To some extent, Yonghong Cosmetics can be seen as a microcosm of the development of county-level cosmetic stores.
When it comes to the sales channels of cosmetics in China, one cannot ignore the traditional model of the CS channel (it also can be called as cosmetics speciality stores). The channel is an important battlefield where cosmetics sales in China began. Many leading Chinese beauty brands have also grown from that. County-level chains are a reflection of the changes in the cosmetics distribution channels in China.
Recently, there has been a widely circulated news in the cosmetics field in China that the founder of Hanchuan Yonghong Cosmetics Chain Store, Zou, has unfortunately passed away. To verify that, CHAILEEDO immediately called several Yonghong Cosmetics stores under Zou’s name, but no one answered the phone. To further understand the details of that, CHAILEEDO rushed to Hanchuan, Hubei, where the Yonghong Cosmetics chain store is located, to investigate. According to multiple informed sources, “Ms. Zou Hong has unfortunately passed away.”
According to on-site investigations by CHAILEEDO, all Yonghong Cosmetics stores located in the city of Hanchuan, as well as the adjacent Timier House, are currently in a state of suspended operation and inventory clearance. As the largest cosmetics chain store in Hanchuan, the number of stores under Zou’s name once reached 23 at its peak, but most of them have now been deregistered. Only a few stores are temporarily closed. What exactly has happened to this county-level leading chain cosmetics store?
All stores are “suspended operation and inventory clearance.”
In mid-August, when CHAILEEDO visited the Hanhai International Plaza store of Yonghong Cosmetics in Hanchuan, Hubei, it was found that both Yonghong Cosmetics and the adjacent Timier store were surrounded by brown curtains. At the same time, both stores had a notice posted. According to the content of the notice, “In accordance with the instructions from the higher authorities, Yonghong Cosmetics is temporarily suspending business and will also clear the inventory during the closure period. We hope that all employees will actively cooperate.” CHAILEEDO noticed that the date on the notice was August 7th, with Yonghong Cosmetics as the issuer.
“The local industry and commerce bureau came to close the stores directly, without any warning.” According to several nearby merchants, “In the past, the stores have closed for several time. But this time they all closed at once.” As for the reason for the closure, several merchants stated, “There are many factors that led to this, but it should be related to unpaid employee wages and the need to use store assets to pay off debts.”
CHAILEEDO found that other Yonghong Cosmetics stores located in the city of Hanchuan are also in a similar situation and are currently in a state of suspended operation.
During the on-site visit, CHAILEEDO learned from an informed source that Zou passed away on July 29th this year. “One reason is that business was not good, but the main reason is that she owed a lot of money. On the surface, she(Zou) had many stores and a thriving business, but she had a lot of borrowing from banks and individuals.” According to the source, “Five years ago, Ms. Zou Hong borrowed 300,000 yuan ($41,231.4) from her aunt, and at that time, she also wrote a promissory note stating an interest rate of 2%, which means she could receive an interest of 60,000 yuan ($8,246.28) per year. But now, she hasn’t received a single penny.”
Public information shows that Zou was born in 1970 and was 53 years old this year. According to information from the Hanchuan Municipal Committee of the Chinese People’s Political Consultative Conference, Zou used to be the head of the Daily Chemical Products Department of Hanchuan Light Industry Building in her early years. Her excellent management and honest operation led to a rapid increase in sales of daily chemical products. In 2002, after the restructuring of the Light Industry Building, Zou and many relatives and friends were laid off, but she continued to engage in cosmetic sales. She went to Badong, Enshi, to start operating the Yonghong Cosmetics Speciality Store, and later returned to her hometown to rapidly expand her store network in the city of Hanchuan and surrounding counties.
CHAILEEDO noticed that Zou was indeed involved in several private lending disputes. According to publicly available information from Qichacha.com, from July 2022 to January 2023, Zou became a historical judgment debtor three times due to private lending disputes, with a total amount of 540,000 yuan ($74,216.5).
On the Chinese Judgment Documents Online website, Zou is involved in three civil lending disputes and two lease contract disputes. Among them, in one civil lending case, Zou became the defendant due to a loan principal of 70,000 yuan ($9,620.7) and interest. The case was concluded on January 17, 2023. In addition, on December 20 of last year, the People’s Court of Hanchuan City also heard two civil lending dispute cases involving Zou, and ruled that Zhang Mouhong should repay the plaintiffs 522,000 yuan ($71,742.6) and 130,000 yuan ($17,870) respectively.
In addition, on January 30, 2018, the defendant, Zou, once again borrowed 100,000 yuan ($13,743.8) from the plaintiff, citing the need for working capital for a cosmetics store, with an agreed annual interest rate of 12%. On June 13, 2021, after settlement between both parties, the loan amount was determined to be 112,000 yuan ($15,400). Taking all of the above into account, Zou borrowed a total of 522,000 yuan ($71,742.6) from Liu Haibin. However, despite multiple collection attempts by the plaintiff, Zou has not paid a single penny.
