“Repeated unsuccessful attempts to recover the outstanding payment led to litigation.” “The seized equipment is currently being assessed and auctioned off.”
Recently, CHAILEEDO learned from the Chinese Judgement Document Network that Shanghai Wid Cosmetics Co., Ltd., a Korean cosmetics company (referred to as “Shanghai Wid”), has been sued by multiple companies due to contract disputes. Additionally, the company has been listed as a dishonest debtor and a high-consumption restriction enterprise multiple times.
According to the National Enterprise Bankruptcy and Restructuring Case Information Network, Shanghai Wid recently faced an application for bankruptcy and restructuring, with the applicant being an individual named Zhu. It is worth mentioning that it is quite rare for a foreign-funded cosmetics factory to become a “defaulter” burdened by debt and eventually go bankrupt. So, how did Shanghai Wid end up in this unfortunate situation?
The execution target exceeds one million yuan, and the equipment has been sealed.
According to the National Enterprise Credit Information Publicity System, Shanghai Wid was established in 2016 with a registered capital of 2 million US dollars. Its scope of business includes the production and processing of cosmetics. The legal representative and chairman of the company are both LEE HAN YOUNG.
In terms of equity structure, the well-known Korean skincare brand SNP’s parent company, SD Biotechnologies, holds a 70% stake in Shanghai Wid, making it the largest shareholder and the actual controller. LEE HAN YOUNG and A-SD Cosmetics (Shanghai) Co., Ltd. are the second and third largest shareholders, respectively.
According to the National Medical Products Administration’s general cosmetics filing platform, Shanghai Wid has served as an OEM manufacturer for brands such as Meiking and HOPCDENSE.
It is worth mentioning that there is not much public information available about Shanghai Wid. However, according to a public report from 2017, the chairman of SD Biotechnologies mentioned to the media that through their two self-operated factories in China, they directly imported Korean raw materials and produced products that better suited the characteristics of Chinese consumers’ skin, ensuring the same quality as their Korean factories. This was an important guarantee for SNP’s expansion into the Chinese market.
However, after struggling in the market for six years, Shanghai Wid, which had high expectations, seems to have started encountering difficulties.
In October 2022, packaging company Shanghai Yafeng Packing Products Co., Ltd. (referred to as “Yafeng Packing”) filed a pre-litigation property preservation application to freeze 120,400 yuan of bank deposits under Shanghai Wid’s name.
According to the information disclosed on the Chinese Judgement Document Network, Yafeng Packing and Shanghai Wid entered into two contracts in March and May 2022, respectively. Yafeng Packing supplied goods to Shanghai Wid as stipulated in the contracts, but Shanghai Wid only partially paid for the goods and still owed 120,400 yuan. As a result, Yafeng Packing filed a lawsuit against Shanghai Wid.
In the past year of 2023, Shanghai Wid, as the defendant, was involved in nearly ten legal disputes, including disputes over lease contracts, service contracts, labor remuneration claims, and sales contracts. The suing companies were from various fields, including cosmetics processing, real estate, and human resources. According to incomplete statistics from CHAILEEDO, the total amount of the execution targets related to Shanghai Wid has exceeded one million.
After seeing relevant legal documents, it reveals that most of the cases involving Shanghai Wid have entered the compulsory execution procedure. All the relevant equipment located in Jiading District, Shanghai, has been sealed and is currently being assessed and auctioned. However, due to the exhaustive investigation of Shanghai Wid’s assets conducted by the Jiading District People’s Court, it was found that there are no available assets for execution. As a result, the compulsory execution procedures for multiple cases have been terminated.
Just recently, Shanghai Wid, trapped in a predicament, is gradually approaching bankruptcy. According to the National Enterprise Bankruptcy and Restructuring Case Information Network, as early as December of last year, a petitioner named Zhu applied for bankruptcy liquidation to the Shanghai Third Intermediate People’s Court, citing an inability to repay the due debts and a clear lack of repayment capacity, and the case has been filed.
