If you go into a department store or pharmacy, one of the biggest departments for floor space will be the cosmetics department. There are an arrangement of colors and perfumes typically marketed towards women to make them more attractive. As a male, most of them help enhance, but sometimes less is more. However, if you read the financial reports from the companies, the beauty segment is often a safe, secure driver of revenues as well as having healthy margins.

In an article by Keith Bradsher and Elizabeth Paton of the New York Times, after 3 years of shutdowns due to COVID, Chinese consumers are splurging on lipstick, perfume, moisturizers and other personal care products.

China is the 2nd largest beauty market in the world behind the US. For French cosmetic companies, China represents about 1/3 of their total revenues.

The bad news is under the pandemic, China imposed regulations to slow down the imports of cosmetics. One of the rules is companies must divulge every ingredient in their product and precise quantities used. The information is loaded in a Chinese government database along with other information. The result is most manufacturers do not want to because they fear a low-cost Chinese manufacturer company coping their products.

The French companies through the trade associations ensured French President Macron raised the issue when he met with Chinese leaders.

In China, retail sales of cosmetics rose 8.7%, but overall imports fell 13.7%.

China’s customs data shows imports of cosmetics, toiletries and perfume from France to China were down 6.2% to $5.4 billion from a year earlier. Cosmetics from the US and South Korea were down 19.8% and 22% respectively.

According to data from Euromonitor International, Chinese beauty brands have grown in the last 3 years to take 27% of skincare and makeup retail sales among the top 10 brands.

The Chinese beauty market is expected to grow, McKinsey expects China will account for 1/6 of global beauty retail sales.

Linking to dividend paying stocks, companies are encouraged to diversify beyond their border, and many do because consumers want and need choice. Over time, the country where the companies have diversified begin to develop their own products and given the use of technology everywhere, the products will be better and be competitive with the imported ones. What does the foreign company do? lobby for an even playing field? change the name to reflect the company’s language? look for other markets? buy a piece of the domestic companies? there are many options because the company does not want to give up those revenues with high margins. From an investor point of view, you are concerned about the margins and the maintenance of them. If they go down, ask what is the best strategy and is the company doing it?

There are more questions than answers, till the next time – to raising questions.