“Entering the offline market, I feel it is essential for brands.”
“The offline market has a larger customer base, and I believe many brands are strategically giving up on it.”
“As online sales reach a certain level, it may not necessarily have further growth. With the recovery of offline consumer scenarios, offline channels will be an opportunity this year.”
At the beginning of the year, the “CHAILEEDO in the Frontline” program conducted research on the ground. When we posed the question “How do you view brands returning to the offline market?” to brand owners, store managers, and distributors, we received different answers. Unlike the confident and determined brand owners mentioned above, store owners are concerned about the possibility of “being hurt again.”
Nevertheless, returning to the offline market and expanding into it remains a strategic choice for many new and established brands. Even though the path to the offline market is filled with challenges, I believe there will always be innovators.
Online traffic reaches its peak, brands seek alternative paths
According to the “2023 China Cosmetics Yearbook” published by CHAILEEDO, the online channel experienced rapid growth in 2023, with a market size reaching 404.59 billion yuan, surpassing offline channels for the first time in the past five years.
As the online market rapidly expands, the contradiction between brands and influencers, as well as between sales and traffic, has become increasingly evident. According to the “2023 Douyin E-commerce Annual Report,” the beauty and skincare sector ranks second in terms of paid competition for traffic channels on Douyin. During visits conducted by the CHAILEEDO team, many brand managers admitted, “Currently, achieving a 45-50% conversion rate on online platforms is considered an ideal state. Many are already approaching 80%, and it’s becoming less profitable.”
The high cost of acquiring traffic is affecting the interests of all parties involved. As everyone competes fiercely in the online channel, entering the offline market seems to have become a new consensus for many brands.
Proya sees 2023 as the “year of offline restart,” and Proya’s Vice President, Secretary to the Board, and CFO, Wang Li, believes that “the future growth will come from department store channels.” In the first half of 2023, Proya’s online channels (including direct sales and distribution) accounted for 3.33 billion yuan, representing 92% of total sales.
At the beginning of 2024, KANS also made a high-profile announcement about returning to the offline market. It is known that KANS launched products specifically for offline cosmetics stores in January this year and plans to recruit 100 distributors. Recently, CHICMAX held a conference to announce new products, policies, and models exclusively for the top 100 channels in 2024.
Meanwhile, many emerging brands and online brands are also planning to expand into the offline market. Shuguoyuan, which primarily operates online, has started a large-scale expansion into offline cosmetics stores, and the medical beauty brand Kefumei, which focuses on beauty salon channels, has officially opened its first standard store offline. Luo Yun, the founder of the Xianjipin brand, revealed to CHAILEEDO that the brand began exploring the offline market around October last year and has been operating its own stores.
“In 2023, we also entered chain systems like Sanfu and new retail. This year, we will pay special attention to the offline market,” said Bian Qianjin, the founder of the Spring Letter, to CHAILEEDO. “When users can see the brand widely in offline stores, they will have a sense of the brand rather than just considering it as a product-selling brand.”
Red Zhi, an emerging domestic brand, revealed to CHAILEEDO that brand awareness has been established online, and this year the brand will dedicate more resources to the offline market. “Last year, we established a presence in over 5,000 stores. This year, we will increase our efforts in offline store deployment and use a direct sales model to better understand the market.”
In this wave of returning to the offline market, new retail formats that align with the current consumer habits and connect online and offline channels are seen as new scenarios for offline growth. In response to this, several brand managers also admitted, “Even when entering the offline channel, it is mostly targeted at new beauty retail stores and boutique retailers represented by Sanfu, rather than traditional cosmetics stores.”
Struggling Stores: Can Offline Channels Capture Traffic?
Facing the brand’s choice to return to offline channels, can the long-silent offline channels seize this wave of brand flow?
“Traffic” is currently a topic that cannot be ignored both online and offline. For traditional offline cosmetic stores, the lack of foot traffic resulting in low in-store conversion rates has become one of their biggest problems. Can online products with natural traffic change this situation for offline cosmetic stores?
Zou Qingjian, the general manager of Meizhijiao Beauty Store in Dingbian County, straightforwardly stated, “Consumers are not going out shopping now, and their willingness to consume has greatly decreased. The foot traffic in stores is not as high as before.”
“From what we can see now, young people are not willing to go out shopping. Even if they make offline purchases this time, they may still choose online shopping for repeat purchases,” sighed Xi Zhiping, the general manager of Xiaotiane Cosmetics in Hengshan District, Yulin City, Shaanxi Province.
