China Brands, News

Liabilities Exceed 300 Million Yuan, Well-Known Beauty Brand Aesthetic Affiliated Company Declared Bankruptcy

Recently, it was disclosed on the National Enterprise Bankruptcy Information Disclosure Platform that Beijing Weimei Grand Daily Cosmetics Co., Ltd. (referred to as “Weimei Grand”) has been declared bankrupt by the Beijing First Intermediate People’s Court due to insolvency.

It is worth mentioning that Weimei Grand is wholly owned by Aesthetic Technology (Beijing) Co., Ltd. (referred to as “Aesthetic Technology”), and both companies’ legal representatives are Chen Guang. Chen also founded the beauty chain store brand “Aesthetic,” which has been awarded the title of “China’s Top 100 Franchises” multiple times.

So, how did this once-famous beauty industry giant end up burdened with debt, with its subsidiary facing bankruptcy liquidation, and its founder subjected to executive restrictions?

Liabilities exceed one hundred million yuan

Although the formal declaration of bankruptcy has only recently been made, the fate of Weimei Grand had already been foreshadowed.

According to public documents from the Beijing Second Intermediate People’s Court and others, as early as 2020, Weimei Grand, Aesthetic Technology, Chen Guang, Liu Mouhui, and others were subject to compulsory execution of debt by China Minsheng Trust Co., Ltd. (“Minsheng Trust”) due to failure to repay loans and redeem shares after the expiration of financing. According to the National Enterprise Credit Information Publicity System, Chen Guang serves as the legal representative of both Weimei Grand and Aesthetic Technology, while Liu Mouhui holds positions as a supervisor and vice chairman respectively.

This document marked the beginning of Weimei Grand’s debt disputes.

In July of the same year, the Beijing Second Intermediate People’s Court enforced a compulsory execution against Chen Guang, Liu Mouhui, and their subsidiaries including Aesthetic Technology and Weimei Grand, in a dispute with Minsheng Trust over notarized debt documents (execution case number: (2020) Jing 02 Zhi 745), with an execution target of 163 million yuan, and partial equity of Aesthetic Technology being frozen.

Subsequently, a series of debt lawsuits followed, with multiple creditors of Weimei Grand initiating litigation against the company and applying for compulsory execution of debts. As a result, both Chen Guang and Liu Mouhui became dishonest debtors and were repeatedly subject to restrictions on consumption.

The turning point in the debt dispute occurred in 2022. In September of the same year, one of Weimei Grand’s creditors, Mr. Jiang, arbitrated a dispute over a real estate purchase contract with Weimei Grand through the Beihai Arbitration Commission. Weimei Grand stated its inability to pay a total of 8.55 million yuan in transfer fees and liquidated damages. Subsequently, citing Weimei Grand’s failure to repay due debts and its apparent lack of solvency, Mr. Jiang applied to the court for the bankruptcy liquidation of Weimei Grand, which was accepted by the Beijing First Intermediate People’s Court (Case No.: (2023) Jing 01 Po 113).

In response, Weimei Grand stated, “The company is now insolvent and cash-strapped, and agrees to undergo bankruptcy liquidation.” According to a public notice issued by Weimei Grand in June of last year (Public Notice of the Selection of Audit Institutions by Weimei, Ref: Weimei Po Guan Zi (2023) No. 020), as of December 31, 2022, Weimei Grand’s total assets were approximately 379 million yuan, while its total liabilities had reached 839 million yuan, resulting in owner’s equity of negative 532 million yuan.

It is worth noting that in August of last year, the Beijing Second Intermediate People’s Court issued a reward notice, stating that in the execution of Minsheng Trust’s application for execution in the case of notarized debt documents involving Tianjin Du Zhi Xing Quan Trading Co., Ltd., Chen Guang, Liu Mouhui, Aesthetic Technology, Tianjin Meikang Enterprise Management Consulting Partnership Enterprise (Limited Partnership), and Weimei Grand, Chen Guang, and Liu Mouhui failed to fulfill their obligations as determined by the effective legal documents in this case, thus a reward notice was issued. The notice indicated that the amount of execution target in this case was 163 million yuan plus additional interest.

