Looking back at the cosmetics industry in 2023, the two words change permeate it.

In this year, total retail sales in the Chinese cosmetics market reached a new high, and the market share of domestic cosmetics surpassed that of overseas brands for the first time. According to the “2023 China Cosmetics Yearbook” data, domestic cosmetics market share reached 50.4% in 2023.

However, it is not difficult to find its “shadow side”. Total cosmetics retail growth has slowed down and basic implementation has been implemented, the performance of some leading Chinese cosmetics companies is under pressure, and domestic cosmetics are now in a wave of bankruptcy...

Moreover, Shanghai Jiahua, which has been leading the industry for a long time, is “actively decelerating” to a certain extent, betting on strategic transformation.

These contrasts all reveal profound changes in the logic of the cosmetics industry, and companies can only move forward steadily in a new long-term cycle by embracing change.

In terms of embracing change, Shanghai Jiahua, which has maintained its attitude of seeking change after 100 years, is still one of the best models in the industry. Now, we might as well re-interpret Shanghai Jiahua's performance and future potential from a strategic perspective.

01

Short-term “danger” = long-term opportunity

Referring to historical experience, most excellent companies are strategy-driven rather than completely driven by business numbers. Although strategic transformation may put pressure on performance in the short term, in the long run, it can often bring significant performance improvements and competitive advantages to enterprises.

In this sense, it is more important to understand the corporate strategy and use financial reports to verify the progress of the core strategy.

In the second half of 2023, Shanghai Jiahua decided on a strategy to gradually focus on categories with high gross profit, high growth rate, and high brand premium.

At the same time, following the strategic transformation, Shanghai Jiahua carried out organizational structure reforms at the end of 2023, switching from the original functional system to a division system, and established a beauty and skincare division, a personal care and home cleaning division, and an overseas division. Shanghai Jiahua also simultaneously optimized the talent echelon to gather professional and young talents through external introduction and internal training.

Judging from this, Shanghai Jiahua is more determined to pursue high-quality development, including focusing on “profitable growth”. It may increase investment in skincare categories and actively abandon or adjust and upgrade category businesses with low gross profit, low profit, and low brand premiums. Furthermore, Shanghai Jiahua is determined to pave the way for this strategy. The division system uses category as the main body of decision making, which is expected to fundamentally resolve the conflict between brands being isolated from channels and rivalry between online and offline channels in the past, creating business collaboration, and speeding up closed-loop category decision-making and market response.

Looking at Shanghai Jiahua's 2023 financial report, the revenue side was under pressure, and the profit side still achieved a steady upward trend, and the overall performance was in line with the strategy.

In 2023, Shanghai Jiahua achieved total revenue of 6.598 billion yuan, down 7.16% year on year; net profit to mother was 500 million yuan, up 5.93% year on year, and net profit from its business in China increased by about 75% year on year; gross margin was 58.97%, up 1.85 percentage points year on year.

Meanwhile, the decline in Shanghai Jiahua's accounts receivable (11.46%) was faster than the decline in revenue, and the decline in inventory (13.26%) was faster than the decline in sales (13.23%), reflecting the possibility of an “active deceleration.”

Furthermore, judging from categories and channels, Shanghai Jiahua has all experienced positive marginal changes. In particular, the fourth quarter's performance was impressive.

1. The proportion of skincare categories increased, and the US and Canada broke the circle

In 2023, Shanghai Jiahua's skincare category revenue scale and revenue share increased, accounting for 30% of annual revenue. Among them, the skincare category accounted for 47% of revenue in the fourth quarter.

In December, Baicaoji officially announced that Tan Kenji became a global brand ambassador, achieving a win-win situation in sales and exposure. During this period, Tmall and Douyin GMV explosion factors were 28 times and 23 times, respectively. The proportion of new customer transactions in all Tmall and Douyin stores reached 86% and 93% respectively, and the cumulative number of views on popular Weibo topics reached 280 million.

In terms of personal care, the Meijiajing brand took the lead in revitalizing new opportunities, and the brand's business revenue rose rapidly in the fourth quarter.

