"China's Silicon Valley" is getting a makeover as retailers ditch digital deals and opt for beauty products. Zhao Yimeng reports.
A cosmetics stall at Huaqiangbei in Shenzhen, Guangdong province, in late 2019. (LIU YOUZHI / FOR CHINA DAILY)
In recent years, Huaqiangbei, a sprawling electronics hub and symbol of Shenzhen, Guangdong province, that was once dubbed "China's Silicon Valley", has become the nation's biggest wholesale high-end cosmetics market.
Covering several blocks in Futian district, Huaqiangbei is home to dozens of markets packed with stalls that once sold cellphones and electronic components in bulk. The area also acted as a matchmaker for businesses and suppliers across Guangdong, China and even Asia.
Each stall receives about 3,000 orders a day. On the first floor, the fee to reserve a stall has risen to 1 million yuan
Huang Saibao, Huaqiangbei merchant
By the end of last year, nearly 20 percent of the stalls that once sold phones, computers and electronic components were packed with Lancome lotions, La Mer creams and MAC lipsticks.
The daily sales value of cosmetics can reach 4 billion yuan (US$619 million), according to Huaqiangbei merchant Huang Saibao.
Crackdown
However, early last month, the area's vendors were hit by a market rectification campaign launched by the local customs and police, which forced the temporary closure of most of the cosmetics stalls.
On Jan 5, local customs started an inspection of the cosmetics malls following a General Administration of Customs' crackdown on gangs linked to cross-border e-commerce platforms, which smuggle goods into the Chinese mainland to avoid import taxes.
Large amounts of goods suspected of being imported illegally－including beauty products－were seized, while 36 suspects were arrested, according to China Central Television.
The total value of the goods exceeded 600 million yuan.
A public relations official at one of the malls told online financial news platform 21jingji that stallholders had been ordered to fill in accounts books and provide purchasing records as required by the government.
Veteran stallholder Huang was unaffected. "My goods are imported through legal channels, but my trade with stallholders in the cosmetics malls has been suspended recently," he said, adding that he had no idea when things would return to normal.
Located on a crossroads in Huaqiangbei Commercial Street, Huang's stall is highly visible to passers-by and retailers visiting the area to replenish their stock.
"After several thousand orders were placed at one time, last year's sales volume reminded me of the glory days," the 42-year-old said.
His customers include retailers from the nearby Mingtong Mall, which was the main target of the rectification campaign, along with cosmetics' livestreamers and vendors from Alibaba's Taobao stores.
The COVID-19 epidemic has hampered many independent buyers who used to travel overseas to purchase cosmetics at duty-free shops, while the emergence of livestreamed e-commerce has catalyzed the booming market in Huaqiangbei, according to Huang.
He opened his stall, which has a "golden position" at the corner, in September, paying 850,000 yuan to book the pitch plus monthly rent of 100,000 yuan.
It wasn't Huang's debut in the cosmetics business, though. Before moving to the crossroads, he sold beauty products in Mingtong Mall, which is still officially called Mingtong Digital City Market even though almost all the merchants have transferred from electronics to cosmetics since 2017.
High profits
Huang, who owns businesses in the United States and Hong Kong, used to buy electronics in the US to sell in Hong Kong and Shenzhen.
"During the best times－2015 and 2016－my profit ranged from 2 to 3 million yuan a year," he said.
He recalled how traders clutched bags of electronic wares in the bustling malls, customers haggled with vendors over new gadgets and merchants, inventors and entrepreneurs jostled in the hallways to shop for components to make new products.
In 2007 and'08, when the dealers only accepted cash, there were usually five or six people waiting in line at each ATM to withdraw money, sometimes extremely large sums.
In early 2019, Huaqiangbei's flagging smartphone market forced Huang to adapt his business strategy, and the situation remained uncertain last year in the light of demonstrations in Hong Kong and trade frictions between China and the US.
"The electronic products we bought from the US, especially iPhones, were seized by US customs as 'sophisticated instruments' (a focus of US complaints)," Huang said, adding that stricter border controls resulting from the COVID-19 epidemic have blocked supplies.
Despite the problems, Huaqiangbei's merchants are proud of their ability to spot opportunities and their fast reactions to ensure they grab every one.