Once an OEM manufacturer for brands like Meiking, Shanghai Wid found itself in a difficult situation as the Korean skincare trend was declining.
Just last month, due to the termination of its cooperation with Chinese brand agent Shunmei Group, the once-popular Korean sheet mask brand Papa Recipe pressed the “pause” button on its operations in the Chinese market. This once again sparked discussions about the decline of Korean cosmetics in China. SNP, as a Korean skincare brand that was once as popular as Papa Recipe, also faced difficulties as its parent company hastily exited its factory in China, reflecting the awkward situation of Korean cosmetics in the Chinese market.
According to information from SNP’s official website and WeChat public account, Shanghai Wid’s actual controller, SD Biotechnologies, was established in September 2008 and is an active company in the Korean skincare trend. It went public in Korea in 2017, and SNP is the Korean cosmetics brand it developed and operated.
The establishment of Shanghai Wid coincided with the period when Korean sheet masks were dominating the Chinese market. At that time, Korean brands like SNP and Papa Recipe saw a significant increase in sales due to the influence of internet celebrities. SNP, in particular, consistently ranked among the top ten sheet masks on Taobao, and its popular products, such as the Bird’s Nest Aqua Ampoule Mask and Animal Masks, were highly sought after.
According to an article published by SNP’s official WeChat account in 2019, SNP set a record in the Chinese market by selling three sheets of its Marine Bird’s Nest Mask every second. It even claimed the top spot among overseas sheet mask brands on Taobao, with a total of 300 million masks sold.
However, in terms of the number of products, according to the National Medical Products Administration’s general cosmetics filing platform, SNP products accounted for a small proportion of Shanghai Wid’s production. Shanghai Wid also served as an OEM manufacturer for nearly ten brands, including Hua Lizi, Meiking, Xiu Liyou, and Yang Er Kang.
So why did Shanghai Wid, established during SNP’s heyday, experience a sudden decline in the past two years, leading to its current path towards bankruptcy?
In response to this, CHAILEEDO immediately called Shanghai Wid to inquire about the details. However, as of the time of writing, the phone call has not been answered.
Regarding Shanghai Wid’s bankruptcy filing, a skincare brand entrepreneur who has worked in the industry for many years believes, “Around 2016, due to the strong performance of Korean cosmetics in the Chinese market, a group of Korean brands and OEM manufacturers started building factories in China. However, as Korean cosmetics declined and the Chinese cosmetics industry chain improved, most brands could obtain competitive products without having to build their own factories. As a result, Korean brands with self-built factories had to bear the heavy burden of maintaining production capacity and high rent.”
It is worth noting that Korean brands opening factories in China was not an isolated case. In 2016, the well-known Korean brand Nature Republic invested 2.3 billion Korean won to build a cosmetics production factory in Zhejiang Province, aiming to further improve its development system in China. That same year, Korean OEM manufacturers such as Koma and Cosmax also built factories in China to expand their production capacity.
Some industry insiders believe that SNP’s lackluster performance may have been a significant factor in Shanghai Wid’s decline. “At that time, SD Biotechnologies regarded SNP as a key focus for development. However, with the rise of domestic Chinese beauty brands in recent years, SNP’s influence and competitiveness in China are far from what they used to be.”
A search by CHAILEEDO revealed that SNP’s sales performance on major platforms is far from outstanding, contrasting with its past popularity.
Currently, SNP’s Tmall Global flagship store has 570,000 followers, with only two products exceeding one thousand sales in a year. The best-selling product is a sleeping mask priced between 79 and 105 yuan, with slightly over two thousand buyers in the past year. SNP’s official Tmall store has 240,000 followers, with only five products exceeding one thousand sales in a year.
On Douyin (the Chinese version of TikTok), several SNP masks have zero sales, while the top-selling product in the store is a Camellia Red Ginseng Skincare Set priced at 428 yuan, with nearly 6,000 sales. SNP’s official Pinduoduo flagship store has multiple products with sales exceeding 5,000.
