Wen 丨 Giant Tide WAVE, author 丨 Jingyu
It is hard to imagine that Perfect Diary, the number one brand of Internet beauty in China, will experience the ups and downs of the capital market in such a short period of time.
Looking back at the first day of listing in November 2020, the stock price of Perfect Diary's parent company, Yixian E-commerce, soared by 75.24%, with a market value of $12.245 billion. As the first listed beauty brand company in China, Yixian E-commerce strives to build a multi-brand beauty group through infrastructure and incubation capabilities, which is quite subversive of the industry.
As the second largest shareholder of Yixian E-commerce, Zhang Lei of Hillhouse Capital once encouraged founder Huang Jinfeng, "China will definitely have the opportunity to give birth to a new L'Oréal.". Yixian e-commerce is also expected by the market to become "L'Oréal China".
But after the stock price climbed to a high of $25.47 per share in February 2021, the stock price of Yixian E-commerce began a sharp decline pattern. As of the market closure on February 4, 2022, EST, the stock price of Yixian E-commerce was only $1.55 per share, down more than 90% from the highest point. The market capitalization is only $979 million.
Yixian e-commerce stock price performance (since listing)
As we all know, the US capital market has always had more patience and tolerance for new economic formats and new business models, and is willing to accept short-term losses and seek higher returns. Therefore, it has a special significance for the rare "bearish votes" cast by Yixian e-commerce.
Why has the attitude of capital changed towards the new domestic brand and the story of "L'Oréal China"?
Perfect Diary's model of burning money for growth has encountered a bottleneck - the marginal return of spending money to buy traffic is declining, but Perfect Diary cannot get rid of its desire for revenue growth and still needs to invest.
On the other hand, brand building is a fairly long-term process. In the case of insufficient brand potential, whether it is user repurchase or high-end, it is difficult to improve in a short period of time. In this context, capital chooses to vote with its feet and flee temporarily.
The "cold reception" of the capital market is not only aimed at the perfect diary, but also sounded the alarm for many domestic beauty brands. Obviously, it is a trillion-level large market with the strongest consumption capacity in the country, why is it in such a difficult situation? Where is the spark of the industry, and when can it return to the trend of the fire?
01, can not stop the negative cycle
After the development reached a certain stage, the model of burning money for growth of Perfect Diary gradually encountered a bottleneck.
The rise of the perfect diary is inseparable from its strong marketing capabilities.
According to the prospectus, Perfect Diary uses KOLs (opinion leaders) on a large scale on all major social platforms, working with nearly 15,000 KOLs of different profiles, including Li Jiaqi and Wei Ya, of which more than 800 have more than 1 million followers. Kol resources for in-depth cooperation are regarded as one of its core competitiveness.
Based on traffic delivery, Perfect Diary has formed a set of KOL delivery principles known as "1990" - 1% head KOL + 9% waist KOL + 90% vegetarian bloggers.
This marketing model has led to the rapid explosion of perfect diary scale, and its operating income has expanded from 600 million yuan in 2018 to 5.2 billion yuan in 2020. The "Perfect Diary" brand was born only 3 years ago, and its parent company, Yixian E-commerce, was quickly listed on the US stock market, setting an amazing speed.
Of course, the investment corresponding to the amazing speed is also amazing. From 2018 to 2020, the expenditure on sales and marketing of Yixian E-commerce was 309 million yuan, 1.251 billion yuan and 3.412 billion yuan respectively, accounting for 65.2% of the total revenue.
However, after the development reached a certain stage, the model of burning money for growth of Perfect Diary gradually encountered bottlenecks.
Inspired by the success of Perfect Diary, its traffic playing style was gradually imitated by its peers. New players such as Huaxizi, Colorkey, and HFP have all begun to work closely with KOLs, all of which want to achieve " faster brand growth " as Huang Jinfeng put it.
This leads to higher and higher traffic costs, which in turn erodes the brand's profits. Information from the popular market research platform PARKLU shows that from 2018 to 2020, the average price increase of mid-waist KOLs and head KOLs is more than 18%, and the increase in segments such as beauty is higher than average.
