How Niche Beauty Brands Can Attract Investment from China | China Decoded, BoF Professional


Last week, Eve Lom, a London-based beauty brand that forged a cult-like following for its botanical cleansing balm, was acquired by Chinese beauty giant Yatsen Global for an undisclosed amount.

Yatsen, the parent company of C-Beauty juggernaut Perfect Diary is flush with cash, after raising $617 million in an initial public offering on the New York Stock Exchange in November last year. Its market cap recently hit $12.4 billion.

The firm has made its desire to build a portfolio of brands clear. Not only did it outline a plan in its IPO prospectus, it also acquired French skin care brand Galénic in October 2020.

But Yatsen isn’t the only Chinese investor on a shopping spree in Europe.

“I had the opportunity to interview all these up-and-coming, recently founded brands with great founders and I saw that there is an opportunity here to invest. This was my logic,” said Feng Chuxuan, founder and chief executive of Huasheng Media.

Huasheng Media is best known as the publisher of Chinese editions of T:The New York Times Style Magazine, Wallpaper and Kinfolk, but since late 2017, the company has branched out by investing in some of the same independent, niche brands its publications write about.

A store employee applying foundation in a Laneige boutique. Getty Images.

Its beauty related investments include a stake in Ormaie, the all-natural Parisian perfume label founded in 2018 by mother-and-son duo, Marie-Lise Jonak and Baptiste Bouygues. “A lot of investment companies are researching algorithms, but I love seeing the opportunity to invest in small brands with low cost and lots of room to grow,” Feng said.

Another Chinese player that has recently been topping up its coffers to invest in more niche beauty players is omnichannel brand partner Ushopal, which announced the close of a $100 million round of funding earlier this week.

The group, which has been working with high-end beauty brands on China market entry and brand building, has already invested in several of its brand partners, including Spanish spa brand Natura Bissé and Juliette Has a Gun — the perfume label helmed by Nina Ricci’s great-grandson Romano.

Ushopal works closely with international brands on e-commerce operations, social media management, KOL (Key Opinion Leader, as influencers are known in China) relationships, and offline distribution, through its own chain of offline stores Bonnie & Clyde as well as other offline partners.

“After a few years of working with brands in this way we realised we could help them grow beyond just selling products [so] in 2019 and 2020 we started investing in more brands, becoming shareholders at headquarters level,” explained William Lau, vice president of brands at Ushopal and chief executive of Bonnie & Clyde.

What’s driving this investment rush?

Money is flowing into these international niche beauty brands quite simply because Chinese consumers are increasingly interested in gaining access to them.

China is already the world’s second-largest beauty market. In 2019, sales of cosmetic products in China reached 425.6 billion yuan ($65.32 billion) and are tipped to reach 455.3 billion yuan ($69.87 billion) this year, according to Statista data.

The market’s scale and growth trajectory has been great for the world’s beauty giants, who have long had a foothold in the Chinese market and are doing an excellent post-pandemic trade here.

Last month, L’Oréal chairman and chief executive, Jean-Paul Agon, cited “spectacular” growth in China as key to the group’s strong fourth-quarter performance. Also in February, Estée Lauder pointed to China’s strong sales as a reason for the group’s earlier-than-anticipated return to growth in its second quarter, ending December 31.

[China’s beauty sector is like] high stakes poker… This is a big boys’ game.

But a new generation of Chinese beauty consumers are demanding more than just household names.

“Young women and men are experimenting with niche brands in order to express themselves,” said Tracy Zhang, director of fashion and beauty at luxury intelligence firm, Gusto Luxe.

“Before Covid-19, they could travel around and they would go and research and discover new brands [overseas] and when they come back, they still pay attention to these brands and want to have access to them in China too,” she added.

To fuel this demand for consumers wanting more access without the ability to travel outside the country last year, Tmall Global, Alibaba’s cross-border platform, added 1,000 new beauty brands to its roster. In April, it announced its intention to help support these brands to each surpass 10 million yuan ($1.54 million) in annual revenues in the China market.

But, in a hugely competitive market where thousands of new brands become available each year, standing out from the crowd becomes almost impossible for small players — unless they have a war chest of tens of millions of dollars, or a foundation of dozens of staff members, or at least local knowledge of the China’s unique digital and retail infrastructure and its social and cultural context.

This explains why China’s beauty sector is like “high stakes poker,” says Julian Reis, the founder and chief executive of beauty and wellness consultancy SuperOrdinary, which has brought brands including Drunk Elephant, The Ordinary, Supergoop into the market.

“This is a big boys’ game,” he said. “You can’t just launch a brand on Tmall and hope you get traffic…We spend a lot of time talking to brands about how expensive it is to undertake activities that are required for you to successfully launch your brand.”