In March 2024, the Beijing First Intermediate People’s Court issued a “Bankruptcy Announcement” (Case No.: (2023) Jing 01 Po 113), ruling that creditors including Beijing Hengli Qiankun Decoration Co., Ltd. have a total claim of 384 million yuan against Weimei Grand. However, the 384 million yuan claim mentioned in the final bankruptcy case has a certain discrepancy compared to the total liabilities announced in the public notice (Ref: Weimei Po Guan Zi (2023) No. 020), and creditors such as Minsheng Trust did not appear in the bankruptcy announcement.

The announcement indicated that, according to the calculation, the maximum value of all assets of Weimei Grand, including cash, land use rights, and the value of ongoing projects, amounted to 235.5 million yuan, which is insufficient to cover its liabilities. Ultimately, Weimei Grand was declared bankrupt and subject to liquidation. Thus, the debt crisis that had plagued Weimei Grand for over three years came to a temporary conclusion.

Bankruptcy may not affect the normal operation of Aesthetic

So, what is the connection between Weimei Grand and the well-known beauty chain store “Aesthetic”? Will the bankruptcy of Weimei Grand affect the normal operation of “Aesthetic”?

According to an investigation by CHAILEEDO, Weimei Grand is a wholly-owned subsidiary of Aesthetic Technology, which is the parent company of several trademark applicants including “Aesthetic” and the beauty chain store brand “Aesthetic” According to publicly available information from the National Medical Products Administration, there is no registration record for cosmetics under Weimei Grand. Currently, the registrant of products under brands like Aesthetic is mostly another wholly-owned subsidiary of Aesthetic Technology, namely Shenzhen Aesthetic Biotechnology Co., Ltd. (referred to as “Shenzhen Aesthetic”). This company has a total of 641 records of ordinary cosmetics registration information.

“The bankruptcy of this company (Weimei Grand) may not have a significant impact on ‘Aesthetic’ or the entire Aesthetic Technology,” said an industry insider who had previously worked in a branch of Aesthetic, according to CHAILEEDO. This statement is reasonable; for the entire Aesthetic Technology empire, Weimei Grand is just one part of its extensive beauty business network. According to media reports, Weimei Degree began to emerge in the beauty industry as early as 2002 and established Chinese micro-plastic surgery hospitals in 2009. In the same year, Aesthetic Technology was listed among the top 120 franchised chain companies in China, becoming one of the leading domestic beauty chain brands.

With the continuous expansion of its business scale, Aesthetic Technology began to enter the capital market. In 2014, the A-share listed company SHANDONG JIANGQUAN INDUSTRY CO., LTD announced a restructuring plan, intending to achieve the listing of Aesthetic Technology through major asset swaps and share issuances to purchase assets. However, in February 2015, due to objections from some shareholders of Aesthetic Technology regarding performance compensation commitments, Jiangquan Industry announced the withdrawal of the major asset restructuring materials. Thus, the plan for Aesthetic Technology’s listing through a reverse merger failed.

Although it failed to enter the A-share market, in the same year, Aesthetic Technology quickly succeeded in acquiring the South Korean listed company NEXTEYE for 56 billion Korean won (approximately 300 million yuan), becoming its major shareholder. After Aesthetic Technology took over, the business of the company extended from original testing equipment to cosmetics research and development, production, and distribution. According to the current homepage of the NEXTEYE official website, the company’s Chinese chain brand projects include “Aesthetic” and three other brands: Dream Face Hall, Aurora, and Butler Villa.

In addition, Aesthetic Technology has conducted significant capital mergers and acquisitions in the industry. Around 2017, Aesthetic Technology, together with CITIC Group’s CITIC Kingview Capital Management Co., Ltd., established CITIC Mei Shang Fund and subsequently acquired several cosmetics distribution and supply chain companies, including Sichuan Meishang Hongmei Biotechnology Co., Ltd. (referred to as “Meishang Hongmei”). Meishang Hongmei alone had over 1,600 outlets and represented over 50 brands in 2017, with an annual turnover of 100 million yuan.

According to public reports, around 2017, Aesthetic Technology, together with CITIC Mei Shang, invested nearly 2 billion yuan in countries such as South Korea, Japan, and France, including acquisitions of 25 brands and mergers of 15 companies. Subsequently, Aesthetic Technology accelerated the internationalization process of the enterprise and in 2023 upgraded Nextone Beauty China Headquarters from the former Aesthetic Technology China, expanding its business into areas such as product research and development, brand management, channel operations, testing services, and training.

