Cruelty-free brands are increasingly finding novel loopholes that allow them to sell in China without having to test on animals and violate their brand ethos.
China is the last major country to require animal testing in order for cosmetics and skin-care brands to physically sell within the country, which often means even purported cruelty-free brands pay a government fee for animal testing in order to sell their products in stores. This has encouraged some, such as Ceramiracle, 100% Pure and Urban Decay to launch digital strategies specifically to legally circumvent the requirement, which does not apply to e-commerce purchases.
Ceramiracle, which began selling in China at the end of May, relies on inventory-less pop-up stores and shopping events where customers can make purchases by scanning a WeChat QR code. They’re taken to the brand’s WeChat page to complete their purchase through the app’s e-commerce store. The products are then delivered within three days from a warehouse in Hangzhou’s free-trade zone near Shanghai, where goods can be imported, handled, manufactured and exported without direct intervention from Chinese customs. This means that products stored there are not considered part of China and do not need to undergo animal testing.
“The challenges are that there are no blueprints for this. You can’t go online and find out how to do this. You have to be there and find people to help you,” said founder Eugene He, adding that it took Ceramiracle two years to set up its business using the free-trade zone to house its products.
Ceramiracle opted to sell through its current strategy rather than through an e-commerce platform like Alibaba Group’s Tmall Global or Taobao Global platforms due to cost efficiencies, He said. A shipment from the U.S. to China would cost about $30 and take several days to a few weeks to ship, so unless the company was shipping close to 1,000 units a day from the U.S. to China, it would have been prohibitively expensive. But, He said, by operating in the free-trade zone, the company could ship product from within China for about $3, and it would take only one day to reach a customer.
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But as the company scales, He is looking to sell Ceramiracle through Taobao Global — another Alibaba Group platform for smaller merchants — within three to six months. And the platform is willing to provide guidance: Earlier this year, Taobao Global launched an incubator program to help international brands get off the ground in China by providing marketing, shipping, inventory and data logistics.
Using free-trade zones was also an initial option for 100% Pure, said chief executive Ric Kostick. But laws can change overnight, and the area he was looking at updated its policies to require animal testing. So the brand instead opted to use cross-border e-commerce through Alibaba Group’s Tmall Global, which is for slightly larger companies than Taobao and has positioned itself as the “gateway to China” for international brands looking to reach that customer.
It’s a popular choice for many international brands, including Miranda Kerr’s Kora Organics and The Ordinary. Overall, e-commerce totaled $1.2 trillion in 2017, a 32 percent increase year-over-year, according to China’s Ministry of Commerce; more specifically, a 2015 KPMG report said that 45 percent of Chinese consumers choose e-commerce sites as their leading choice for buying luxury items, with beauty products at the top of the list.
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“I knew China was a market that would be the biggest market in the world in the near future, so I never wanted [a third-party] to distribute for us,” Kostick said. The San Jose-based brand also established a wholly owned subsidiary in Tianjin outside of Beijing to act as its own trade partner that handles the Tmall Global storefront and marketing.
“I analyzed the costs of the trade partner versus opening in a second-tier city [like Tianjin], and they were about the same,” he said, explaining that a second-tier city is a smaller and less developed commercial area, unlike a city like Shanghai. “Albeit, it demands more of my time to oversee, but with boots on the ground, we can grow it really big because the market will be bigger than the U.S.”
Currently, Tmall Global sales account for about 8 percent of 100% Pure’s e-commerce business. The brand joined in June 2017 and plans to utilize more of Alibaba’s marketing opportunities as they become available. In addition, it hopes to launch its own digital pop-up shops to grow the business, he said.
What makes China’s appetite for beauty products particularly notable is the customers’ interest in foreign brands. Domestic purchases of cosmetics in China have actually been declining since 2014, according to a report from Morgan Stanley. “But that only belies the reality of China’s modern beauty-products consumer, who increasingly buys makeup and skin-care items while traveling abroad or shopping online,” the report said.
Urban Decay has tapped into the traveling Chinese shopper by selling them products through duty-free shops that a shopper can buy while abroad. The brand has taken to using a Chinese-language travel retail site, which it promotes with paid Baidu search terms, according to a 2017 report from research group Gartner L2. This allows the brand to navigate around animal-testing requirements since it is not physically selling in China.
But for other brands that currently refuse to sell within China, there is some hope: The China Food and Drug Administration opened one non-animal testing lab at the end of 2017. The lab, called the Institute for In Vitro Sciences, is helping China develop non-animal methods of cosmetic testing. For now, though, companies will need to continue developing digital workarounds, despite the challenges.
“We definitely don’t do animal testing, and that has been a daily struggle,” Ceramiracle’s He said. “Every day I have requests from distributors or consumers or stores, and if you look at the volume that people are projecting, it’s very lucrative. But we need to stay with our philosophy, and it is a struggle.”