This is one of the reasons Chinese investment is such an attractive prospect for many niche international beauty brands. Local investors offer the necessary capital to enter the market and scale, and they can also offer the added value of local knowledge and relationships.

“Eve Lom might be a niche brand in the China market, but now everyone knows it’s the brand that Perfect Diary’s parent company invested in,” explained Chen Ye, a research analyst at market intelligence firm, ChemLinked.

Perfect Diary eyeshadow palettes. Courtesy.

Perfect Diary eyeshadow palettes. Courtesy.

This gives Eve Lom an immediate leg-up when it comes to exposure. Even more valuable in the long run, however, might be access to Yatsen’s famed private traffic operations, which reach millions of engaged consumers.

“Perfect Diary operates thousands of WeChat groups and now Eve Lom can also be marketed to these loyal fans,” Chen said. “It must give Eve Lom a huge competitive advantage over other niche beauty brands who don’t have the same kind of help from a Chinese company.”

For Lau, the advantages Ushopal has been able to offer the companies it invested in are evident in their impressive growth.

“When we started working with Juliette Has a Gun in June of 2019, the brand only had 20 posts on Xiaohongshu and there were no parallel sellers on Taobao,” he said. “In a little over 12 months, we grew the brand to being top three in the entire fragrance category for the Double 11 [shopping festival on Tmall] last year, surpassing 70 million yuan ($10.75 million) in [gross merchandise volume annually in] 2020.”

Natura Bissé , meanwhile, has seen its China sales grow 1000 percent since receiving investment from Ushopal in 2018, according to figures supplied by the group.

Feng Chuxuan maintains that his deep expertise in the mainland market can also offer Huasheng’s investment partners more than just a capital injection.

“I can also continue to give them advice about the China market; I can help with media resources when they come into the China market, including the access to celebrities, including headlines on WeChat and advertisements, online and offline activities. This is how we can help,” he said.

What are Chinese investors looking for?

Most of the beneficiaries of investment from Chinese companies fall into some pretty obvious categories — namely, premium skin care and fragrance.

Consumers have more faith in international skin care brands.

This reflects areas of major growth for international brands more generally in the China market, as C-Beauty brands account for a higher proportion of colour cosmetics sales (almost 50 percent of the market, according to Kantar research). Local brands haven’t made the same headway, however, when it comes to curing local consumers of their preference for international skin care brands.

“In the Chinese market, the makeup and skin care sectors are different. Consumers don’t have a great passion for high-end makeup products [so] affordable makeup brands are [considered] suitable for daily life,” Chen said, adding that in the skin care sector, high-end international skin care brands like Estée Lauder, Lancôme, La Mer and La Prairie dominate.

“Consumers have more faith in international skin care brands and high-end skin care brands…,” she said. For domestic Chinese players that want to enter the skin care sector, especially at the high-end, acquisitions of international brands are a good way for them to do that.”

Fragrance is another sector in which local players, with a few exceptions, haven’t yet capitalised in booming interest from younger, post-90s and post-00s consumers, leaving the door open for more foreign brands to fill the void.

The other thing that brands attracting Chinese investment share is a good story. As Tracy Zhang points out, key to success in China is feeding the beast of China’s relentless daily cycle of social media over a plethora of platforms, each of which requires different formats and tones. If a brand has an interesting story — whether it’s about its founder, its heritage, its ingredients, its hero products, or all of the above — that can form the basis of engaging content.

For Lau, the idea of heritage is also important, but it doesn’t necessarily have to be 100 years of history. Rather, it’s a case of “the brand [being] mature [in terms of being] on the market for a period of time and… the way its story is being told.”

The next important factor, he says, is proprietary formulas. Advanced formulations are at the heart of brands such as Eve Lom, Natura Bissé and Galénic and help to give them an edge with Chinese consumers, who relentlessly research every advance and innovation in skin care efficacy.

A compelling country-of-origin association can also help make a foreign brand attractive to Chinese investors. Geoskincare is a natural skin care brand founded by a dermatologist Penny Vergeest in New Zealand in 2000 and acquired by Chinese businessman Liu Xiaokun (also known as Aaron Liu) in 2014.

When asked to describe his brand in a few words for an interview published on trade show Cosmoprof’s website, Liu says simply: “Natural, new-tech and New Zealand.” Its credentials, in terms of being “natural” are bolstered by coming from New Zealand and continuing to source products there, a country widely associated in Chinese consumers’ minds with a pristine environment.

Both Lau and Feng also emphasised the important role founders play when each of their companies decides whether or not to make an investment.

