On March 19th, the (9th) Conference on China Cosmetics Trends, organized by CHAILEEDO with the joint support of MeiDD, was held in Hangzhou. With the theme of “Offline Reconstruction,” the conference brought together the top ten beauty companies in China, offline channel agents, CS channel stores, and beauty retail concept stores to discuss the new trends and opportunities brought by the reconstruction of offline channels in the cosmetics industry. During the conference, Gao Jinghe, the founder of Shaanxi Junhui Business Management Services Co., Ltd., delivered a keynote speech on “Innovation and Reconstruction of Regional Cosmetics Stores.”
Here is the transcript of the speech:
Thank you very much, Mrs. Li, for inviting us to this Cosmetics Trend Conference. It gives us, from the relatively closed and backward northwest region, an opportunity to showcase ourselves. Thank you!
Throughout today, I have learned a lot from industry leaders and experts. I have gained valuable insights. Through the discussions today, we can see that it is mainly the major channels and chains that are speaking up. In reality, there are hundreds of thousands of physical stores in China’s offline cosmetics channels (they are the mainstream of the offline market). Those of us participating in the offline discussions today, including me and Brother Xiongwei, do not represent the entire offline market. This also includes the speakers today.
The true physical stores in China’s offline channels are often regional, with about ten, eight, or two to three individual stores. Those types of stores are the true mainstream of the cosmetics store channel. Comparatively, companies like Shaanxi Junhui and some large cosmetics retail chains have basically gone through the risk period. Especially for some major channels, they have a say in the entire trade terms. Me and Brother Xiongwei, at our scale, basically have equal dialogue rights. Many stores with ten, eight, or two to three individual stores often have insufficient access to information in the industry, and they are also unequal in trade terms. Most of my views today represent the perspective of those stores, and I would appreciate your criticism and correction if I make any mistakes.
Let me briefly introduce Shaanxi Junhui. We were founded in 2003, located in Ankang, a prefecture-level city in Shaanxi. In 2014, we relocated our headquarters to Xi’an, and currently, our stores cover the entire Shaanxi province. We mainly focus on fast-moving consumer goods (FMCG) and plan to open 100 stores this year, reaching a total of 200 stores. In April this year, there will be around a dozen stores opening. Our vision is somewhat aligned with today’s theme, which is “reconstructing the industry ecosystem and becoming a global leader in beauty and cosmetics.” Dreams are necessary, what if they come true? The organizing committee required us to include this, so we added it to our vision.
In recent years, what has the physical retail industry experienced? It has undoubtedly faced overall unfavorable conditions and increased uncertainty. Typical challenges include diversified channels, declining purchasing power, rational consumption, and insufficient customers. Here, I want to emphasize one thing: “Winter has passed, but spring remains cold.” We are still shivering in the cold wind while wearing short sleeves. Currently, many offline physical stores in China have gone through the winter, but they are still shivering in the spring chill. Here’s a topic to consider: Is the current situation of physical stores in the cosmetics CS channel a natural disaster or a man-made calamity? I personally raise this topic for media like CHAILEEDO to explore and contemplate.
Continuous three years of the pandemic, coupled with the post-pandemic era last year, the entire industry has not reached its peak, it has only become more challenging. As long as there are “leeks” (referring to vulnerable individuals), there will always be people taking advantage of them. I wrote the phrase “Who tore off the last fig leaf of the industry?” which means that the entire cosmetics industry is exposed. Previously, it was only when the tide receded that we knew who was swimming naked. Currently, the cosmetics industry is probably in this situation. The most discussed topic this year is the integration of online and offline. You gaze at the offline while being online, and the offline also gazes at the online. But there is no savior in the world. Whether it’s physical cosmetics stores or online brands, I personally believe that only we ourselves can save ourselves and achieve innovation and reconstruction.
Personally, I believe we must face the era of consumer awakening. The most frequently mentioned phrase today is “declining purchasing power,” but I think this phrase is not quite accurate. Many brands and channels use this phrase to “deceive consumers’ rationality.” In fact, many times it does not mean that purchasing power has truly declined. For example, many brands are still selling well, which indicates that it’s not the purchasing power that has declined but rather the purchasing power for your products specifically.
When Mr. Han Shu (referring to Fu Zichong, the Sales Director of CHICMAX Distribution Department) shared the data earlier, Shangmei’s data performed well, and its purchasing power did not decline. This is something the entire industry should contemplate. The same goes for the topics discussed this morning, such as Good Special Sale and Beauty Choice, their purchasing power has not declined either. Therefore, I personally believe that we cannot simply dismiss consumers’ rationality with the phrase “declining purchasing power.”
