In recent years, as offline channels have gradually shrunk, e-commerce channels have become an important driving force for industry growth. With changes in channels and consumer demand, traditional beauty brands are facing the need to update their products and operational models to adapt to the times and seek performance growth.
What are the main reasons for the differentiation among traditional beauty brands during the transformation process? What are the key factors in rejuvenating traditional brands? With the recovery of offline consumption, what changes will it bring to the beauty industry? Will it impact e-commerce channels? Traditional beauty brands that have not successfully completed their transformation are still trying to open up new prospects through online transformation. Is there still a chance? What new difficulties may they face? Liu Danni, Executive Director of Frost & Sullivan Greater China, was interviewed by Bullet Finance View to discuss the future development direction of traditional beauty brands.
Bullet Finance View
During the process of rejuvenating traditional brands, there has been a clear differentiation. Some brands, such as P&L, have more efficiently updated their brands and occupied a larger market share, while brands like Mary Kay and Shanghai Cosmetics are facing difficulties in scale and profitability. What are the main reasons for the differentiation among traditional beauty brands during the transformation process and what are the key factors in rejuvenating traditional brands?
Liu Danni
Executive Director of Frost & Sullivan Greater China
In the past two decades, China's beauty industry has developed rapidly, with changes in channels, marketing, and product upgrades intertwined. Moreover, with the continuous influx of industry participants and competitors both domestically and internationally, competition has become fierce. Additionally, traditional brands have been impacted by foreign big brands and emerging brands. During the transformation process of traditional brands, many brands failed to seize new opportunities and keep up with the times, relying solely on high marketing investment rather than continuous product research and development to occupy the market, ultimately falling into many difficulties during the transformation process.
The key factors in rejuvenating traditional brands mainly include the following three:
1) Continuously developing innovative products:The Chinese cosmetics industry has moved from channel-driven and marketing-driven to product-driven. Traditional brands must continuously develop new products to remain youthful during the transformation process. Nowadays, most local brands have stable sales and growth through online, offline, or WeChat business channels, accumulating a certain amount of capital strength. They are gradually entering the stage of establishing their own R&D teams/laboratories/own factories, or further increasing R&D investment, thereby continuously developing new products to occupy the market.
2) Continuously innovating product appearance:Today, the younger generation, especially Generation Z, plays an important role in consumer markets such as beauty. For them, appearance is justice, and they are willing to pursue things related to high appearance. This has also made the "appearance economy" popular among the young generation in the new era, with many high-profile beauty products being sought after. Therefore, some traditional beauty brands might as well be more creative in product appearance updates, bringing a different visual experience to the young consumer group.
3) Empowering with technology:Technology is changing people's consumption patterns and behaviors. Traditional beauty brands can also seize this key point of technological innovation, using technology to empower transformation, continuously providing consumers with a more "intelligent" beauty experience, so as to gain more consumer favor during the transformation process. For example, at the 3rd Import Expo, Estée Lauder Group launched two major black technologies: an expert-level skin diagnostic instrument and an Aveda professional scalp hair quality detector; at the same time, the group's makeup brand M&M's launched a 3D technology customization service; the group's Clinique also demonstrated its intelligent skin diagnostic system.
With the optimization of epidemic control, offline channels will gradually release new vitality. In 2023, with the recovery of offline consumption, what changes will it bring to the beauty industry? Will it impact e-commerce channels?
In 2023, with the recovery of offline consumption, it mainly brings two aspects of changes to the beauty industry:
The first development direction is: offline beauty stores are committed to expanding new marketing methods to attract more consumer groups.
In the post-pandemic era, the operation of offline stores will gradually recover, and the competition for traffic among online brands is becoming increasingly fierce. Against this backdrop, many beauty brands are expanding new marketing methods through offline stores to attract more consumer groups. Only by visiting the store offline can consumers experience "five senses and six perceptions," which is currently an experience that cannot be replaced by online shopping. For example, in December 2022, the first global flagship store “Unbounded Red Pavilion” opened by Amore Beauty at the Shenzhen Zhuoyue Center attracted many consumers to check it out through the store inspired by art, technology, modernity, and nature, as well as the constantly changing digital exterior walls outside the flagship store.
The second development direction is: more and more beauty brands are opening stores in important business districts to enhance their image.
In the future, more beauty brands will open stores in important business districts such as the core business districts of first- and second-tier cities, which is also a reflection of the brand's high-end image. Especially some trendy beauty brands that have developed online need to demonstrate the diversification of their brands through high-end transformation to enhance their overall competitiveness.
New trendy beauty brands that started online have always been labeled as offering discounts and low prices. If these brands can open stores in city center business districts like Shanghai's O'Reilly Department Store and Beijing's Sanlitun, they can not only prove their strength and status in the beauty industry but also facilitate high-end transformation for the brand in the future.
The recovery of offline consumption may cause a temporary impact on e-commerce channels,but in the long run, the important position of e-commerce channels will not be shaken.According to data from the National Bureau of Statistics, in 2022, the national online retail sales reached 1,3785.3 billion yuan, a year-on-year increase of 4%. Among them, the online retail sales of physical goods reached 1,1964.2 billion yuan, a year-on-year increase of 6.2%, accounting for 27.2% of the total social consumer goods retail sales, setting a new historical high and an increase of 2.7% compared with the previous year. In the future, the penetration rate of e-commerce in total social retail consumption will continue to rise, expected to approach 30% in 2023.
With the disappearance of e-commerce dividends, brands are increasingly aware of the importance of relying on their own efforts to obtain internal traffic growth. Getting rid of over-reliance on top platforms has become a common problem faced by beauty enterprises. In this process, will there be a new round of differentiation? In your opinion, are there any specific signs or indicators?
In the long run, for a brand to achieve greater success, it still needs to be self-reliant and strong.If a brand is overly dependent on the dividends of a certain top platform, it is doomed not to go far. Therefore, instead of being exhausted chasing dividends, it is better to cultivate internal strength and truly let products generate word-of-mouth and bring their own traffic.
Today, many beauty brands have already realized this problem and are constantly improving product word-of-mouth. For example, the carved lipstick of the beauty brand Hua Xi Zi has broken the traditional lipstick style, integrating Eastern craftsmanship into cosmetics to form a unique perception, allowing consumers to experience its product characteristics and quickly remember it, thus forming a good word-of-mouth among consumers.
In this new background, traditional beauty brands that have not successfully completed their transformation are still trying to open up new prospects through online transformation. Is there still a chance? What new difficulties may they face?
Currently, the cost of competing for traffic online is getting higher and higher, with live streaming seat fees rising, but the average order price is getting lower and lower, thus cutting into the brand's profits. With the increasingly fierce competition among various online live streaming platforms, in this price competition environment, the quality and personality of online operations are often easily overlooked.
In this context, for some traditional beauty brands that have not successfully transformed, it cannot be simply assumed that opening an online store or hiring a KOL for live streaming can complete online transformation. Instead, it is necessary to quickly provide consumers with more efficient and personalized services through online channels.
For example, the beauty brand Perfect Diary has created a brand character “Xiao Wanzi” and provides various services for consumers by adding their WeChat accounts and establishing WeChat groups. Having a character IP that consumers generally trust makes online service more efficient and faster. In addition, some beauty brands even set up online skin testing services to provide consumers with faster personalized customization services.
*This interview was published in Bullet Finance View, with reporter Hu Fangjie. The original title was 'Three Changes of Management and Ten Years of Decline: What Did Shanghai Cosmetics Do Wrong?' (Click on 'Read Full Article' at the end of the article to read the complete report).
