As beauty brands shutter stores in China, can the metaverse offer a second chance?

Enter the City of Rhythm, Maybelline’s metaverse debut on Tmall. Launched ahead of Alibaba’s Double 11 festival, the limited-time virtual universe comprises four spaces that showcase four signature offerings of the L’Oréal-owned cosmetics label. In this immersive environment, users are able to try on makeup, receive beauty tips from virtual livestreamers, play games, and enjoy music from spokesmodels, K-pop group ITZY.

The move marks another step in the brand’s digital transformation. In July, the New York-based cosmetics firm confirmed that it will close 14 freestanding physical stores in China nearing the end of their contract, citing a need to “adapt to the changes in the market and consumer demand.” Products will still be sold at nearly 10,000 offline stores across the country, such as Watsons and other multi-brand retailers, as well as online flagships on Tmall and JD.com. According to CEO Nicolas Hieronimus in an earnings call, the plan is for e-commerce to make up 80 percent of Maybelline’s China business.

“Compared with e-commerce, offline retail, especially offline retail that does not provide obvious experience value, does not have advantages in terms of consumer marketing coverage, conversion rate, and cost structure,” explained Lutina Gu, project manager at Daxue Consulting. “For brands like Maybelline that focus on affordable consumption, prioritizing digital marketing could be a better choice than opening a bunch of brick-and-mortar stores to attract technology-based young consumers and consumers in many sinking markets.”  

Maybelline isn’t the only brand shuttering underperforming brick-and-mortar counters in China. K-beauty brand Innisfree plans to shrink its store network there by 80 percent while Etude House and Hera are withdrawing from the market completely. Fashion houses have started retreating too: earlier this year, Danish label Selected shut down all 1,300 of its offline stores, fast fashion giant H&M quietly boarded up its three-story Shanghai flagship, and Gap closed more than 10 stores — then announced it was selling its Greater China business to e-commerce solutions provider Baozun. 

Affordable beauty labels in particular have faced numerous challenges in the market, from pandemic-induced disruptions to the rise of domestic competitors. In fact, in a ranking of the top-selling makeup brands on Tmall during this year’s 618 festival, three domestic names climbed into the top five: Florasis, Colorkey, and Perfect Diary (Maybelline ranked No. 15). According to research firm Qianzhan, Maybelline’s market share in China fell from 10.7 percent in 2018 down to 4.8 percent in 2021.

“The new Chinese beauty brands are often affordable, and [their] overall design and quality have received positive sentiment,” commented Humphrey Ho, Managing Director for digital marketing agency Hylink USA. “Maybelline has always been a value player, and that doesn’t work in China. No ‘drugstore brands’ in China.” 

But rather than pulling out of China’s $81 billion skincare and beauty market, Maybelline’s foray into the metaverse offers an opportunity to reintroduce itself to young consumers. According to Tmall Luxury Pavilion, sales of luxury goods with 3D and AR features saw double-digit year-on-year growth in 2022, with consumers spending twice as long looking at these products. Showcasing its signature products in this unique environment allows the legacy player to revive its brand image while learning more about its target audience.

“The metaverse is an opportunity for discovery and relationships for both brands and consumers,” Ho continued. “Brands will obtain more insights into their wants and desires, what features of a product they are specifically looking at, which is an opportunity to establish or reconfirm consumers’ loyalty.”  

Other beauty brands have similarly incorporated Web3 into their China-focused digital strategies. In April, Shiseido-owned Nars Cosmetics created a limited-time virtual world exclusive to China Duty Free Hainan, allowing Chinese customers to customize avatars, try on new products and hairstyles, and earn virtual currency to redeem gifts with purchases. Meanwhile, Laniege and M.A.C have collaborated with Chinese virtual influencers Chuan and Ayayi, respectively, promoting their makeup through these hyper-realistic faces.

That said, the metaverse “plays a more obvious role in marketing and reaching potential users than the actual customer order conversion,” noted Gu. However, as more global names pile into the space, “doing metaverse may change from something nice-to-have to a must-have.”

But even so, the American brand best known for its iconic mascara will need more than flashy marketing tactics to boost sales and recover market share. As Ho summarized, “The metaverse and other channels are merely the anecdotal ‘lipstick on a pig.’ What Maybelline needs to do is return to China with their brand either clearly positioned as a premium brand worthy of the European price tag, leave the drugstore distribution channel, and provide true product superiority.”