Huang's wife has been a daigou, or freelance retail consultant, for 10 years. As a former outbound tourism guide, she is familiar with overseas duty-free shops and the market price of cosmetics.
"We decided to take advantage of our professional knowledge of cosmetics products to advance within the sector," Huang said.
The couple bulk-purchase profitable goods from duty-free shops at a wholesale discount and sell them far more cheaply than dealers at shopping malls on the Chinese mainland.
For example, a Lancome lipstick that costs 285 yuan at most cosmetics counters sells for 140 yuan at their stall in Huaqiangbei, irrespective of whether the buyer is an individual or a wholesaler. Several of their competitors can match that price, too.
In response, China's cosmetics' market has dramatically scaled up in recent years. According to figures from the National Bureau of Statistics, cosmetics sales from January to October totaled 256.9 billion yuan, a year-on-year rise of 5.9 percent. Overall, retail sales fell 5.9 percent over the same period.
"As Chinese people pursue high-quality lives, the demand for beauty products is booming," Huang said.
Focus shift
The initial success of Huang and other pioneers spread quickly in Huaqiangbei, which led retailers who had bought electronic goods from them to follow them into the beauty products sector.
Lu Lin, a merchant in Huaqiangbei's Yuanwang Digital Mall who has worked in the area for 15 years, said the retailers see no difference between computer chips and lipsticks.
"They are all profitable goods. So although the merchants, mostly men, know little about cosmetics or beauty products, it's still a profitable business," he said.
So far, at least seven multistory malls in Huaqiangbei that used to sell electronics are now wholly or partly occupied by cosmetics retailers.
The first to make the change was Mingtong Mall, where merchants in the 1,300 stalls work from 10 am to 2 am catering to the huge demand for cosmetics to the exclusion of all other goods.
Cosmetics traders cram into Mingtong Mall, their stalls overflowing with famous imported products such as Chanel and Estee Lauder.
Sellers make phone calls, check WeChat records to confirm orders and pack the products for delivery. Some offer prices to customers without even looking up from their calculator as they tap out the numbers.
"Each stall receives about 3,000 orders a day. On the first floor, the fee to reserve a stall has risen to 1 million yuan," Huang said.
Mingtong vendors who sold foreign-made electronic products were crushed by much cheaper domestic brands, such as Huawei and Xiaomi.
"In 2014, we had to find a way out as the markets were 30 percent empty, which indicated that development in the cellphone industry was limited," said Lin Xu, manager of Mingtong Mall.
Before entering the cosmetics sector, many Mintong vendors tried selling smartwear and trading via WeChat mini programs, but to no avail.
"While doing research, we accidentally discovered that the people who gathered to buy beauty products in Japan and South Korea were mostly Chinese. We sensed the big market and adapted our strategy," Lin said.
The tide turned. The transformation of Mingtong started in 2017, closely followed by several other malls that had once focused on cellphones and components.
Questions of authenticity
"These cosmetics products are cheap, but are they genuine?" That's the question almost every consumer asks. It's a fair one, too, given the speculation a decade ago that Huaqiangbei was full of "fake phones".
Lin said Mingtong's management insists that retailers immediately vacate the mall and even the entire Huaqiangbei area if even a single consumer complaint about fake goods is upheld.
Huang Saibao agrees with the harsh punishment.
"All our products are genuine. No stallholder can afford to risk destroying their reputation and business by bringing in even one illicit product," he said, adding that the cosmetics business is so lucrative that there is no point cheating customers.
Despite that, Lu Lin has adopted a wait-and-see attitude toward the transition. Since he started his business in 2006, he has been selling cellphone components and smartphones in Huaqiangbei.
"My strategy is relatively conservative as I don't have enough startup capital for a cosmetics stall and it's risky to lend money. Although the electronics market is shrinking, I still make a profit," he said.
"It's hard to claim that every beauty product in the market is genuine. The merchants here always want to make money."
Having experienced Huaqiangbei's ups and downs for more than 20 years, Lin said cosmetics only account for 20 percent of total business at most, and despite the current soaring demand and huge market, it is still uncertain if the makeover will be permanent.
Huang said, "The message for Huaqiangbei's merchants is this: if you dare to innovate and struggle, you will always have a chance of making good money."
Pei Pei in Shenzhen contributed to this story.
Contact the writer at zhaoyimeng@chinadaily.com.cn