Even if Yixian e-commerce, under today's traffic costs, it is difficult to copy a perfect diary.
OIB.CHINA, a fashion consumer goods brand incubation platform, once said in a sharing that if you pay attention to a brand from 0 to 1, you will find that basically all brands are betting on the right channel. The process of perfect diary achieving from 0 to 1 is based on the cheap dividend of the early traffic of Little Red Book.
Now that Xiaohongshu has been established for 10 years, the early dividends have basically disappeared, and the traffic is becoming more and more expensive. Correspondingly, the return on brand delivery will also decline. 36Kr's report shows that from 2017 to 2018, perfect diary KOLs on the Xiaohongshu platform put the HIGHest ROI (return on investment) value, and then gradually declined.
But even so, forced by the pressure of growth, Yixian e-commerce still cannot stop KOL delivery.
Zhang Yi, CEO of Ai Media Consulting, said in an interview with the media that if Perfect Diary does not do marketing in the first quarter, then the revenue in the second quarter will probably be reduced by at least 25% in the first quarter; if the second quarter continues to do no marketing, the revenue in the third quarter will be cut by more than 50%, "probably accelerating the decrease in revenue to the nth power of square." ”
This makes Perfect Diary fall into a strange circle: if you reduce marketing placements, revenue is likely to decline, if you do not reduce delivery, the high cost of traffic will cause losses, and may even fall into a negative cycle of burning money and losing money.
02, DTC mode, has not yet run through
The DTC model of Yixian E-commerce has not formed a closed loop of efficient marketing and product innovation.
Looking back at the highlights of The E-commerce listing, it is difficult to combine it with the current dilemma of "more and more losses".
At that time, Yixian E-commerce was "proud" of a digital-driven DTC (Directto Customer) business model. Through KOL's social marketing, Perfect Diary can reach individual consumers online and collect the behaviors and preferences of the brand's target audience in a timely manner (that is, convert public domain traffic into private domain traffic), thus forming an efficient marketing and product innovation closed loop.
Using the infrastructure and incubation capabilities forged on the original brand, Yixian E-commerce can theoretically build a multi-category beauty group, and the capital market was once willing to pay for this vision.
But then the transcript handed over by Yixian E-commerce surprised investors - the DTC model could theoretically make Perfect Diary more understanding of consumer preferences and launch more popular and higher repurchase rate products, but the actual repurchase rate was not satisfactory.
After spending 3 months studying the community of 100 perfect diaries, Dolphin Society pointed out that the private domain community of Yixian E-commerce did not focus on operating lighthouse users and collecting needs and improving products, but used it as a shipping channel or even a tail cargo processing platform.
That is to say, this DTC model has not formed an efficient marketing and product innovation closed loop, or is still under construction. The growth of Yixian e-commerce still depends on continuous burning money promotion, and has to face the result of declining return on investment.
In the first three quarters of 2021, the sales and marketing expenses of Yixian E-commerce reached 2.927 billion yuan, an increase of 43.9% year-on-year, but the revenue only increased by 31.8% year-on-year. In the third quarter in particular, its revenue increased by only 6% year-on-year.
For a "new species", capital may not require profitability, but it must be growth- The rate of revenue growth in the single digits alone will not satisfy investors in any way.
In addition, in 2021 Double Eleven, the top position of Perfect Diary's domestic makeup brand list has also given way to the opponent Hua Xizi. According to solution consulting data, the sales of Perfect Diary Double 11 reached 602 million yuan in 2020, compared with only 291 million yuan in 2021.
03、 "Spark of Stars"
The barriers and advantages in branding and research and development established by foreign brands in the past many years are difficult to shake in a short period of time.
In recent years, domestic products are in full swing in various fields.
With China's per capita GDP exceeding 10,000 US dollars, with the continuous improvement of national pride and cultural self-confidence, the Chinese people's attention to domestic products is getting higher and higher, and the capital market is also supporting one domestic brand after another to tell the story of "domestic substitution".
