The Fragrance Market in China: the Challenge and the Opportuni�Es

Friday April, 6th - h. 4.30 pm

The Fragrance Market in China: the Challenge and the Opportunies

Speaker:

Chi Wai Tang Journalist, Co-founder of The 13th Note Overview

• Far East Fragrance Market overview • Current arsan perfume market in China • Diﬀerent Market Channels • Challenge • Opportunies • Product Registraon Process • Q&A

What is the Challenge to sell Fragrance to Far East Customer? 1. Using Fragrance is not their tradion

2. Social responsibility

3. In general people is more inward What is the Opportunity to sell Fragrance to Far East Customer? 1. New generaon customer

2. Social Medium

3. Targeted product development Far East Fragrance Market Overview Where has the biggest market? By total value (in 2016):

China ~ €195M (only <2% of Europe market) Japan ~ €95.5M South Korea ~ €86M

By per capital (in 2016):

South Korea ~ €1.68 Japan ~ €0.75 China ~ €0.14 China Market Data

Full-year sales value Brand Gr oup CY 2014 CY 2015 CY 2016 Chanel Chanel 671,240 642,458 637,252 Christian Dior LVMH 489,491 519,435 534,911 Jo Malone Lauder 13,504 57,367 111,062 Lancome L'Oreal 82,189 94,964 80,454 Yves Saint Laurent L'Oreal 1,386 2,607 5,233 Giorgio Armani L'Oreal 20,115 25,678 28,856 Guerlain LVMH 33,343 26,385 24,373 Tom Ford Lauder 1,403 10,529 Roger et Gallet L'Oreal 13,785 Fresh LVMH 9,393 12,737 17,692 Givenchy LVMH 16,353 16,624 15,310 Estee Lauder Lauder 22,290 17,341 13,807 Atelier Cologne L'Oreal 5,709 Elizabeth Arden E. Arden 11,419 7,770 5,349 Cle de Peau Beaute Shiseido 202 244 554 Shiseido Shiseido 98 263 100 Clinique Lauder 981 908 556

(in Thousand Yuan) Japan Market Data

Full-year sales value Brand Gr oup CY 2014 CY 2015 CY 2016 Chanel Chanel 4,962.3 5,665.4 6,004.2 Christian Dior LVMH 1,514.3 2,457.5 2,898.4 Jo Malone Lauder 778.7 1,214.3 1,446.0 Guerlain LVMH 565.9 571.7 593.8 Yves Saint Laurent L'Oreal 87.9 106.6 257.2 Aramis Lauder 248.2 256.8 240.6 Tom Ford Lauder 97.9 144.4 174.6 Lancome L'Oreal 122.4 149.7 193.7 Shiseido Shiseido 194.3 188.6 175.0 Estee Lauder Lauder 172.3 184.2 171.7 Givenchy LVMH 93.7 103.5 111.6 Clinique Lauder 122.6 119.8 107.7 Ermenegildo Zegna Lauder 58.8 76.4 68.1

Cle de Peau Beaute Shiseido 48.8 34.0 31.8 Laura Mercier Shiseido 9.2 17.4 24.0 Tommy Hilfiger Lauder 33.2 26.9 19.6 MAC Lauder Giorgio Armani L'Oreal 5.9 7.5 6.6

(in Million Yen) South Korea Market Data Full-year sales value Brand Gr oup CY 2014 CY 2015 CY 2016 Chanel Chanel 41,568 42,647 48,708 Jo Malone Lauder 11,877 18,069 23,846 Christian Dior LVMH 15,194 17,900 19,755 Fresh LVMH 4,241 4,530 4,032 Yves Saint Laurent L'Oreal 488 924 2,343 Estee Lauder Lauder 2,257 2,365 2,977 Tom Ford Lauder 90 1,009 1,750 Lancome L'Oreal 2,692 2,908 2,857 Hera AmorePacific 523 478 475 Guerlain LVMH 1,537 1,411 1,317 Giorgio Armani L'Oreal 1,571 1,291 1,094 Kiehl's L'Oreal 882 854 923 Benefit LVMH 1,382 1,448 1,065 Aramis Lauder 707 597 375 Laura Mercier Shiseido 183 256 258 Tory Burch Lauder 24 50 65 Aveda Lauder 62 79 101 Clinique Lauder 207 119 107 Ermenegildo Zegna Lauder 460 370 116

(in Million Won) Current arsan perfume market in China Who is already in the market?

• Jo Malone • Diptyque • Atelier Cologne • Roger et Gallet • Fresh • Armani Prive, Tom Ford Private Blend • Chanel, Dior, Guerlain… exclusive line How about the other brands?

