Behind the ambition of "China's version of the Uemura Show", Mao Geping's obsession and uneasiness

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At the beginning of April 2024, the local beauty brand "Mao Geping", which evolved from the personal IP of "makeup master", transferred to the Hong Kong Stock Exchange and submitted the form again. Since its initial submission in 2016, this is the ninth year of its IPO pursuit. Adjusting the equity structure, changing the listing location, and a series of actions, describe Mao Geping's "obsession" of landing in the capital market.

In terms of market performance alone, Mao Geping, a local beauty newcomer, is not short of money: on the one hand, the performance is still growing steadily, with revenue of 1.577 billion yuan, 1.829 billion yuan and 2.886 billion yuan respectively in the past three years - especially in the context of the continuous involution of the industry, the net profit margin can still maintain a slight upward trend, on the other hand, as of the end of 2023, Mao Geping holds 1.14 billion yuan in cash, which can be comparable to listed companies such as Fuerjia and Marubeni with the same income scale.

But the other side of the coin is that in order to go public, Mao Geping is very eager in all his actions. In January this year, Mao Geping and his wife made three shots and obtained all the shares of Mao Geping Company held by Jiuding Department, and after the transaction was completed, Jiuding Department left the market with 10 times the return on investment in eight years. In order to get rid of the "collapsed" shareholders, Mao Geping and his wife paid a price of 730 million yuan, and a month later, they quickly submitted the report to the Hong Kong Stock Exchange.

In this article, we will cover the following topics:

●What is the background of Mao Geping's rise?

●What kind of company is it?

●Why is it obsessed with the capital market?

Background: Three rounds of dividends for domestic beauty

Before 2017, domestic beauty products experienced three major development dividend periods.

The first is represented by the entry of international beauty brands into the market, the market education bonus period. In the nineteen-nineties, the mainland shifted from a planned economy to a market economy, and the intensity of reform and opening up increased from coastal cities to the interior, and the rapid economic development trend and open exchange attitude attracted L'Oreal, Estee Lauder, Procter & Gamble, Shiseido, Amorepacific Group and other companies to enter the Chinese market. Around the turn of the millennium, the commercialization of beauty in China began to take shape, with high-end malls such as New World Department Store, Parkson and Pacific Department Store dotting around with fashionable ladies with flaming red lips. From 1999 to 2002, brands such as Meifubao, Xiangyi Materia Medica, Naturetang, Kazlan, and Han Shu were launched.

The second is represented by the alternate rise of live broadcast rooms of different channels, the channel transformation bonus period. In 2016, the first year of live broadcasting, the first brother and the first sister of the live broadcast fought against Gao Jie for the first time, and the huge transaction volume leveraged by the limited-time live broadcast room indicated the huge commercialization space in the form of live broadcast. Since then, Tao, Dou, and Kuai have successively made efforts to the live broadcast business, and new brands that have found the corresponding tonality and entered the live broadcast room in a timely manner have grown rapidly, and the old brands have been reborn.

The third bonus period was around 2016, when capital entered the market and allowed many beauty companies to enter the fast lane of scale expansion. Under the dual growth rules of financing and channel expansion, beauty companies in different situations have begun to gradually stratify, such as Youcui Biotech and HEDONE, which have received investment from Sequoia Capital, Perfect Diary, which has received investment from Zhen Fund, and Beauty Home and Junping Demon King, which have received investment from Qingsong Fund, etc., which are still active in major sales lists. The other side of the beauty feast is cruel enough, and many brands that have not received financing have long been forgotten by the market. According to Tianyancha, more than 25,000 cosmetics companies founded in Zhejiang in 2016 have now been cancelled, and most of them have not received financing.

Now it seems that Mao Geping, as the head of domestic beauty, has accurately captured every domestic beauty dividend. At the same time as international beauty entered China, makeup artist Mao Geping became famous for the makeup of Liu Xiaoqing, the protagonist of the 1994 version of "Wu Zetian", and achieved the initial accumulation of fans, laying the foundation for later commercialization.

In 1998, Mao Geping opened a makeup school, and in 2000, Mao Geping launched his own beauty brand and products. In 2016, Mao Gepin, the founder with strong personal IP attributes, successfully obtained the investment of Jiuding under the tone of the channel emphasizing KOLs, and embarked on the journey of capitalization in the same year. However, Mao Geping's silky and upward development trend also ushered in many stuck points at this time. The most intuitive thing is that since 2016, Mao Geping has experienced the first submission of the form and then the invalidation, the largest external shareholder Jiuding is a thunderstorm, but the first meeting has not been able to wait for the listing approval.

In the end, Mao Geping withdrew the application, reorganized the shareholding structure, and started again on the Hong Kong Stock Exchange. At the same time, Perfect Diary, which was established 17 years late, overtook in 2020 and was successfully listed on the New York Stock Exchange. Drawing on the cruel competition rules of the end of the capital dividend period, it is not difficult to understand why Mao Geping is so obsessed with obtaining a larger amount of capital help.

Vipassana: The restlessness of the makeup artist

From the perspective of business model, Mao Geping adopts a model of light production and heavy channels.