“When we have the founders on board and their visions for the brand are still being pushed through products, to copy and packaging, this ensures the brand is consistent everywhere and over every consumer touchpoint,” Lau said. “Then of course, the most important part is that the brands are growing abroad and catching a level of awareness in China.”

For Feng, the formula is even simpler. “[Naturally], these brands need to have the product quality, the materials and the packaging, but it’s the founders that really attract me,” he said. “If I like you, I will invest in you.”

时尚与美容

FASHION & BEAUTY

Fendi leather purses on display at a store in Paris. Shutterstock.

Fendi leather purses on display at a store in Paris. Shutterstock.

Fendi Wins Chinese Court Judgement Against ‘Fake’ Stores

A court in Shanghai ruled in a retrial that Fendi should be compensated by Capital Outlets Commercial Development and Shanghai Yilang International Trade for trademark infringement and illicit competition. This legal case began back in 2016, when Fendi discovered Capital Outlets and Shanghai Yilang International Trade were selling grey market Fendi goods they had parallel-imported into China from France out of stores with Fendi signage and packaging, which Fendi said misled consumers into believing they were buying directly from a brand-run outlet. In 2018, the Shanghai Higher People’s Court found in favour of Fendi, agreeing that the use of the Fendi signage on stores and packaging was misleading to consumers. The court ordered Capital Outlets Commercial Development and Shanghai Yilang International Trade to pay 350,000 yuan ($54,000) in compensation. (BoF)

Alibaba’s Former CEO Bets $15.4 Million on ‘the Shein of Swimwear’

Following in the lucrative footsteps of ultra-fast fashion cross-border player Shein, another online only, Nanjing-based cross-border brand is attracting investment. Cupshe, a direct-to-consumer swimwear label that manufactures low-cost garments in China, but generates the bulk of its sales via its own website, as well as Amazon, to Western consumers, received a 100 million yuan ($15.4 million) investment from Vision Knight Capital. Vision Knight Capital was co-founded by Wei Zhe (also known as Daniel Wei), a former CEO of Alibaba. Cupshe, which was founded in 2015, sells swimwear priced between $14 and 42 to consumers in Western markets, mainly Europe and North America. (BoF)

Hedi Slimane Solo Exhibition Coming to Shanghai

Celine creative director, Hedi Slimane, will hold the first solo exhibition of his work as a multi-disciplinary artist in six years this month in Shanghai. The “Sun of Sound” show, which runs from March 19 to April 30 at Shanghai’s Almine Rech gallery, also marks the first time Slimane has a solo show of his artworks in China. At the heart the show will be the ‘Sonic’ series, in which Slimane created studio portraits of musicians such as Lou Reed, Keith Richards, Brian Wilson and Amy Winehouse. The exhibition will also feature an immersive sound installation. (BoF)

Aesop and The Body Shop Making China Market Moves

Just days after Chinese authorities officially dropped a requirement for most imported cosmetic products to be tested on animals before being sold in China, cruelty free beauty leaders are moving quickly to formally enter the world’s second-largest beauty market. According to Natura & Co. chairman, Roberto Marques, two of its high-profile cruelty-free brands will complete their product registration in China in the first half of 2021. Aesop is expected to be the first to open its first store in Shanghai in the fourth quarter of 2021, and The Body Shop’s first store in China is scheduled to open in 2022. “Although it is too early to mention the development of the Chinese market, we are committed to entering the Chinese market with a strong momentum, especially the two brands Aesop and The Body Shop,” Marques told analysts during a recent earnings call. (BoF)

科技与创新

TECH & INNOVATION

L’Oréal's Mr Ou, a virtual idol introduced in China this week. L’Oréal

L’Oréal’s Mr Ou, a virtual idol introduced in China this week. L’Oréal

L’Oréal Unveils First Virtual Idol in China

L’Oréal Group announced on March 4 its first-ever virtual idol, an anime-style two-dimensional character named Mr Ou. The idol, who is described as being a 24-year-old, Chinese-French entrepreneur who cares for the environment and works within the beauty industry, will be tapped to contribute content on L’Oréal’s social media channels related to beauty trends, ingredients, sustainability initiatives, as well as interviews with influencers (know as Key Opinion Leaders, or KOLs in China) and celebrities. The virtual idol industry in China has exploded in recent years. According to a 2019 report on virtual idols released by Chinese streaming giant iQiyi, 64 percent of people aged 14 to 24 were followers of virtual idols and last year, on Bilibili, there was a 225 percent year-on-year increase in the monthly average viewing time of virtual idol livestreams. (BoF)

Chinese Q&A Platform Zhihu Files for $100 million US IPO

Zhihu, a Chinese question-and-answer platform, has filed with the SEC to raise up to $100 million in an initial public offering. Often compared with Quora, Zhihu is the largest Q&A-inspired online community and one of the top five online content communities in China, both in terms of average mobile monthly annual users (MAUs) and revenue in 2020. As of December 31, the company had 43.1 million cumulative content creators, and it had 75.7 million average MAUs in the fourth quarter of 2020. The Beijing, China-based company was founded in 2010 and booked $209 million in revenue for the 12 months ended December 31. No pricing terms were disclosed. (Renaissance Capital)

消费与零售

CONSUMER & RETAIL

Gap store in Shanghai, China. Shutterstock.