“After the establishment of CITIC Mei Shang Fund, Aesthetic Technology gradually began operating Korean-style skin management stores and initiated business transformation,” said the industry insider mentioned above.

Store closures, continued decline in sales

In fact, despite the subsidiary being embroiled in debt disputes and the founder of the brand facing executive restrictions, it seems to have not affected the development of Aesthetic Technology brand stores.

According to data released by the China Chain Store & Franchise Association last year, the sales scale of the Aesthetic brand reached 1.213 billion yuan in 2022, with the number of stores reaching 9,905, a decrease of only 19 compared to 2021. Additionally, based on information from the official website, Aesthetic is still open to franchising new stores.

According to the introduction on the official website of Nextone Beauty, after acquiring the South Korean listed company NEXTEYE, Nextone Beauty achieved the integration of Chinese and South Korean beauty products technology and medical aesthetics channels, making Aesthetic a comprehensive beauty institution integrating beauty, anti-aging, medical aesthetics, and internet services. Apart from its headquarters in Beijing, regional management centers have been established in six major cities including Shanghai, Shenzhen, Shenyang, Chengdu, and Taiyuan.

However, a search on the Meituan platform using “Aesthetic” as a keyword revealed that there are not many operational stores in the aforementioned seven major cities, and many stores are listed as “closed.” The stores shown as still operating are only in single digits in each city. Additionally, there are numerous complaints about “Aesthetic” on platforms such as Hei Mao Complaints, with complaints mostly focusing on “forced consumption,” “encouraging card issuance,” and “false advertising.”

The industry insider mentioned above told CHAILEEDO that after expanding its overseas business, Aesthetic Technology has begun to change its business direction, focusing more on overseas mergers and acquisitions, medical aesthetics, and product research and development, with “basically no significant expansion of stores.”

Furthermore, looking at the financial data of the South Korean listed company NEXTEYE, which is owned by Nextone Beauty, the overseas business status does not seem ideal. According to NEXTEYE’s financial data for the year 2023, the total assets of NEXTEYE decreased by 14.13% compared to the previous year. However, the total debt is decreasing year by year, amounting to 27.285 billion Korean won (approximately 144 million yuan) in 2023, a decrease of 3.88% compared to the previous year.

In terms of group revenue, according to the financial report, due to a decrease in cosmetics sales, the company’s revenue decreased by 44.87% year-on-year in 2023, to 17.749 billion Korean won (approximately 94 million yuan), with cosmetics business accounting for 48.7% of the total. Meanwhile, due to increased cosmetics sales costs, NEXTEYE’s operating loss increased by 158.95% compared to the same period last year. Additionally, due to increased losses from subsidiary companies, the net loss for the full year was 17.533 billion Korean won (approximately 93 million yuan), expanding by 329.21% year-on-year.

In light of the current business situation, NEXTEYE stated in its financial report that despite the unfavorable operating conditions for cosmetics due to slowing growth in K Beauty and other factors, its franchised skin beauty operations in the Chinese market continue to exhibit sustained advantages. Additionally, through the production and sale of proprietary brand products, NEXTEYE aims to increase its market share in China gradually. Coupled with OEM and other businesses, it is expected that its cosmetics business will continue to grow.

Based on the disclosed financial information, franchised operations in China, as well as cosmetics research, development, and sales, remain the operational focus of NEXTEYE and even Nextone Beauty, with the beauty chain business being emphasized. This indicates that Nextone Beauty has not abandoned its “core business.”

However, a senior industry expert familiar with capital operations previously told CHAILEEDO that beauty and body chain operations incur high costs. When faced with economic downturns and consumer downgrades, there is a risk of a broken capital chain.

Moreover, rapid expansion and capital intervention can also sow the seeds of crisis for beauty chain enterprises like Aesthetic. Earlier this year, beauty chain institution Angel Ma was reported to have its factories enter into bankruptcy liquidation proceedings. The failure of beauty chain institutions in the capital market is not uncommon, with well-known brands such as Lido Plastic Surgery and Spring Beauty Medical Aesthetics withdrawing from the capital market one after another.

For beauty chain enterprises, capital intervention and seeking listing are among the ways to rapidly expand their scale. However, careful consideration must be given to market conditions and their capabilities. Once the chain breaks and the leverage is imbalanced, the losses may outweigh the gains.