Beauty is in the eye of beholders willing to invest in domestic industry

Ding Yining
Chinese mainland skincare and cosmetics companies are enjoying a burst of growth in an otherwise lackluster consumer market.
Ding Yining
Beauty is in the eye of beholders willing to invest in domestic industry

Shanghai pharmaceutical worker Sunny Jia was having skin allergy problems. She discovered an anti-allergy cream recommended on WeChat, and friends told her it really worked. So she bought the product, marketed under the Winona brand.

In a sense, Jia exemplifies the big trend in the Chinese beauty market. Consumers chasing beauty are increasingly by-passing the big-name multinational brands that once held such cachet and are purchasing domestic skincare and cosmetic products.

The domestic industry grew 9.5 percent last year, while overall consumer-goods sales dropped about 3.9 percent because of the coronavirus outbreak. Investors are taking notice of the trend.

The Winona skincare line is produced by Yunnan Botanee Bio-Technology Group, which surged 2.5 times when it debuted on the Shenzhen bourse in March. The stock is still trading near its all-time highs.

Company Chairman Guo Zhenyu came to the beauty industry from academia. He was an assistant professor at the University of Montreal and taught at George Washington University before Botanee was founded in 2010.

The company manufactures and sells facial masks, toners, hand creams, and other cosmetics. It also develops new biology technologies.

During a year when many businesses suffered from slack sales, Botanee reported 2020 sales rose 35 percent to 2.7 billion yuan (US$415 million), yielding a net profit of 544 million yuan.

Even more stunning perhaps in the beauty industry is the rise of Yatsen, which seemed to come out of nowhere to become the first Chinese cosmetics brand to list in the US.

The company was founded in 2016 by David Huang, an MBA graduate of Harvard Business School and former employee of consumer products multinational Procter & Gamble.

Yatsen has three main lines of skincare and makeup products: Perfect Diary, Little Ondine and Abby's Choice. At the end of 2020 it debuted on the New York Stock Exchange with a US$617 million initial public offering. The shares surged two-thirds on the first day of trading. 

Beauty is in the eye of beholders willing to invest in domestic industry

The company reported US$800 million in revenue last year and has made no secret of its aim to become the "next L'Oréal." In an expansion strategy, it has purchased the upmarket brands Galenic in France and Eve Lom of the UK.

Winona, along with Marubi, Proya and Oushiman, are among the six local names of the top 10 most chosen skincare brands by Chinese shoppers last year, according to a latest ranking by Kantar Worldpanel. 

Perfect Diary tops the ranking for makeup brands, along with five other local brands in the beauty ranking. 

Perfect Diary owes much of its success to the popular marketing concept of "private traffic," which involves promotion on thousands of WeChat groups. 

Its overall followers on video and social networking platforms totaled some 48 million at the end of November 2020, including 15 million followers on WeChat.

Tapping online influencers on popular livestreaming channels to spread the word about its products, Perfect Diary recruited actress Zhou Xun to promote its latest lipstick line and popular livestreamer Li Jiaqi to do testimonials for other of its beauty products. 

Another big name and relatively new brand in domestic beauty products is Hua Xizi, or Florasis, founded in 2017 in Hangzhou. In the 2019 Tmall Singles Day shopping festival, its turnover hit US$14.2 million in just an hour.

The Chinese name of the brand was a stroke of marketing genius. "Hua" means "flower" and "Xizi" means "west beauty," which comes from a famous poem from ancient poet Su Shi. The name suggests to consumer that they can nurture their skin and become the "west beauty" of the poem.

Marketing through digital channels has been especially successful for domestic brands.

Wang Yaning, a Shanghai graduate student in her early 20s, said she bought a new lip color after it was promoted by an online "influencer."

"I spent about 50 yuan for an orange lip color, and I liked the texture so much that I bought a second one in a different shade," she said. "They have a wide range of colors to choose from. I like that."

But online testimonials can turn some consumers wary.

Shanghai college student Lu Xiaoyun, who has been buying makeup products from both home and overseas brands for years, and said she's grown skeptical about products hawked by online "influencers."

"I now look for online community comments and microblog postings before I buy any new makeup," she said. "I almost always avoid a new product if everybody seems to be promoting it. I feel they're trying to hide something."

"The Internet has given rise to a wide range of emerging domestic beauty brands, but they face challenges after rising to fame overnight," said Xiao Yao, a partner at brand consultancy Ries.  

One is the cost of securing high-profile status.

Yatsen reported 43 percent first-quarter revenue growth to 1.44 billion yuan but a net loss of 234 million yuan due to surging marketing expenses.

In the post-pandemic era, the idea of "beauty" is shifting, with deeper concern how it relates to health and well-being. Preferences are becoming more individualistic.

Pu Chunhua, chief marketing officer of Shanghai Jahwa, said the company has been building a wider portfolio of personal care and beauty items to address the demands of varying consumer groups.

One of the company's brands, Herborist Derma, is promoting traditional herbal extracts as a selling point to attract younger consumers. It requires a freeze-dried powder to be made into liquid serum just before application to the face.

Shi Qing, director of beauty and home-cleaning products at Alibaba's Tmall, said beauty and personal care products contributed to 40 percent of the sales increase during the mid-year sales event.

New product features with Chinese-style elements and eye-catching package designs are becoming more important in driving sales, she added.

But how much does packaging really matter?

Shu Yao, a vlogger on the Bilibili platform with half a million subscribers, uploads four or five videos every month to introduce new products and promote her most recent preferences in skincare and makeup.

She wasn't overly enthused about Hua Xizi eyeshadows and lip colors that hit the market with oriental-style packaging and design elements from ethnic minority groups.

"The excessive decorative style looks nice from the outside, but makeup is not a collector's item, after all, and I didn't find that the quality of the product lived up to the fancy packaging," she told her followers.

The dramatic rise of the domestic beauty industry underpins the efforts of Shanghai's southwestern district of Fengxian to set itself up as a hub for the industry.

It has drawn up an infrastructure blueprint to attract companies even beyond beauty and cosmetics, embracing biopharmaceuticals and health and nutritional foods.

Earlier this year, L'Oréal China launched the "Big Bang Beauty Tech Startup Challenge" in collaboration with Fengxian to encourage innovations in the industry. 

(Shanghai Daily intern Ying Luyang contributed to this story.)

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