On the contrary, consumers have become more rational, and it’s us who are unwilling to face reality. Kind-hearted people are no longer easily deceived, and we cannot blame them for becoming bad or poor. In the past, consumers were particularly kind-hearted, but one day they woke up, and we cannot blame them for that. If they don’t buy from you anymore, saying that they are broke or have become worse is a bit excessive. Of course, it’s also not right to say that consumers are rational just because they are no longer easily deceived. The essence of business is to create value for customers.
We need to think from the perspective of customers and reconstruct the relationship between people, products, and the market based on customer value. This is the topic given to me by the organizing committee. To be honest, it’s a big topic, and I tried to outline it briefly for reference. Because China is too large, not only do we have Beijing, Shanghai, Guangzhou, and Shenzhen, but also underdeveloped regions like the northwest and second-tier cities like Xi’an. Additionally, there are many third- and fourth-tier cities in Shaanxi Province, as well as some smaller towns and even villages. Because of this vastness, there are various business formats. Even in less developed towns, there may be cosmetics stores or small shops selling personal care products, making the market relatively complex.
Overall, customers today are knowledgeable, rational, beauty-conscious, product-savvy, and emotionally perceptive. They can see through sellers’ intentions and tactics. In the past, customers accepted when they were told they would get a $50 gift with a $2 purchase, but now they don’t. Nowadays, social media has great influence, and if customers have a bad experience buying online, they will leave negative reviews. If they have a bad experience in a physical store, they will share it on social media platforms. They have become more cautious and developed a strong sense of justice.
At present, our Junhui system believes that customers demand goods that are affordable, of good quality, and sincere treatment. They want to make their own choices and not be deceived. “Customers allow the quality of goods to improve but do not allow a price increase. Quality can be upgraded, but the price must be reasonable.” This is the customer demand we have observed in the past year or two. In 2021, we restructured our system and removed all experiential projects. We currently have less than 1,000 product barcodes, making it easier to replicate our model.
Today, I originally wanted to get a haircut in Hangzhou, but someone reminded me that getting a haircut in Hangzhou is a serious matter. It scared me, and I didn’t dare to go (just a joke among friends). In the past, did such situations exist in the cosmetics industry? I’m sure they did. The burden placed on consumers, with markups of ten or twenty times the cost, has become too heavy. Finally, the era of mobile internet completely shattered these markups. Of course, everyone should face this transformation. In the past, the leaders of domestic brands in the cosmetics industry made significant contributions, but the problem is, who should bear the original sin of the industry’s wild development? Many times, it is the relatively small physical cosmetics stores that bear this part of the blame. In the end, these people are the ones directly interacting with customers, and it is they who are scolded and abandoned, not the brands.
A few days ago, at a brand meeting, a brand owner said that in the past, they would sell a product with a markup of 20 times, and it was the customers who were cheated. Now, why don’t customers come to physical stores? It’s because the entire industry has been cheating customers for the past 10 or 20 years, and customers know that we are the bad guys. Even if we suddenly become good today, customers cannot immediately believe it. We have to give them some time to trust us. Perhaps, we are all facing this period of transformation now.
The cosmetics customer service (CS) channel should sell good products, but in reality, offline stores face a problem: whether online brands are coming to exploit them like leeks once again. What Kai-ge (referring to Chang Kai, the founder of Hangzhou Huanxi Extreme) analyzed today was particularly accurate. Many times, online brands need to understand offline, and offline brands also need to understand online, and this often incurs a huge cost. There are mainly two costs, trust cost and communication cost. Who will solve the trust cost? Who will solve the communication cost? This is the challenge our entire industry is facing. If this problem is solved, it will definitely be a great promotion for the entire CS channel. Of course, the past model is definitely not going to work anymore. Yesterday’s map will not find tomorrow’s road. To succeed in offline retail, we must have new business logic.
In addition, whether one-stop consumption is an ideal or a model, I’ve thought about it and came up with a question: the Earth has always existed, only the dinosaurs are gone. Such huge dinosaurs, such colossal creatures, can disappear from the world. Maybe one day our physical stores will also be like that. Of course, we still need to be positive and optimistic. I believe the retail industry can go through a cycle, but this cycle will certainly be very long. As long as the cosmetics industry exists, or as long as business exists, the innovation of individuals and the evolution of the entire industry will always be our eternal topic. Therefore, it’s not that we need to reconstruct in the future. In fact, in the past few years, even in the development process of more than a decade, the cosmetics industry has been reconstructing and continuously evolving in a positive direction.
Finally, I summarize the three core values behind physical stores:
1.Customer value. Any physical retail or business should respect customer value and strive to fulfill their needs by understanding their demands, providing what they want, what they need, and what they desire.
2.Respect for employee value. Treat and nurture employees well, establishing a sense of shared destiny within the company.
3.Achieving supply chain value. The core capability of a chain system is the ability to integrate the supply chain.
Please feel free to criticize and correct any mistakes. Once again, thank you, CHAILEEDO, and thank you all!