However, at least in the field of beauty, domestic brands must face the fact that the barriers and advantages in branding and research and development established by foreign brands in the past few years are difficult to shake in a short period of time. Huang Jinfeng himself also recognizes that "what others have spent decades making is not something that domestic brands can win overnight." ”
The problem encountered by Perfect Diary is also a common dilemma for domestic beauty brands. That is, in addition to the marketing model, domestic brands must find the second and third trump cards.
Some analysts believe that the positioning of "big brand flat replacement" is the shackles that prevent the upward development of domestic brands.
Domestic brands that started with "big brands and low prices" can attract many new users through low-price labels in the early stage, but it is difficult to cultivate customer loyalty with such low-priced products. Once the low-price flatness solidifies into the inherent impression of consumers, it is difficult to tear off the label of low price.
Especially in the beauty industry, which generally adopts the OEM model, the homogenization of products is more common. Perfect Diary can imitate the blockbusters of big brands, and other domestic brands can imitate Perfect Diary at a lower price.
In fact, such problems are not in the minority. In July 2019, Perfect Diary set up a special intellectual property team to be responsible for intellectual property registration, layout and anti-counterfeiting rights protection.
Therefore, with the domestic brand gaining a firm foothold in the market, high-end, diversification, and making up for the shortcomings of research and development have become the focus of the next stage of development of domestic beauty brands.
As an industry leader, Yixian E-commerce is currently exploring a way to break the game. In terms of research and development, the R&D expenditure of Yixian E-commerce reached 0.99 billion yuan in the first three quarters of 2021, an increase of more than 140% year-on-year.
In addition, Yixian E-commerce has also tried to promote high-end and enter the field of skin care products through acquisitions. Following the acquisition of high-end beauty brand Galénic in 2019, Yixian E-commerce acquired The British high-end skincare brand EveLom the year before. Last year, Yixian E-commerce continued to expand, acquiring skin care brands such as DR.WU Dahl Skin (Chinese mainland business) and EANTiM Yi'an.
However, although the proportion of R&D investment is not low, there is still a lot of gap between the scale of only 0.99 billion yuan per year and foreign giants such as L'Oréal. But for Yixian e-commerce, if its future can finally be overturned, then it is likely to play a role in the "spark of stars" of 100 million yuan.
04, write at the end
2020 and 2021 may be an era of competition that has never been seen in the history of China's beauty industry.
High-priced import brands, mid-range domestic "flat replacement", and jagged imitators, fiercely compete for middle-class and above consumers with strong consumption power. In the sinking market of cities and towns, micro-businessmen are wrapped in the shrewdness, greed and sophistication of Chinese society, and the industry is plunged into chaos and noise that has never been seen before.
Excessive competition and disorderly development have finally ushered in strong supervision after overdrawing the "money path" of the industry.
On March 4, the State Food and Drug Administration issued the "Regulations on the Administration of Cosmetics Registration and Filing Data"; on April 9, the State Food and Drug Administration issued the "Specification for the Evaluation of cosmetic efficacy claims"; on May 1, the cosmetics wisdom declaration and evaluation system was officially launched; on June 3, the State Food and Drug Administration issued the "Cosmetic Label Management Measures"; on August 2, the State Administration for Market Regulation issued the "Measures for the Supervision and Administration of cosmetics Production and Operation"; on October 11, the State Food and Drug Administration issued the "On the Development of Cosmetics "Online Net Net Offline Source" Notice of Special Actions".
By the end of 2021, Zhang Ting and his wife, one of the largest "head micro-businessmen", were investigated, and the once-vigorous beauty micro-business industry suffered a heavy blow. After a year of improving various policies and regulations and rectifying the chaos in the industry, the competitive environment of the cosmetics industry has improved.
This is a great thing for domestic beauty brands that operate formally and legally, and it is also the beginning of a turnaround. Can Yixian E-commerce seize the market opportunities brought by the industry's strong supervision to brand owners? After a disappointing 2021, it may be possible to be a little more optimistic about this.