It is worth mentioning that CHAILEEDO has noticed a comment left by a user beneath a video on Douyin (Chinese version of TikTok) posted by the official account of Yonghong Cosmetics Store on Wenhua Road, Hanchuan City, dated August 28, 2021. The comment states, “Yonghong owes employees six months’ worth of wages.”
Regarding this matter, a lawyer from a law firm in Guangdong expressed to Qingyan, “If it is a sole proprietorship, personal assets can be used to repay the debt. If there are heirs, they are responsible for the debt within the scope of the inherited property.”
Currently, 23 companies are in a state of deregistration.
When it comes to Yonghong Cosmetics, it is well known in Hanchuan, Hubei, and widely recognized by the public. According to public reports, Zou founded Yonghong Cosmetics in August 2002, which became the largest cosmetics chain store in Hanchuan. Initially, Yonghong Cosmetics positioned itself as a supermarket for cosmetics chain operations, mainly selling daily necessities and other consumer products, with annual sales reaching up to 8 million yuan ($1.1 million). Starting from 2006, Yonghong Cosmetics began to transform its business model, reducing the focus on daily necessities and shifting towards terminal brands.
With the continuous development and growth of the company, Yonghong Cosmetics changed its single business model and joined hands with top domestic retailers to create a top-notch commercial district in Hanchuan. In October 2015, the leading cosmetics retail giant GIALEN settled in Hanchuan, followed by Timier House in December of the same year, injecting new vitality into the young Yonghong Cosmetics. Thus, Yonghong Cosmetics became a diversified chain enterprise integrating self-established Yonghong Cosmetics chain stores, Timier Xiaowu agency, and GIALEN franchise. According to media reports, in 2016, Zou owned 20 Yonghong Cosmetics stores, 6 Timier House directly operated stores, 5 franchise stores, and 1 GIALAN store, covering almost the entire commercial landscape of Hanchuan.
According to the information from Qichacha.com, Zou is the legal representative of 32 companies. However, currently, 23 companies are in a state of deregistration, and only 9 companies are still in operation, including 4 Yonghong Cosmetics stores, 2 Timier Xiaowu stores, and the remaining 3 are media, trade companies, and 1 hotel.
In the span of 21 years, Yonghong Cosmetics experienced a period of rapid development and now face closure and inventory clearance. “Until today, it’s hard to believe that Yonghong Cosmetics is facing clearance and closure,” said a consumer born in the 1990s from Hanchuan. “I used to think that Yonghong Cosmetics, like Watsons and KKV, was a nationwide chain store. It wasn’t until many well-known cosmetics chain stores opened in Hanchuan that I realized Yonghong Cosmetics was no longer the only destination to buy cosmetics. Later on, my impression of it was a store that constantly offered discounts and promotions.”
“In middle school, buying a color-changing lipstick from Yonghong Cosmetics would cause a big sensation in my class, and at one point, the CARSLAN mascara was sold out at Yonghong Cosmetics. But when I returned home during college, I saw that Yonghong’s stores were empty, and the prominent displays were no longer cosmetics like lipstick but more daily necessities like laundry detergent and tissues,” the consumer told CHAILEEDO.
From being extremely popular to declining, the current situation of Yonghong Cosmetics may have some clues. CHAILEEDO noticed that some netizens criticized the service, products, and environment of several Yonghong Cosmetics stores on Dianping, a popular Chinese review platform.
CHAILEEDO found on Qichacha.com that in 2021, the business scope of Hanchuan Yonghong Cosmetics Supermarket underwent changes, including the addition of food business permits and the sale of electronic cigarettes and vaporizers.
“The business model of Yonghong Cosmetics is outdated and has never changed, so it’s probably gradually becoming what it is now,” said the person in charge of a nearby jewelry store to CHAILEEDO. “Yonghong Cosmetics is just a brand in Hanchuan. Currently, there is also a Watsons store in Hanchuan, and many people trust Watsons more. In addition, there are many purchasing stores in Hanchuan, and the consumption power of Hanchuan residents is not bad. Many people pursue well-known brands.”
On the first floor of Hanhai International Plaza, CHAILEEDO noticed that Yao Mei Li, NL House, and Amei Korean and Japanese Beauty Store, three beauty purchasing stores, were densely located together. According to a salesperson at Amei Korean and Japanese Beauty Store, “The products are all purchased from overseas, and they are cheaper than the official website prices.” Comparing the prices, Estee Lauder’s Re-Nutriv Ultimate Lift Regenerating Youth Cream is priced at 880 yuan ($120.9) on the official website for 50ml, while the store sells it for 495 yuan ($68) for the same amount. Clinique’s Repairwear Laser Focus Wrinkle Correcting Serum is priced at 650 yuan ($89.3) on the official website for 50ml, while the store sells it for 498 yuan ($68.4). Within 10 minutes of CHAILEEDO entering the store, many young female consumers visited and made two purchases.