At the same time, as a large number of brands that originated from offline cosmetic store channels gradually shift their strategic focus to online channels, the brands that used to dominate offline cosmetic stores are disappearing, leaving the offline stores in a brand vacuum they have never experienced before.
According to the visits conducted by the CHAILEEDO program team, there are still a few offline cosmetic stores that retain brands such as Proya, CHANDO, Marubi, and Meifubao. However, these brands have been moved to more remote locations within the stores and only a few products are retained. International imported brands still occupy a considerable share in offline cosmetic store channels, and Japanese and Korean brands also have a place in offline cosmetic store channels. Brands like Sulwhasoo, Coreana, Whoo, Freeplus, and Curel are still prominently placed in offline cosmetic stores. A small number of offline cosmetic stores are also starting to introduce some online products with traffic, such as Voolga, Shuguoyuan, Dr. Alva, Simpcare, and others.
In terms of product categories, the proportion of household cleaning products in offline cosmetic stores has further increased, while makeup products account for less than 10%. The central area often displays self-owned brands with higher profit margins.
Faced with the loss of customer flow and brands in both directions, stores have also made adjustments. For example, expanding the household cleaning category and trying the front-store and back-store model.
Unfortunately, these minor changes have not been able to solve the fundamental problem. An experienced industry insider laments, “Offline cosmetic store channels are still the same as they were ten years ago, unchanging.”
Implied in these words is that the decline of traditional offline cosmetic store channels and being abandoned by brands cannot be entirely attributed to the harsh external environment. Therefore, in the face of this wave of brand return to offline channels, traditional offline cosmetic store channels have desires and expectations, but more so anxiety and exclusion.
From the perspective of brands, they do not have high expectations for traditional offline cosmetic store channels. Beauty collection stores and innovative retail formats have experienced a recovery in 2023, making it easier to integrate new and old brands. These new formats are usually the first choice for brands in offline channels.
Taking the KK Group as an example, which has new retail formats such as “KKV” and “THE COLORIST,” according to the latest prospectus disclosed by the KK Group, they added a total of 194 stores from January to October 2023. They have reversed their decline and achieved a turnaround to profit, with an operating profit of 380 million yuan from January to October and an operating profit margin of 7.9%. The gross profit margin has increased from 30.4% to 47.2%.
A large number of fashion new retail formats such as KKV, Sanfu, and beauty collection stores like Watson and Sephora have gradually penetrated into third- and fourth-tier cities through the expansion of real estate developers. The continuous expansion of new retail will further change the ecosystem of offline cosmetic stores.
According to a rough estimate by CHAILEEDO, Watson, for example, not only saw the entry of emerging beauty brands such as Little Dream Garden, Kimture, and MedRepair in 2023, but also saw the establishment of their own “territories” by established domestic brands like OSM and Watercome. At the same time, international brands such as Innisfree, French plant-based brand LAINO, and British modern brand Cath Kidston entered Watson’s offline channels in 2023.
Wu Shoupai, the general manager of Haonvren Cosmetics Boutique Co., Ltd. in Shenmu City, believes that “commercial complexes centered around shopping centers are currently the main places for consumer purchases. In the future, most offline consumer scenes will be concentrated here, and the survival environment for other offline channels such as street stores and exclusive stores will be further compressed.”
From the perspectiveof industry experts, the future survival of traditional offline cosmetic store channels is quite challenging. The rise of new retail formats, such as beauty collection stores and innovative fashion formats, has attracted brands and consumers alike. These new formats offer a fresh and engaging shopping experience, which traditional offline stores struggle to provide.
Moreover, the COVID-19 pandemic has accelerated the shift towards online shopping, and many consumers, especially the younger generation, have developed a strong preference for the convenience and variety offered by online platforms. Even if offline cosmetic stores manage to capture some traffic through online products, it is uncertain whether they can retain these customers for repeat purchases.
In response to the changing landscape, some offline cosmetic stores have expanded their offerings to include household cleaning products, while reducing the prominence of makeup products. However, these minor adjustments have not been sufficient to address the fundamental issues faced by traditional offline stores.
Brands, on the other hand, are not placing high expectations on traditional offline cosmetic store channels. They are more inclined to partner with new retail formats that provide a more modern and immersive shopping experience. These formats have seen success in integrating both new and old brands and have shown signs of profitability.
The expansion of new retail formats, such as KKV, Sanfu, Watson, and Sephora, into third- and fourth-tier cities has further disrupted the ecosystem of offline cosmetic stores. These formats have attracted emerging beauty brands and established domestic and international brands, leaving traditional offline stores with fewer options.
