One of the resumption and prospects of the beauty and fashion industry: the beauty giant set up an investment company in China for the first time

Economic Observation Network Reporter Xie Chuchu Decades into the Chinese market, beauty giants set up investment companies in China for the first time, all for the ultimate goal: to seize more local market share.

In May 2022, L'Oréal and Shiseido successively announced the establishment of investment companies in China, planning to invest in local scientific and technological innovation and start-ups in China. In August this year, Shiseido invested in the local collagen company "Neo-Health Medical" and entered the collagen track. In less than a month, L'Oréal China's investment company also invested the first one: China's local perfume brand "Wen Xian".

In order to cope with the more rapidly changing and complex Chinese market, the investment logic of beauty giants in China is undergoing profound changes.

From acquisition to venture capital

At the end of the 90s of last century, L'Oréal Group officially entered the Chinese market with brands such as L'Oréal Paris, Lancôme, Maybelline and other brands, and began to acquire Chinese brands at the beginning of the 20th century.

In 2003, L'Oréal acquired the first local Chinese brand "Little Nurse". The following year, in order to increase its market share in China, L'Oréal acquired Yuesai, a skincare brand specializing in traditional Chinese medicine. In 2014, L'Oréal entered the face mask field by wholly-owning the mask brand "Meiji" for nearly 5.5 billion yuan.

After buying, buying, buying, buying From 2019 to 2021, L'Oréal completed its investment in Cathay Fund and Gaorong Capital's funds as LP (limited partner).

Unlike L'Oréal's investment path, Shiseido initially adopted an incubation approach. In 2019, Shiseido set up the China Business Innovation Investment Office to explore a strategic path to deeply participate in local innovation. In early 2020, Shiseido opened its first co-working space in Shanghai, the Shiseido Zhimei Innovation Center, connecting consumers, entrepreneurs, industry insight experts, and startups.

In 2022, both parties have the same identity: establish an investment company and directly invest in Chinese start-ups and potential enterprises. On May 8, 2022, L'Oréal announced the establishment of its first investment company, Shanghai Meifang Investment Co., Ltd., in the Chinese market, followed by Shiseido on May 10, 2022, and Shiseido announced the establishment of Xiamen Ziyue Equity Investment Partnership (Limited Partnership).

Judging from the investment projects that have occurred so far, the directions of the two sides are different. L'Oréal's first investment was the local perfume brand "Wen Xian"; Shiseido invested in the collagen company Surgeon Medical.

Previously, L'Oréal said that the newly established investment companies focus on three types of investment objects, namely beauty start-up brands, beauty breakthrough technology projects and enterprises with potential in beauty new technology services. Shiseido focuses on emerging brands in frontier markets such as beauty and health and upstream and downstream related technology companies.

In order to adapt to localization

The transformation of the investment identity of beauty giants is related to China's localization.

Faberui, president of L'Oréal North Asia and CEO of China, once told reporters that the Chinese market is very particular about speed and scale, and must be grasped fast enough to achieve scale in the future. This is the main reason for setting up an investment company in China, and there is an urgent need to have a local team that can be closely connected to the Chinese beauty market ecosystem.

Previously, Liu Bo, general manager of Guangzhou Wheat Sui Enterprise Management Consulting Co., Ltd., told reporters that many domestic brands acquired by L'Oreal in the early days, such as Little Nurse and Meiji, were basically unsuccessful whether for the purpose of snow storage or to occupy share. In other words, after receiving these brands, the original team, including the founders, have left, which is a rootless wood and a source of water for the brand, and it will slowly dry up.

The first project L'Oréal pitched was the perfume brand "Wen Xian DOCUMENTS". Meng Zhaoran, the founder of the brand, once told reporters that one of the main reasons why L'Oréal China's first investment company invested in Wen Xian was the change of L'Oréal's global CEO. Previous CEOs did not believe in the logic of early investment, but also believed in direct trading, buying when the brand was mature, and would not do this kind of early venture capital. But the new CEO is more radical because given the global situation and trends in the investment and financing market as a whole, there is a growing rise to participate in early-stage investments.

"Investing in a brand is more valuable and meaningful than acquiring a brand." Liu Bo said that investing in a team will help L'Oréal have a clearer understanding of the brand's genetic tonality and the entire strategy. If it is only used as an investment, the brand's rise rate, survival rate, and success rate will be relatively high.

Increased competition

At the same time as the departure of international beauty giants, local top beauty companies have also begun to act.

In May 2022, Bloomage Biotech established Hainan Haixi Private Equity Investment Fund Partnership, which will explore the brand ecological layout in the field of dermatology, focusing on efficacy skin care research and development and brand incubation.

At the end of June, Bethany Beethenie, the parent company of "Winona", invested 100 million yuan in Sequoia Capital as the manager and Sequoia Kunpeng as the general partner to establish the Sequoia Fund. The fund focuses on investment opportunities in sectors such as technology, healthcare, and consumer services. In the same month, Bethany invested in the base makeup brand "Fangli".

In November, Hangzhou Xingyi Equity Investment Co., Ltd., controlled by local makeup brand "Mao Geping", was established. The registered capital of the company is 100 million yuan, the legal representative is Mao Niping, and the business scope includes equity investment. The following month, Marumi issued an announcement that it planned to jointly invest with Beijing Zongheng Jinding to establish an industrial investment fund Qingdao Maoda to lay out the upstream and downstream industrial chain of beautiful consumption.

Compared with international beauty companies that are "difficult to turn around", local beauty companies have responded more quickly, and a number of cutting-edge local brands such as Proya, Bloomage Biotechnology, Bethenny, and Hua Xizi have gradually occupied seats in the Chinese market. With the increasing number of investment actions, the competition between the two sides is bound to intensify.

Liu Bo once told reporters, "International beauty giants are only temporarily ahead, in fact, the power of domestic products is relatively large, in addition, brands in other countries, in the explosive products of this breakthrough is also very strong, such as spray, sun protection and toiletries, etc., still have a relatively large share, so it is impossible to concentrate in a small number of international brands."

In 2023, under the background of international beauty giants increasing their preemptive investment in local resources, the upstream and downstream resources of the domestic beauty industry will be further integrated and concentrated. Powerful enterprises will have more opportunities to occupy raw materials, talents, research and development and other resources.