Producer: Sina Finance Company Research Institute
Author: New Consumer Proposition/CICI
As of April 30, 2024, the beauty and skincare company has completed the disclosure of its 2023 annual report. Among the various financial indicators, gross profit margin and net profit margin of sales are two core profitability assessment indicators, which have attracted the attention of market investors.
In 2023, the phenomenon of high gross profit margin and low net profit margin in the beauty and skin care industry will still be obvious, on the one hand, nearly 7 percent of the company's sales gross profit margin in the industry is higher than 50%; On the other hand, the sales net profit margin of most companies in the industry is less than 15%, and the sales net profit margin of Yatsen E-commerce and Qingsong shares is negative and at a low level in the industry, which is -21.97% and -3.52% respectively.
The root cause of the large gap between gross profit margin and net profit margin is that the sales expenses of companies in the beauty and skin care industry are generally high, and huge marketing embezzles profits. In 2023, Yatsen's e-commerce sales expense rate will be as high as 65%, becoming the marketing king of the year.
The phenomenon of high gross profit margin and low net profit margin in the industry is more obvious The gross profit margin of Qingsong shares is at the bottom, and the net profit margin of Yatsen e-commerce is at the bottom
In fact, the gross profit margin of the beauty and skin care industry is not low, 7% of the company's sales gross profit margin is higher than 50%, and even a considerable number of companies have a sales gross profit margin of more than 70%, while the sales net profit margin of most companies in the industry is less than 15%.
From the perspective of gross profit margin, the gross profit margin of Jinbo Biotech, Juzi Biotech, and Fuerjia ranks among the top three, and the gross profit margin of the three companies in 2023 will be 90.06%, 83.63%, and 81.91% respectively. There are only 5 companies with a sales gross profit margin of less than 50%, namely Covestro Co., Ltd., Lafang Jiahua, Freda, Jiaheng Jiahua Co., Ltd., and Qingsong Co., Ltd., and the sales gross profit margin of these five companies in 2023 will be 48.37%, 47.44%, 46.06%, 23.46%, and 11.65% respectively.
Although the gross profit margin of companies in the industry is generally higher than 50%, nearly half of the listed companies have a net profit margin of less than 10%. Among the companies we selected, the net profit margin of Juzi Biotech, Fuerjia and Jinbo Biotech ranked among the top three, with 42.09%, 39.46% and 38.69% respectively. The net profit margin of Jiaheng Jiahua, Qingsong Co., Ltd., and Yatsen E-commerce is at a low level in the industry, at 4%, -3.52%, and -21.97% respectively. High gross profit margin and low net profit margin are closely related to the high marketing expenditure of the beauty and skin care industry.
Focusing on marketing over R&D, and serious product homogenization, Yatsen's e-commerce sales expense rate reached the top with 62%.
The sales expenses of companies in the beauty and skin care industry are generally high, and huge marketing embezzles profits, which is the fundamental reason for the industry's high gross profit and low net profit. Especially in the Internet environment, cutting-edge brands rely on e-commerce platforms, social media and other media to enable marketing and products to quickly reach a wide range of consumer groups, and achieve brand scale improvement and awareness shaping in a short period of time.
In order to maintain market share, the marketing of the beauty and skin care industry is becoming more and more involuted. Hiring popular traffic stars to endorse, establishing close cooperation with super-head anchors, planting grass "advertorials" all over platforms such as Xiaohongshu, advertising placement of countless hit dramas and variety shows, cooperation and evaluation with Internet celebrities, and the production of exclusive short dramas by brands, etc., most companies in the beauty and skin care industry have never relented in terms of brand marketing.
In 2023, many companies in the beauty and skin care industry will have a sales expense ratio of more than 40%, which means that the company will use more than 40% of its revenue for marketing. Among the 17 companies in the beauty and skin care industry we selected, Yatsen E-commerce had the highest sales expense ratio of 65%, followed by Marubeni and Shangmei, with sales expense ratios of 54.41% and 53.18% respectively.
However, the R&D investment of companies related to the beauty and skin care industry is often less than a fraction of the marketing expenditure, for example, the sales expense rate of Yatsen e-commerce is as high as 65%, but the R&D expense rate is only 3.3%, and the sales expense rate of Marubeni is 53.86%, but the R&D expense rate is only 2.8%
In the context of emphasizing marketing and ignoring R&D, the product homogeneity of companies in the beauty and skin care industry is serious, and most product innovation is not enough, which is difficult to truly meet the skin care needs of consumers, which seriously hinders the development of skin care brands. On the other hand, the serious homogenization of products has also caused the beauty and skin care industry to fall into a price war all year round, and online channels such as live broadcast rooms and official flagship stores have been continuously promoted, which has also reduced the profitability of enterprises in disguise, forming a vicious circle.
In addition, the emphasis on marketing and light on R&D will also make beauty and skin care companies invest a lot of resources in out-of-the-circle brands, resulting in the phenomenon that the company's revenue is overly dependent on a certain brand, and the ability to resist risks is greatly weakened. In 2024, the challenge for many companies in the beauty and skin care industry is still how to balance marketing spending with R&D spending, so as to achieve a balance between marketing and product and achieve a gradual transition from marketing-driven to product-driven.