more developed Asian markets, and arising from increased affluence, we have observed a growing demand in Niche and Cult beauty from the discerning, luxury beauty consumers.
It is this impetus that led to the conceptualisation of escentials. The ‘omni-retail’ concept, focusing on the luxurious in-store brand discovery and experiences, while offering the same brand experience online. It is an “incubator” of more than 50 niche and cult makeup, skincare and fragrance brands.
It is being recognised as the go-to emporium of niche and cult beauty in the region, with a higher proportion of international tourists patronising our stores than our other retail boutiques. We have opened a third store in the crown jewel of Orchard road, ION Orchard. All in all, we are expecting more than 25% growth in our niche beauty retail sales in 2020.
RiA: As you work with beauty line of fashion brands and native beauty brands, how would you consider their reception in Asian markets?
Dr. Wolfgang: One word – exceptional. Taking Singapore for example, we have closed 2019 with 18% growth in retail sales against a market that is generally flat. We are delighted.
We have an excellent track record growing the beauty lines of coveted global luxury brands like Bvlgari, Dior, Ferragamo, Hermes, and Prada in our market. Powered by Talent and Technology, we are able to help such brands create engagements with consumers that bring their beauty stories to life. In doing so, we have established and grown brand recognition, brand equity, and brand resonance among consumers.
On the consumer remains at the heart of all we do, and we consistently elevate their beauty experiences in stores. To cater to the pool of luxury beauty consumers, our La Prairie concept store in Singapore’s Takashimaya Department store features the brand’s longstanding promise to offer timeless beauty through its interactive installations to educate consumers on each product range, coupled with its intimate consultation spaces and exclusive treatment cabins for premium facial services.
For the eco-conscious and organic, vegan beauty lovers, our KORA Organics brand is proving to be well-received amongst Singapore and Malaysian consumers. On the back of this soaring popularity, we are aiming to launch it in our new market in India.
In China, we found that there was unmet demand for an anti-ageing product line for PeterThomasRoth. We shared this with our brand partner, and co-developed the Unwrinkle line specifically for the Chinese market. Our consumers loved it so much that it became #1 Sephora exclusive skincare brand in China.