Consumer can ﬁnd hundreds of brands via other non tradional shopping channels

Tradional Channels:

• Department Store

• Mono-brand Bouque Jo Malone, Diptyque, Guerlain…

• Mul-brand Bouque 10/10 (Space NK) Scent Library Independent concept store Non-Tradional Channels:

• Personal Shopping Service • Oen can ﬁnd in Taobao

• Mobile Apps • Lile Red Book • Scent Page …

• Social Medium • Weibo, Weixin (wechat)

• Perfume Salon

What is the challenge for small independent exclusive brand to enter China Market? 1. Big players dominated the market

Current players are all back by large ﬁrms 2. The market place is messy for Arsan fragrance

• Many fake product in the market

• Huge diﬀerent in retail price

• Discount given by oﬃcial importer

3. Educaon

Beauty consultant was not well train

Most customers rely on Key Opinion Leader or online informaon

4. Trade Barriers

• High import tax

• Product registraon costs around €1500 per reference 5. Limited Distribute Channels

There isn’t large amount of independent perfumery in China

6. Fast Development of Local Brand

Many new local brands entered market in the past 3 years

What is the Opportunies in Far East and China? Perfume market is growing in Far East vs Shrunk or Saturated in Europe

~35%, 13% and 8.5% growth 2017 in China, Japan and South Korea

Till today, less than 1% of Chinese is using perfume

Every brand is trying to share these market. • Customer started to want something diﬀerent

Jo Malone enjoyed huge growth in the past 4 years • More Arsan perfume in the market The Process of Producon Registraon in China

Two Parts

Cost : ~ €1500 per reference

Time: >6 months Phase I

1. Company Declaraon 2. Trade Mark registraon 3. Standard formula/ingredients list 4. Manufacture process and technique 5. Product package design 6. Authorisaon leer (need to be notarised) 7. Commercial Contract (if process via China Distributor) 8. 1 unit per sku per reference Brand Name of the Fragrance 原料含量（%）/C 复配百分比（%）序号标准中文名称/Chinese name INCI名/name ontent of raw /Compound 使用目的/Purpose of use 备注/Remarks materials（%） allocation（%） 1 变性乙醇 ALCOHOL DENAT. 75.000 100.000000 溶剂 2 香精 PARFUM/FRAGRANCE 18.094 100.000000 芳香剂 3 甘油 Glycerin 0.500 100.000000 溶剂 4 柠檬烯 d-Limonene 3.123 100.000000 芳香剂 5 水 AQUA/WATER at 100 100.000000 溶剂 6 芳樟醇 Linalool 2.343 100.000000 芳香剂 7 香豆素 Coumarin 0.250 100.000000 芳香剂 8 柠檬醛 Citral 0.117 100.000000 芳香剂 9 苯甲酸苄酯 Benzyl Benzoate 0.102 100.000000 抗氧化剂 10 丁子香酚 Eugenol 0.082 100.000000 芳香剂 11 肉桂醛 Cinnamal 0.032 100.000000 芳香剂 12 肉桂酸苄酯 Benzyl Cinnamate 0.030 100.000000 芳香剂 13 香叶醇 Geraniol 0.012 100.000000 芳香剂 14 肉桂醇 Cinnamyl Alcohal 0.005 100.000000 芳香剂 15 金合欢醇 Farnesol 0.005 100.000000 芳香剂 16 香茅醇 Citronellol 0.005 100.000000 芳香剂 17 苯甲醇 Benzyl Alcohol 0.004 100.000000 溶剂 Phase II

1. 18 retail units of product (must from same batch) with minimum of 30ml/g each 2. Free Trade Cerficate 3. For OEM product, the original copy of entrusted manufacturing contract 4. Quality specificaon of special ingredients, which will determined by formula 5. GMP/ISO cerficate (need to be notarised) • Aer compleng the laboratory test, a report will be veed by an officer, if all the safety requirement was met, a cerficate with an unique number will be issued

• This cerﬁcate will only valid for 4 years

• This cerﬁcate can be renewed, if the formula has never been changed aer 4 years The fragrance trend in China

Light Fresh Floral Light Fruity Floral Green Floral Fresh Citrus Light Woody Tea scent

Pack size : 50ml or 30ml

Design: toward minimalism, classic and elegance

Some Best Seller in China Some Advices:

1. Choice the right partner 2. Choice the right partner 3. Choice the right partner

4. Retail price must set as close as European retail price (maximum 10% mark-up)

5. Be paent Q&A

Thank You!

*All research date were from Euromonitor and Beaute Research