December 2, 2023


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How Niche Beauty Brands Can Attract Investment from China | China Decoded, BoF Professional

Last week, Eve Lom, a London-based beauty brand that forged a cult-like following for its botanical cleansing balm, was acquired by Chinese beauty giant Yatsen Global for an undisclosed amount.

Yatsen, the parent company of C-Beauty juggernaut Perfect Diary is flush with cash, after raising $617 million in an initial public offering on the New York Stock Exchange in November last year. Its market cap recently hit $12.4 billion.

The firm has made its desire to build a portfolio of brands clear. Not only did it outline a plan in its IPO prospectus, it also acquired French skin care brand Galénic in October 2020.

But Yatsen isn’t the only Chinese investor on a shopping spree in Europe.

“I had the opportunity to interview all these up-and-coming, recently founded brands with great founders and I saw that there is an opportunity here to invest. This was my logic,” said Feng Chuxuan, founder and chief executive of Huasheng Media.

Huasheng Media is best known as the publisher of Chinese editions of T:The New York Times Style Magazine, Wallpaper and Kinfolk, but since late 2017, the company has branched out by investing in some of the same independent, niche brands its publications write about.

A store employee applying foundation in a Laneige boutique. Getty Images.

A store employee applying foundation in a Laneige boutique. Getty Images.

Its beauty related investments include a stake in Ormaie, the all-natural Parisian perfume label founded in 2018 by mother-and-son duo, Marie-Lise Jonak and Baptiste Bouygues. “A lot of investment companies are researching algorithms, but I love seeing the opportunity to invest in small brands with low cost and lots of room to grow,” Feng said.

Another Chinese player that has recently been topping up its coffers to invest in more niche beauty players is omnichannel brand partner Ushopal, which announced the close of a $100 million round of funding earlier this week.

The group, which has been working with high-end beauty brands on China market entry and brand building, has already invested in several of its brand partners, including Spanish spa brand Natura Bissé and Juliette Has a Gun — the perfume label helmed by Nina Ricci’s great-grandson Romano.

Ushopal works closely with international brands on e-commerce operations, social media management, KOL (Key Opinion Leader, as influencers are known in China) relationships, and offline distribution, through its own chain of offline stores Bonnie & Clyde as well as other offline partners.

“After a few years of working with brands in this way we realised we could help them grow beyond just selling products [so] in 2019 and 2020 we started investing in more brands, becoming shareholders at headquarters level,” explained William Lau, vice president of brands at Ushopal and chief executive of Bonnie & Clyde.

What’s driving this investment rush?

Money is flowing into these international niche beauty brands quite simply because Chinese consumers are increasingly interested in gaining access to them.

China is already the world’s second-largest beauty market. In 2019, sales of cosmetic products in China reached 425.6 billion yuan ($65.32 billion) and are tipped to reach 455.3 billion yuan ($69.87 billion) this year, according to Statista data.

The market’s scale and growth trajectory has been great for the world’s beauty giants, who have long had a foothold in the Chinese market and are doing an excellent post-pandemic trade here.

Last month, L’Oréal chairman and chief executive, Jean-Paul Agon, cited “spectacular” growth in China as key to the group’s strong fourth-quarter performance. Also in February, Estée Lauder pointed to China’s strong sales as a reason for the group’s earlier-than-anticipated return to growth in its second quarter, ending December 31.

[China’s beauty sector is like] high stakes poker… This is a big boys’ game.

But a new generation of Chinese beauty consumers are demanding more than just household names.

“Young women and men are experimenting with niche brands in order to express themselves,” said Tracy Zhang, director of fashion and beauty at luxury intelligence firm, Gusto Luxe.

“Before Covid-19, they could travel around and they would go and research and discover new brands [overseas] and when they come back, they still pay attention to these brands and want to have access to them in China too,” she added.

To fuel this demand for consumers wanting more access without the ability to travel outside the country last year, Tmall Global, Alibaba’s cross-border platform, added 1,000 new beauty brands to its roster. In April, it announced its intention to help support these brands to each surpass 10 million yuan ($1.54 million) in annual revenues in the China market.

But, in a hugely competitive market where thousands of new brands become available each year, standing out from the crowd becomes almost impossible for small players — unless they have a war chest of tens of millions of dollars, or a foundation of dozens of staff members, or at least local knowledge of the China’s unique digital and retail infrastructure and its social and cultural context.

This explains why China’s beauty sector is like “high stakes poker,” says Julian Reis, the founder and chief executive of beauty and wellness consultancy SuperOrdinary, which has brought brands including Drunk Elephant, The Ordinary, Supergoop into the market.

“This is a big boys’ game,” he said. “You can’t just launch a brand on Tmall and hope you get traffic…We spend a lot of time talking to brands about how expensive it is to undertake activities that are required for you to successfully launch your brand.”

This is one of the reasons Chinese investment is such an attractive prospect for many niche international beauty brands. Local investors offer the necessary capital to enter the market and scale, and they can also offer the added value of local knowledge and relationships.

“Eve Lom might be a niche brand in the China market, but now everyone knows it’s the brand that Perfect Diary’s parent company invested in,” explained Chen Ye, a research analyst at market intelligence firm, ChemLinked.