In terms of production, Mao Geping currently adopts the model of entrusting ODM/OEM suppliers to produce, which is an asset-light production model, which makes Mao Geping's gross profit margin (83.8% in 2022) ahead of many A-share cosmetics brands. If the cost of sales is further refined, taking the mental product Mao Geping foundation (priced at 380 yuan) as an example, it can compress the ex-factory price to 47 yuan, which is almost comparable to Fuerjia with super gold absorption.

In terms of channels, it may break your stereotype, Mao Geping's sales channels are mainly through the direct counters of offline shopping malls, rather than online. As of the end of 2023, Mao Geping has 357 self-operated counters across the country, and from 2021 to 2023, the sales achieved by this channel will be 859 million yuan, 979 million yuan and 1.438 billion yuan respectively, accounting for more than half of Mao Geping's total sales in each period, which is the biggest growth driver.

The integration of the above two models has allowed Mao Geping to achieve a small run from 1 to 10, with a compound growth rate of 35.3% in revenue in the past three years, and has taken advantage of the opportunity to climb the beauty power list of major channels and become the top of domestic beauty. However, from a calm point of view, Mao Geping's brand effect is very obscure.

First of all, Mao Geping's lead is relatively narrow. In the prospectus, Mao Geping described his positioning as follows: In terms of retail sales in 2022, Mao Geping is the eighth largest high-end beauty group in China and the only Chinese beauty group among the top ten high-end beauty brands. At a time when domestic beauty products are being tortured by pricing, Mao Geping's 200 yuan-500 yuan makeup pricing range and 400-800 yuan skin care product pricing range are among the few that can meet the word "high-end".

If we refer to Peter Deere's method of judging the actual market position of firms, and observe whether they exaggerate their uniqueness by defining the market as the intersection of various small markets, we can glimpse Mao Geping's uneasiness in the slightly tendentious terminology.

Figure: Sales ranking of China's high-end beauty groups, source: Mao Geping prospectus

The data confirms this, with Mao Geping among the top 10 high-end beauty groups in the Chinese market with a market share of just 1.2%. Secondly, in order to support this high-end image and pricing range, Mao Geping chose the model of online channel marketing and offline channel sales. Obviously, this is a difficult road that will test financial strength and endurance. In the attention economy in the era of Internet information overload, penetration is a prerequisite for the success of online marketing. Whether it is Proya, who came out of the circle with early C and late A, or Juzi Bio, which has recently bound recombinant collagen, you can see the perfect combination of celebrity endorsements, heads, waists, and tail KOLs from their marketing contexts. Mao Geping's management may also be aware of this, and it can be seen from the information that it began to strengthen cooperation with KOLs after 2018. In 2023, Mao Geping will spend 1.412 billion yuan on marketing, accounting for 48.9% of the total revenue. However, we speculate that Mao Geping's marketing expenses will gradually rise in the future, including rent, labor, etc. for building offline channels, as well as marketing expenses for expanding marketing penetration, which may be one of the reasons why Mao Geping is obsessed with financing.

Ambition: China's "Shu Uemura"

Back to the question at the beginning of the article, why is Mao Geping obsessed with the capital market? In our opinion, the answer is deeply resonant with the underlying logic of the beauty industry: a new round of opportunities for domestic beauty has emerged, and the next wave of industry tide directly determines whether the company will rise from the waves or be slapped down on the shore.

On the one hand, in the next round of economic recovery, there will definitely be a number of excellent domestic beauty brands rising rapidly. Whether it is Europe, the United States, Japan, or China, there are enough data to show that the sensitivity of beauty consumption to economic recession is weaker than the market average (lipstick effect), and the sensitivity to economic recovery is stronger than the market average. This article will not discuss the economic cycle, but it is clear that the domestic beauty market has sufficient growth potential.

On the other hand, cultural self-confidence has led to the rapid development of the beauty industry. American Hollywood, Japanese anime, Korean romance dramas, Hong Kong movies, and the rise of cultural industries in different countries and regions have also guided the aesthetics of the audience to a certain extent. Looking back at the present, the national dramas and short videos that went to sea first have enough influence to support the export of Chinese aesthetics, and Li Ziqi, Hanfu, and horse face skirts are all strong evidence.

To sum up, branding and going overseas are the main themes of the development of domestic beauty products in the coming period. An example is the Japanese makeup artist's eponymous brand, Shu Uemura, who was the first Japanese male makeup artist to enter Hollywood, who also opened a makeup school and then a beauty brand (1967). It can be seen that after branding, Shu Uemura stepped step by step on the market map of Paris, South Korea, Taiwan, Chinese mainland, etc., and by 2000, Shu Uemura's turnover increased by more than 50 times, reaching 13.5 billion yen.

According to statistics, in the seventies and eighties of the last century, Shu Uemura launched more than 80 colors of eyeshadow, 60 blush colors, 120 lipsticks and 100 makeup brushes. It can be seen that makeup masters can't escape the iron law that the long-term development of makeup brands depends on products. Therefore, Mao Geping, who has 104 SKUs (Tmall store), really needs to grow quickly in exchange for chips in the next round of competition.