Behind this, the Personal Care and Home Care Division efficiently collaborated with various parties to respond quickly when the wave of domestic goods began, so that the Meijiajing brand successfully launched within 1 day (no Douyin live broadcast before), creating a popular “old BABY heaven group” and revitalizing brand assets in multiple ways.

2. Improved channel matching and improved profit in e-commerce interests

In terms of channel layout, Shanghai Jiahua is also progressing actively, making it more in line with the needs of the “top three” categories.

On the one hand, Shanghai Jiahua has taken the initiative to reduce social inventory in the department store channel, shrink low-margin agency business, and shrink traditional CS business. On the other hand, Shanghai Jiahua's multi-platform layout has achieved over 100% year-on-year growth in interested e-commerce channels. Among them, Baicaoji's GMV on the Tmall platform and Yuze's GMV on the Douyin platform has increased significantly, and its market share has increased; it continues to promote online offline business and implement an omnichannel layout, accounting for nearly 30% of the new retail business in offline channels.

It is also worth noting that Pan Qiusheng, chairman and CEO of Shanghai Jiahua, said in an interview that Shanghai Jiahua's e-commerce interest business showed an improvement in profits in the second half of the year.

This means that Shanghai Jiahua has broken through the challenge that interested e-commerce is difficult to make a profit, and has a better chance of achieving continuous and rapid growth in this channel. With the stabilization of this channel, it is also expected to revitalize the “one game of chess”, speed up the adjustment of the channel structure, and move Shanghai Jiahua to a higher “profit zone” faster.

In summary, under pressure on performance, Shanghai Jiahua's strategic transformation has begun to bear fruit, reshaping confidence and expectations for long-term development.

02

Promote the implementation of the strategy “layer by layer”

Recently, Shanghai Jiahua's strategic implementation question also has a more clear answer.

At the 2024 press conference of “Zhimei · Zhi Sheng”, Pan Qiusheng appeared with the company's R&D department heads, business department heads and related business leaders to announce the “Five Key Tasks”: innovation-driven, brand reshaping, channel advancement, value creation, and overseas expansion.

Overall, each of these five major sectors has rich strategic focus points, and there are close links between sectors, such as the “pyramid” model: bottom layer (innovation driven) + middle layer (brand remodeling, channel advancement) + top level (value creation, overseas expansion).

As long as we stick to the innovation drive and strengthen the construction of the middle class, the value drive is actually a matter of course, and overseas expansion will also have stronger support.

The following is a detailed disassembly around the “three layers”.

1. The bottom layer: support strategy

Innovation drive refers to insight-driven R&D, and innovation-driven product iteration, so as to achieve a full chain of innovation-driven innovation. Behind this, Shanghai Jiahua will build a moat for R&D from the three dimensions of basic research, application innovation, and value shaping, and create new products with more explosive potential.

Looking further, scientific and technological innovation is one of the highlights.

On the one hand, it is reflected in the improvement of product technology. In 2023, Shanghai Jiahua accelerated the establishment and transformation of technological advantages. For example, Baicaoji upgraded the Anti-Aging series, Yuze first accurately designed and developed oil sensitive creams and dry creams for people with oil/dry skin, and consolidated the R&D foundation for 2024.

On the other hand, it is reflected in technology empowering the entire R&D chain. Shanghai Jiahua actively explores “AI+ beauty”, including “AI+ ingredients”, “AI+ appearance”, etc., while also laying out two major systems, “digital intelligence fragrance creation” and “digital intelligence fragrance evaluation”, and joined hands with Kuangshi Technology to explore AI customized skin care.

In fact, it is easy to find that Shanghai Jiahua's innovation drive involves everything from technological components, design to consumer experience, and supports the other sectors and even the entire strategy mentioned above. For example, on the brand side, it brings professional, high-end, and experiential support to the brand.