Perfect Diary eyeshadow palettes. Courtesy.

Perfect Diary eyeshadow palettes. Courtesy.

This gives Eve Lom an immediate leg-up when it comes to exposure. Even more valuable in the long run, however, might be access to Yatsen’s famed private traffic operations, which reach millions of engaged consumers.

“Perfect Diary operates thousands of WeChat groups and now Eve Lom can also be marketed to these loyal fans,” Chen said. “It must give Eve Lom a huge competitive advantage over other niche beauty brands who don’t have the same kind of help from a Chinese company.”

For Lau, the advantages Ushopal has been able to offer the companies it invested in are evident in their impressive growth.

“When we started working with Juliette Has a Gun in June of 2019, the brand only had 20 posts on Xiaohongshu and there were no parallel sellers on Taobao,” he said. “In a little over 12 months, we grew the brand to being top three in the entire fragrance category for the Double 11 [shopping festival on Tmall] last year, surpassing 70 million yuan ($10.75 million) in [gross merchandise volume annually in] 2020.”

Natura Bissé , meanwhile, has seen its China sales grow 1000 percent since receiving investment from Ushopal in 2018, according to figures supplied by the group.

Feng Chuxuan maintains that his deep expertise in the mainland market can also offer Huasheng’s investment partners more than just a capital injection.

“I can also continue to give them advice about the China market; I can help with media resources when they come into the China market, including the access to celebrities, including headlines on WeChat and advertisements, online and offline activities. This is how we can help,” he said.

What are Chinese investors looking for?

Most of the beneficiaries of investment from Chinese companies fall into some pretty obvious categories — namely, premium skin care and fragrance.

Consumers have more faith in international skin care brands.

This reflects areas of major growth for international brands more generally in the China market, as C-Beauty brands account for a higher proportion of colour cosmetics sales (almost 50 percent of the market, according to Kantar research). Local brands haven’t made the same headway, however, when it comes to curing local consumers of their preference for international skin care brands.

“In the Chinese market, the makeup and skin care sectors are different. Consumers don’t have a great passion for high-end makeup products [so] affordable makeup brands are [considered] suitable for daily life,” Chen said, adding that in the skin care sector, high-end international skin care brands like Estée Lauder, Lancôme, La Mer and La Prairie dominate.

“Consumers have more faith in international skin care brands and high-end skin care brands…,” she said. For domestic Chinese players that want to enter the skin care sector, especially at the high-end, acquisitions of international brands are a good way for them to do that.”

Fragrance is another sector in which local players, with a few exceptions, haven’t yet capitalised in booming interest from younger, post-90s and post-00s consumers, leaving the door open for more foreign brands to fill the void.

The other thing that brands attracting Chinese investment share is a good story. As Tracy Zhang points out, key to success in China is feeding the beast of China’s relentless daily cycle of social media over a plethora of platforms, each of which requires different formats and tones. If a brand has an interesting story — whether it’s about its founder, its heritage, its ingredients, its hero products, or all of the above — that can form the basis of engaging content.

For Lau, the idea of heritage is also important, but it doesn’t necessarily have to be 100 years of history. Rather, it’s a case of “the brand [being] mature [in terms of being] on the market for a period of time and… the way its story is being told.”

The next important factor, he says, is proprietary formulas. Advanced formulations are at the heart of brands such as Eve Lom, Natura Bissé and Galénic and help to give them an edge with Chinese consumers, who relentlessly research every advance and innovation in skin care efficacy.

A compelling country-of-origin association can also help make a foreign brand attractive to Chinese investors. Geoskincare is a natural skin care brand founded by a dermatologist Penny Vergeest in New Zealand in 2000 and acquired by Chinese businessman Liu Xiaokun (also known as Aaron Liu) in 2014.

When asked to describe his brand in a few words for an interview published on trade show Cosmoprof’s website, Liu says simply: “Natural, new-tech and New Zealand.” Its credentials, in terms of being “natural” are bolstered by coming from New Zealand and continuing to source products there, a country widely associated in Chinese consumers’ minds with a pristine environment.

Both Lau and Feng also emphasised the important role founders play when each of their companies decides whether or not to make an investment.

“When we have the founders on board and their visions for the brand are still being pushed through products, to copy and packaging, this ensures the brand is consistent everywhere and over every consumer touchpoint,” Lau said. “Then of course, the most important part is that the brands are growing abroad and catching a level of awareness in China.”

For Feng, the formula is even simpler. “[Naturally], these brands need to have the product quality, the materials and the packaging, but it’s the founders that really attract me,” he said. “If I like you, I will invest in you.”



Fendi leather purses on display at a store in Paris. Shutterstock.

Fendi leather purses on display at a store in Paris. Shutterstock.

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L’Oréal's Mr Ou, a virtual idol introduced in China this week. L’Oréal

L’Oréal’s Mr Ou, a virtual idol introduced in China this week. L’Oréal

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Gap store in Shanghai, China. Shutterstock.

Gap store in Shanghai, China. Shutterstock.

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Busy shopping street in Shanghai, China. Shutterstock.

Busy shopping street in Shanghai, China. Shutterstock.

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