Looking ahead, commercial complexes centered around shopping centers are expected to become the main hubs for consumer purchases. This will further squeeze the survival space for other offline channels, such as street stores and exclusive stores.
In summary, traditional offline cosmetic store channels are facing significant challenges in capturing and retaining traffic. The rise of new retail formats, the shift towards online shopping, and the changing preferences of consumers have created a difficult environment for these stores. To survive, offline cosmetic stores will need to adapt to the evolving market and find innovative ways to attract and engage customers.
Returning to Offline, the Thorny “Two-Way Journey”
For offline channels, they naturally hope to introduce new products to compensate for the category gaps caused by the departure of existing brands. For brands, as online channel traffic saturates and online sales enter a fiercely competitive stage, many brands hope to explore offline channels or return to them to find new profit increments for their businesses and reduce dependence on online traffic.
Although it seems like a perfect match between the two sides, the “two-way journey” between online and offline is filled with obstacles. Both online brands and offline stores and distributors have their own concerns.
The founder of a startup skincare brand in Guangzhou said, “In fact, establishing an offline presence is a great challenge. Offline channels require substantial investment and involve the interests of distributors and stores. A single mistake can easily harm the brand.”
Li Jide, the founder of BeautyLink Bio-Technology Research Institute (Guangdong), also shared his thoughts, “The economic recovery is not as fast as expected, and even the change in consumer habits is not that rapid. Online live shopping did not emerge overnight; it took several years to gradually shift the flow of people online.”
For many emerging brands that started online, offline channels are a completely unfamiliar territory. Their previous strategies may not necessarily be effective here. Moreover, the transition from light assets to heavy assets also tests the comprehensive strength of these emerging brands.
“I think in the future, online traffic products can be expected for offline cosmetics stores, but I don’t think it will necessarily become a breakthrough,” said Liu Yuan, the general manager of Xi’an Yide Cosmetics Co., Ltd. “Online brands themselves have not yet decided whether they should enter the offline cosmetics store channel because the practices in offline cosmetics stores are completely different from online. If they can find the right positioning and be prepared for a long-term battle, there will definitely be more opportunities offline. The key is how determined the online brands are.”
When talking about some online emerging brands, a common question raised by many store owners is, “What about the quality?” Offline cosmetics stores are also concerned about the ability of online emerging brands to handle issues such as counterfeiting and price chaos.
As for some Chinese domestic brands that have grown through the offline cosmetics store channel, even though they are already familiar with the offline market, the emotions of the store owners have never been appeased.
Some store owners used the word “abandonment” to describe their situation. In the offline cosmetics store channel, they have witnessed the gradual growth of small brands into national brands over the past decade through the continuous efforts of store owners, distributors, and companies. Many store owners believe that their contributions have played a part in the development of domestic beauty brands. In this more than a decade of mutual development, they have developed deep and unique emotions towards brands that started in offline cosmetics stores.
However, as brands in the offline cosmetics store channel gradually shift to online and move away from their original offline channels, some offline stores have encountered unprecedented difficulties in their operations. The emotions of the offline stores towards the brands have become increasingly complex.
When it comes to the plans of some brands to return to the offline cosmetics store channel, the emotional value of the offline stores seems to prevail in business judgments. Some store owners bluntly say, “We have been hurt deeply and don’t want to go through it again.”
A certain overseas imported cosmetics distributor has a more neutral view on the collective return of Chinese domestic brands to offline channels. He told the “CHAILEEDO in the Frontline” program, “For distributors, they don’t really care whether brands want to reestablish themselves offline or quickly monetize the online traffic. As long as it allows the distributors to make money, they will still be willing to represent these brands. However, it’s difficult for offline stores to accept it. They will wonder if they agree to do it again, will they be harvested in the future? Maybe they have already successfully transitioned and represent other brands, so it will be difficult for the brands to come back at that time.”
In this wave of brands returning to offline, beauty concept stores and fashion new retail undoubtedly become the main battlefield for capturing online traffic. Traditional offline cosmetics store channels can also benefit from the overflow of traffic from some emerging brands. Various types of offline channels may have an opportunity for growth, but opportunities are only reserved for the prepared.
“I firmly believe that physical stores will be the king in the future because due to the pandemic, we have experienced a peak in online consumption in the past few years, but now this trend is gradually receding. Consumers are starting to seek more emotions and warmth in physical stores, and soon physical stores will face a real test,” said Liu Yuan.