Gap store in Shanghai, China. Shutterstock.

Gap Weighs Sale of China Business as Sales Lag Behind

Gap Inc. is weighing options including a potential sale for its China business, according to people with knowledge of the matter, as the US clothing retailer looks to revamp the operation in the world’s second-largest economy. Deliberations are at an early stage and the company could decide to keep the operation, the people said. A representative for Gap declined to comment. The San Francisco-based firm, which owns Banana Republic and its namesake Gap brands, entered China in 2010. Apart from its brick-and-mortar stores, Gap’s products are also available on Alibaba’s Tmall platform. Gap last year pulled its Old Navy brand out of China after scrapping a plan to list the brand as a standalone public company. (Bloomberg)

Sales Surge 81% at China’s K11 Malls So Far This Year

Since January 2021, K11 mall properties in Hong Kong and mainland China have delivered a “strong” performance with cumulative sales surging 81 percent in the year-to-date, compared with the same period last year, according to data in interim results shared with analysts by Hong Kong-based New World Development. In the first half of the fiscal year ending on December 31, 2020, Shanghai’s K11 was among the best-performing, with a sales growth rate of 37 percent, hitting highs unseen since its opening in 2013. Even in Hong Kong, where New World’s flagship Hong Kong property, K11 Musea, was temporarily forced to close recently, after a Covid-19 outbreak was linked to one of its restaurants, re-opening was greeted by large crowds and long lines. Shoppers were lured back into store with vouchers that offered HKD 500 ($64.40) back when HKD 1,000 ($128.80) was spent on categories such as beauty. (BoF)

Dolce & Gabbana Re-Jigging China Retail Assortment

The Italian luxury brand has closed stores in Chengdu IFS, Shanghai IAPM Plaza and Nanning Mixc Mall, with new locations in Chengdu IFS and Shanghai IAPM due to re-open in the second quarter of this year. In the wake of D&G’s controversial #DGLovesChina marketing campaign in 2018 and ensuing fallout that resulted in a wider boycott of the brand among consumers and influencers, the brand has made a series of personnel and strategic changes in an attempt to revive sales in the Chinese market. Stefano Gabbana and Domenico Dolce reportedly visited China in 2019 to visit learn about Chinese culture. In the same year, D&G participated in the Chinese International Import Expo and promised to continue to participate actively over the next three years. (BoF)

政治,经济与社会

POLITICS, ECONOMY, SOCIETY

Busy shopping street in Shanghai, China. Shutterstock.

Busy shopping street in Shanghai, China. Shutterstock.

China Targets 6% Growth in 2021

China is targeting at least 6 percent growth this year, reflecting the government’s confidence in the wake of its successful containment of the coronavirus pandemic in the world’s second-largest economy. Premier Li Keqiang unveiled the goal at the National People’s Congress, the annual meeting of the country’s rubber-stamp parliament in Beijing. “The Chinese economy should very easily coast to the target growth rate,” said Jeremy Stevens, chief China economist at Standard Bank. “Eight per cent is more plausible.” (The Financial Times)

China Launches Digital ‘Vaccine Passport’

China has launched a digital “vaccine passport” to help citizens cross borders and make domestic travel more streamlined as coronavirus inoculation programmes around the world and at home gather pace. The electronic document takes the form of a mini-programme in WeChat, displaying an individual’s Covid-19 test results and vaccination status, as well as the type of shot they received. It includes an encrypted QR code that can be scanned for verification in participating countries, Chinese officials said. (Caixin)

Liu Wen Becomes First Asian Model to Get Her Own Barbie

Barbie released a brand new doll featuring Liu Wen in the seafoam green Zac Posen gown she stepped out in for the Met Gala back in 2014. The doll is part of Mattel’s Shero collection of Barbies and makes Liu Wen the first Asian model to have her own likeness immortalised in the form of a Barbie doll. In the past decade, Mattel has been making a more overt effort to embrace diversity and inclusivity. (Drama Panda)



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