Author丨Tao Li
Editor丨Luo Yifan
The plight of the high-end beauty industry is highlighted, which can be glimpsed from the offline layout.
Recently, a number of SK-II users reported that Procter & Gamble's high-end skincare brand SK-II has frequently withdrawn from the cabinet in Shanghai, including many shopping malls located in the core business district of downtown Shanghai.
Screenshot of Nandu video
"It's true that there are no SK-II counters in our mall now, probably at the beginning of this year. Because the space in the mall is also limited, it is normal to make adjustments to some brands every year. On April 13, the relevant personnel of Jiuguang Department Store in Jing'an District, Shanghai confirmed the above information in an interview with the reporter of the 21st Century Business Herald, but the specific reason was not disclosed.
According to the information of the SK-II Mini Program, there are still 10 counters in Shanghai and 150 counters in Chinese mainland. Previously, according to incomplete statistics from the cosmetics newspaper, the number of SK-II counters in Shanghai had reached 18.
The move seems to be related to its declining performance and adjusting its channels. In this regard, Procter & Gamble did not reply to the interview and consultation of the 21st Century Business Herald reporter.
At the beginning of 2024, Procter & Gamble released its results for the second quarter of fiscal year 2024 ending December 2023, in which SK-II's sales in Greater China fell by 34%, and the foam of high-end skincare brands is being squeezed.
It is difficult to boost revenue by raising prices
As a once high-end skincare ace, SK-II is dragging down P&G's overall revenue.
Procter & Gamble's financial report for the second quarter of fiscal year 2024 (October to December 2023) shows that the company achieved revenue of US$21.441 billion (about 153.8 billion yuan) in the quarter, up 3% year-on-year, and net profit of US$3.493 billion (about 25 billion yuan), down 11.8% year-on-year. This is the first double-digit decline in the company's net profit in five years.
Among them, the beauty sector ranked first in the performance growth rate of P&G's five major business segments, with sales of 3.849 billion US dollars (about 27.727 billion yuan), a growth rate of only 1%. Specifically, SK-II's sales in Greater China decreased by 34%.
In this regard, Procter & Gamble said in its financial report that the decline in sales of skin and personal care categories, including the SK-II brand, led to a decline in organic sales to the mid-single digits, but some of the decline was offset by product price increases.
Procter & Gamble's CFO is optimistic, "Our consumer research shows that sentiment around the SK-II brand is improving, and we expect continued improvement in the second half of the year."
However, it may not be easy to achieve the goal. On the list of beauty brands announced by Tmall Beauty from February 28 to March 8, Proya, L'Oreal, and Lancôme ranked the top three, and SK-II ranked 18th. Other high-end skincare brands such as CPB, La Mer, Guerlain, and Estee Lauder all ranked higher than SK-II.
How to reverse the decline? The brand did not reveal more. Since the beginning of fiscal 2021, Procter & Gamble has repeatedly mentioned the decline in SK-II's performance in its financial reports. In contrast, it has an aggressive pricing strategy, with SK-II raising prices four times since 2018 and as much as 12% in February 2023.
However, consumers don't seem to be buying the strategy of raising prices to maintain performance. In an interview with the 21st Century Business Herald, Xie Xiaoying, an industry observer, believes that traditional foreign high-end skin care brands are facing relatively big challenges, and the innovation speed of products is slow, and the attraction of young people is not enough. In addition, the halo of foreign brands is gradually fading, and the premium ability of high-end brands is not as good as before. "Part of it is a strategic price increase in order to meet the growth targets of the headquarters. But at the executive level, it is often difficult to successfully get channels and consumers to pay. ”
High-end beauty has been frustrated
In the 2018 fiscal year annual report, Procter & Gamble mentioned that SK-II has had sales growth of more than 20% for 15 consecutive quarters. In fiscal 2018, its sales increased by 30%. However, the brilliance is not sustainable.
On the one hand, over the years, SK-II has not produced many new products, except for popular items such as "fairy water", "small light bulb", and "big red bottle". On the other hand, the negative impact of Japan's nuclear contaminated water discharge incident and the setback of the travel retail channel have cast a shadow over its performance.
In the same situation, Beiersdorf's high-end brand, in 2023, the group's beauty brand La Prairie (La Prairie) suffered a performance "Waterloo". Sales for the period decreased by 15.4% year-on-year. At the same time, the revenue of another brand, Chantecaille, also fell by 18.4% year-on-year. The group said the poor performance was mainly due to the difficult market environment faced by the travel retail business in 2023.
In this context, the two brands decided to use 2023 as a transition year to clear their inventory and normalize inventory levels. It hopes to return to growth in 2024 through healthy inventory levels, product innovation, and the expansion of its travel retail business.
Even if the Estée Lauder Companies has more brands and products than SK-II, it will not be able to reverse the preferences of users in the market. According to the financial report, in fiscal year 2023, Estee Lauder's revenue and net profit will both decline, and revenue will decline by nearly 5% in the Asia-Pacific region, including China. Its net profit for fiscal 2023 fell 54%. Prior to this, in fiscal year 2021, its net profit was $2.875 billion, which will be halved to $1.01 billion in 2023.
Among the high-end skincare and beauty brands, L'Oréal and Coty have rarely maintained good performance growth. This has a lot to do with its continuous innovation and marketing from the psychology and emotions of consumers.
In an interview with the 21st Century Business Herald, Zhu Yue, a partner of CIC Insight Consulting, admitted that traditional high-priced skin care products generally have problems such as slow product iteration and brand aging. In China's new consumption era, the change in consumption concept has made the demand more diversified, personalized and localized. As a result, consumers prefer brands and products that meet their own efficacy needs and self-expression of self-worth, and established giants are subject to dual competition from niche overseas brands and domestic brands. Especially with the improvement of the supply chain and the rise of domestic beauty, it has a great impact on traditional foreign head beauty brands.
According to data from CIC, the proportion of domestic brands in the high-end skincare industry is expected to grow by 10 percentage points in the next five years. At the same time, in the context of macroeconomic pressure, consumers will also be more rational in consumption and pay attention to the quality-price ratio, and SK-II's previous price increase against the market may also have a certain impact on its sales.
SFC
Editor: Jiang Peipei, intern: Su Jinyi
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