In addition, SNP’s accounts on Weibo and WeChat public accounts have stopped updating on multiple content platforms, with only its Little Red Book (Xiaohongshu) account maintaining regular updates.
According to a cosmetics regulatory app, apart from products like the Bird’s Nest Aqua Ampoule Mask and Cleansing Balm, several SNP products are currently produced by domestic OEM manufacturers, such as Guangdong Saimei Cosmetics Co., Ltd. and Guangzhou Zhuangze Biotechnology Co., Ltd.
Korean-owned factories continued to expand in the Chinese market
From a macro perspective, Shanghai Wid’s situation is not commonly seen among the many Korean-owned factories in China. Just recently, CHAILEEDO visited several Korean contract manufacturing giants in China, including COSMAX and Koma, who all reported good growth in 2023.
At the same time, despite the decline in the trend of building factories in China in recent years, there are still many Korean-owned contract manufacturing factories eyeing the Chinese market and making organized efforts to establish a presence.
For example, in 2022, C&Tech, a well-known Korean mask manufacturing company, acquired Suzhou Keyi Biotechnology Co., Ltd., using it as its main cosmetics production factory in China. In January of the following year, Suzhou Keyi’s “Suzhou R&D Center” was officially established.
In the same month, Korea’s Rosee Group’s Chongqing cosmetics factory went into operation, with an expected annual output value of 60 million US dollars. It is reported that Rosee Group is a comprehensive beauty and skincare company with over 30 years of history, providing OEM and ODM services globally.
However, in the past two years, the progress in China’s cosmetics manufacturing capabilities and stricter regulations have also brought considerable pressure to foreign-owned factories.
At the Hong Kong Asia-Pacific Beauty Expo held last year, several Korean domestic cosmetics manufacturers expressed their intention to enter the Chinese market to CHAILEEDO while admitting that the improved manufacturing capabilities in China have increased market competition.
STB, a Korean eyeliner contract manufacturing company seeking contact with Chinese customers, expressed to CHAILEEDO, “In the past, Korea had an advantage in eyeliner manufacturing technology, but with China’s rapid progress in this area, the two sides are now almost on par, and companies are feeling the pressure.”
Furthermore, an anonymous R&D director from a well-known Korean contract manufacturing company also revealed to CHAILEEDO that with the introduction of new regulations in 2021, the threshold for the cosmetics industry has significantly increased, stating, “The upcoming complete version of safety assessment reports poses considerable difficulties for companies, and we are still striving to implement countermeasures.”
“The competition in the Chinese market is extremely fierce. We will focus on our professional field and rely on our R&D capabilities and products to speak for themselves,” said Quan Qisheng, Chairman of Suzhou Keyi, in a previous public statement to the media.
At the same time, in the past two years, facing the rapidly changing Chinese market, giants like COSMAX and Koma have been continuously transforming their business strategies in the Chinese market in order to establish deeper roots.
For example, COSMAX has introduced OBM (Original Brand Manufacturer) business in China, which is different from OEM/ODM, to help customers build their own brands from scratch. Koma also launched the Total ODM platform, which provides one-stop customized solutions for cosmetics.
Additionally, COSMAX acts as the operator for multiple foreign brands in the Chinese market and has extended its reach into capital investment. In 2020, COSMAX made its first investment in a startup beauty brand, CODEMINT. Last year, COSMAX China, which has been in China for nearly 20 years, established a joint venture with a brand and opened the Yixian Biotechnology factory.
Regarding the various initiatives taken by Korean-owned factories, a research and development manager from a emerging cosmetics brand stated, “Flexibility, adaptability, and high research and development efficiency are important advantages of Korean-owned factories, allowing them to quickly respond to new market trends.”
The manager of a factory in South China also said that Shanghai Wid’s survival crisis may be more of an isolated case, stating, “In the future, Korean-owned factories will still hold a place in the Chinese cosmetics market. For Chinese contract manufacturing companies, it is still necessary to fully leverage their local advantages, start small and excellent, and then achieve larger goals.”