2. Middle Level: “Closer” Strategy

In terms of brand reshaping, Shanghai Jiahua plans to concentrate resources to create explosive products, improve brand marketing efficiency, promote beauty and skincare brands to advance to “specialization, high-end, and experiential”, and personal care brands to “younger, more seasonal, and specialized”.

Advanced channel dimensions. On the basis of organizational structure adjustments, Shanghai Jiahua will push the beauty and baby category to further break through interested e-commerce, grasp this high-growth channel, and at the same time strengthen refined operations; the personal care category will take a two-pronged approach through offline efficiency improvement and online acceleration.

Overall, in 2024, Shanghai Jiahua's brand positioning is more clear, and the channel structure will further match the needs of the “Three High” categories and make every effort to “move closer” to the new strategy. At the same time, brands and channels also have a symbiotic and co-prosperous relationship.

For example, in terms of brand marketing efficiency, the successful experience of Meijiajing provides a sample that can be replicated and promoted, that is, content-driven to acquire new customers at a relatively low cost. Looking ahead to 2024, if Shanghai Jiahua can make a breakthrough in content-driven technology and improve brand marketing efficiency, it is also expected to achieve greater results in interested e-commerce.

3. Top level: greater value

In terms of value creation, Shanghai Jiahua pursues a win-win situation for the company, customers and consumers.

Simply put, “the company can profit” by increasing gross profit, improving marketing efficiency, etc.; “Customers can earn money” through channel collaboration and price control; and “consumers can earn money” through service, experience, and cost performance. However, the premise of increasing gross profit is realized in dimensions such as innovation-driven, brand reshaping, and channel advancement. As Shanghai Jiahua consolidates the “bottom layer” + “middle level,” value creation will naturally come to fruition.

In terms of overseas expansion, Shanghai Jiahua proposed a “2B+2C” two-wheel drive business model. Under this model, the 2B business focuses on explosives in personal care, selects high-potential, and quickly starts up through the dealer and agent model; the 2C business focuses on high-margin beauty products, selects high-potential key markets, and establishes a brand mentality through marketing explosives, and 2B and 2C form a double cycle.

Among them, the 2B business started in the first quarter of 2024 and paid off quickly.

2B's business focuses on the high-profile Liushen flower lotion and body wash in the personal care sector, selecting high-growth, large-scale personal care markets such as North America, Southeast Asia, and the Middle East and North Africa, as well as immediate demand regions with a large Chinese base and high temperatures. It has now entered 5 continents and 11 countries and regions, and has achieved strong growth. Next, this business will focus on the African and Southeast Asian markets.

Looking at the long term, the market side and policy side have brought a strong impetus to Chinese beauty companies going overseas, and this trend is expected to continue to be prominent. As Shanghai Jiahua passes through the “2B+2C” model, it may reverse the decline in overseas business and even form a second growth curve.

It's also about a dream.

Shanghai Jiahua's corporate vision is to bring Chinese beauty to the world one day.

At this level, the strategic potential is even higher, and the value ceiling of Shanghai Jiahua has further increased. At the same time, value is no longer limited to performance; it is a value. It has a sense of responsibility for customers and consumers, and the courage to take responsibility as a domestic brand.

03

Epilogue

Just like the theme “Towards the Era” revealed at Shanghai Jiahua's 2024 press conference, the current era is creating surging waves in the cosmetics market with its strong momentum. Predictably, 2023 is just the beginning, and the cosmetics industry will surely experience a deeper reshaping.

Also, this might be a better time for businesses that are brave enough to embrace change.

As the cosmetics market pattern changes, the addition of cutting-edge technology such as AI and the opening up of overseas markets may bring opportunities for nonlinear growth for such companies.

Embracing change means not only having sharp insight and forward-looking strategic thinking, but also having a flexible organizational structure and efficient execution. As far as Shanghai Jiahua is concerned, it has always maintained its attitude of seeking change and has gradually made up for “shortcomings” in terms of ability. This is probably what it really pursues after taking the initiative to slow down.

It can be said that today's Shanghai Jiahua still has potential, and may even have more potential than before. It has already embarked on the path of chasing the world's dreams. (End of full text)