At the same time, various online purchasing channels have had a significant impact on the business of cosmetic stores. The owner of a beauty salon in Hanchuan City told CHAILEEDO that it is difficult to solely focus on selling skincare products through offline channels. There are too many channels available for purchasing skincare products, and e-commerce platforms like Douyin have a significant impact on offline channels. “Previously, when I purchased a set of Maribi products at Yonghong Cosmetics, it would cost around 1,000 yuan ($137.44). But now, online shopping only costs a little over 300 yuan ($41.2). Naturally, I would choose online shopping, especially considering the discounts offered by popular influencers.”
“The overall sales are stagnant and difficult.”
According to a survey conducted by CHAILEEDO, apart from Yonghong Cosmetics in Hanchuan, which has temporarily suspended its business, the current cosmetics speciality stores only include Dr. Plant and Watsons, with 5 and 1 store(s) respectively.
Not only Yonghong Cosmetics but also the overall performance of cosmetics stores in Hanchuan is not ideal at the moment. Among them, Hanhai Square in Hanchuan, as the largest commercial and lifestyle center, is located in a prime location where Yonghong Cosmetics, Dr. Plant, and Watsons have already settled. However, during the CHAILEEDO survey, the foot traffic in the mall was sparse, and the popularity of each store was relatively low.
For example, during the visit to Dr. Plant in Hanhai Square, three sales assistants were providing spa services to members, while another sales assistant was waiting at the door to attract customers. However, not a single customer entered the store in half an hour. In comparison, the foot traffic at Watsons in Hanhai Square was much better, with consumers coming to make purchases from time to time. The Watsons store is also larger in size and has a newer store image. It houses a variety of imported and domestic beauty brands, and a corner at the entrance is dedicated to spa beauty treatments.
“At present, there are basically only Dr. Plant and Watsons left in Hanchuan’s cosmetics chain stores. The competition is too intense, and business is difficult in various industries,” said a cosmetics industry professional in Hanchuan to CHAILEEDO. There are now many vacant stores in Hanchuan, and there is also a lot of information about the transfer of skincare product stores and beauty salons on some website, but few people are willing to invest in doing business. It requires a significant initial investment for a new brand to enter the market and establish a foothold. Apart from advertising and marketing costs, there is also a need to spend money on rent, employee salaries, and other expenses.
The owner of a beauty salon in Hanchuan also stated, “In fact, our initial business model was similar to Dr. Plant, focusing on one cosmetics brand, and business was thriving, with a monthly turnover of about 50,000 to 60,000 yuan ($8,246). We initially thought that business would improve after the epidemic, but customers stopped consuming, so we shifted our focus to health preservation. Business improved significantly after transitioning to beauty and health preservation because customers can purchase products elsewhere, but there are certain techniques that cannot be replaced.”
A sales assistant at a domestic brand in Walmart’s Hanhai Square store also told CHAILEEDO, “The overall market situation is not good now, and it’s the same for all industries. Although the pandemic is over, sales are still not as good as two years ago, and people don’t have much money. People who born after 2000 have started saving money. Initially, we thought that the situation would improve after the epidemic, but in fact, business has worsened. Our company’s analysis suggests that business will be even worse in the second half of the year.”
“We worry every day about opening the store, but there are no customers at all. Skincare products are not essential items, and many people think they can do without them. No matter how exciting the promotions are or how many calls we make to loyal customers, they will only buy one set in the end. If we encounter customers who are picky about brands, there is simply no way to please them,” added another sales assistant at Walmart’s Hanhai Square store, representing another domestic brand.
Several distributors in Hubei also told CHAILEEDO, “The overall environment is not good, and this year is even tougher than last year.” It’s not just Hubei, the founder of a cosmetics chain organization in Shandong told CHAILEEDO that their cosmetics stores are also located in county towns, and the first half of this year was indeed bleak, experiencing the first negative growth in nearly a decade. It only started to recover in early July, but it is still not as good as the same period last year. “In fact, I am not optimistic about the future of the channel of cosmetics speciality stores. This channel no longer has advantages from various perspectives, as prices are difficult to be lower than online prices, and services are unable to match professional beauty salons. I can hardly see the core competitiveness of the channel,” he added.
Meanwhile, according to recent data released by the National Bureau of Statistics, the total retail sales of cosmetics above designated limits in July this year amounted to 24.7 billion yuan ($3.4 billion), a year-on-year decrease of 4.1%. This is not only the first decline in the total retail sales of cosmetics in July in almost five years but also the first decline after consecutive monthly growth this year.
To some extent, Yonghong Cosmetics can be seen as a microcosm of the development of county-level cosmetic stores. As one industry veteran put it, “Yonghong Cosmetics went from prosperity to decline. In the early stages, they capitalized on the growth dividend of the speciality stores. However, with the rise of e-commerce and the increasing complexity of the cosmetics market competition, coupled with a failure to adjust their own business model in a timely manner, it naturally led to a gradual decline. Overall, it can be attributed to the intense market competition nowadays.”
