The year ahead may be challenging for luxury brands in one of their more significant markets, given the clouded economic outlook in China caused by the nation's zero-COVID policy, its unpredictable lockdowns, a worsening real estate crisis, the weakening yuan, and waning consumer confidence. However, despite concerns about the health of Chinese consumer demand, recent investments suggest the personal fragrance sector in the nation may continue to be a bright light even in the case of a noticeable downturn in luxury spending.

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Fragrances are experiencing a development spike in mainland China due to their more reasonable price ranges and relative understatement in comparison to accessories covered in logos. Only 2.5% of China's enormous population of 1.4 billion now consumes personal perfumes, compared to over 52 percent of Americans, as previously mentioned in our market analysis, How Niche Fragrances Are Winning Over Young Chinese Consumers. According to a 2017 survey, 42 percent of customers in France use personal smells daily while another 42 percent use perfume goods less frequently.

The potential for expansion of perfumes stands out even in the congested cosmetic industry. One study by the Chinese market research company iResearch found that scent rated higher than clothing and accessories as a top fashion and beauty category for Gen Z female consumers (excluding cosmetics and skincare).

With the help of these youthful customers, the Chinese fragrance market is anticipated to continue expanding by double digits in the years to come; between 2020 and 2025, sales are estimated to double from 6.9 billion yuan ($1.1 billion) to 15.4 billion yuan ($2.4 billion). By 2025, Euromonitor International predicts that fragrance sales would total 30 billion yuan ($4.7 billion). Not simply the biggest brands with the longest histories in mainland China, such as Chanel N°5 and Dior J'Adore, are profiting from rising fragrance demand and usage. The change of customer tastes in recent years has resulted in a greater openness to trying out lesser-known products from both local and foreign suppliers.

A larger "niche" trend that has permeated the fashion and cosmetics industries, one in which millennial and Gen Z consumers seek for products that can serve as platforms for self-expression, is directly tied to the growing interest in niche scents among Chinese consumers. Fragrance has become a vital signifier that may be used to stand out from the crowd because people can readily be recognised by their odours.

Influencers and famous people have taken advantage of this unique attraction on social media, where niche scent items have emerged as a popular subject for recommendations. Influencer Doudou Babe (3.5 million followers) recommended Diptyque, Penhaligon's, Kilian, and Replica fragrances on Xiaohongshu. Actress Jiang Shuying (3.3 million followers) favoured scented candles and diffusers from Jo Malone and Cire Trudon. Actress Li Xiaolu (3.4 million followers) said that L'Oréal-owned Atelier Cologne was her top pick for going out for afternoon tea

This tendency, nevertheless, has helped domestic scent companies as well. Over the past five years, a number of local businesses have emerged, creating their brands through clever nostalgia marketing and brand alliances. Scent Library, Cosmic Speculation, and Scentooze are three of the most well-known of these domestic niche fragrance companies. All three have raised millions of dollars in fundraising rounds in recent years and have been successful in appealing to millennial and Gen Z demand both online and off.

Even tech behemoths without any prior experience in the industry have entered the market; early this year, Bytedance, the parent company of TikTok, announced the establishment of its perfume subsidiary, Emotif.

International leaders are also observing the development of domestic Chinese scent brands. Through its newly launched China-focused investment vehicle Shanghai Meicifang Investment (supported by L'Oréal's private equity fund Bold, which is designed to acquire minority holdings in cutting-edge beauty businesses), L'Oréal China recently acquired a minority position in the two-year-old brand Documents.

With costs ranging from 450 yuan ($64) to 2,250 yuan ($320) per bottle and a concentration on using raw materials made in or coming from China, Documents, a brand that was introduced in 2021, has caught the eye of Chinese millennials and Gen Zers. Documents opened its first physical store in Shanghai in July 2021, forgoing e-commerce in favour of brand-owned WeChat mini-programs and offline stockists. The company reported an average purchase value of 1,500 yuan ($236) for the next six months. Consumers born after the 1990s made up more over half of Documents' primary consumer base. Prior to this year's Qixi Festival, the company launched a well-received collaboration with Chinese accessory brand Yvmin, demonstrating its skill as a brand partner.

It is very likely that more approachable (not to mention private and private) high-end purchases like fragrances, skincare, and beauty could experience some of the strongest growth in the luxury sector if consumer enthusiasm for making large-ticket purchases continues to be hit by a slowing economy in the year to come. Does this imply that L'Oréal and other top international companies may invest in the rapidly expanding local startups in China?