Without a strong offline presence, a brand will find it difficult to become a leader.
“The only 5A-rated commercial supermarket scenic spot in the country.” “Pang Donglai is good everywhere, the only downside is that it’s not located in my home.”
Not long ago, Pang Donglai, a typical representative of offline retail stores, made headlines due to “employees not following the tasting standards.” However, despite this “negative public opinion,” Pang Donglai not only received positive evaluations from netizens but also became a popular spot for online influencers to visit.
Similarly, following the successful launch of new products in cosmetics stores earlier this year, Chicmax recently held the 2024 Top 100 Channel New Product Launch Conference, officially announcing new products, policies, and models exclusively for the Top 100 channels. During the conference, Chicmax’s founder and CEO, Lv Yixiong, stated, “Offline is the foundation of a brand, it needs to be deeply rooted, and online can then become a towering tree!”
From the frenzy of offline customer traffic triggered by Pang Donglai, hailed as the “ceiling of Chinese supermarkets,” to Chicmax’s Kans brand dominating as the number one beauty brand on Douyin and leading the charge back to the offline market, it is evident that as offline consumer vitality continues to recover, offline channels will become a battleground for brands to gain business growth in 2024. It can be said that winning offline also means winning at a new starting line.
“Online is ‘running out of meat’ to eat”
One of the core reasons for many Chinese domestic beauty brands returning to offline channels is to break free from the “traffic enclosure.”
It is well known that in the past few years, many Chinese domestic beauty brands have achieved considerable growth through live-streaming e-commerce, community marketing, and private domain selling. However, with the diversification of channels, the increasing number of participants has intensified online competition, leaving limited space for online development for Chinese domestic beauty brands.
Furthermore, the escalating cost of traffic in online strategies has led many brands to reach the peak of their return on investment. A brand manager from a listed beauty company once calculated for CHAILEEDO: “Setting aside top-tier influencers, the cost of a KOL (Key Opinion Leader) live-streaming campaign is approximately between 30% to 50% of the investment, and self-broadcasting is similar. Based on this calculation, an ROI (Return on Investment) between 2 and 3 is considered a healthy range, and anything below 2 will present problems.”
However, in reality, this is not the case for most beauty brands. The head of a well-known MCN (Multi-Channel Network) agency in Hangzhou stated, “Only a few brands with bargaining power can achieve an ROI of 2, while the vast majority of brands are around 1. In addition, with more brands entering the market and platforms becoming more competitive, the marginal effects of live-streaming sales have decreased.” A senior professional in the live-streaming industry candidly admitted, “The ROI indicator depends on the specific operational strategies of the brand; otherwise, currently, most live-streaming campaigns are more about losing money and gaining exposure.”
Furthermore, feedback obtained from nearly 50 upstream and downstream beauty companies visited in January for the “CHAILEEDO on the Frontline” segment indicates that the high cost of traffic, platform dominance, and losses from KOL campaigns have left the majority of companies with almost no profit to gain online. During CHAILEEDO’s visits, many brand managers admitted, “Currently, on online platforms, a 40% to 50% investment-to-return ratio is considered an ideal state. Many are already close to 80%, and the more we do, the less profitable it becomes.”
Zhou Jinfeng, Chief Brand Officer of Jimmy, stated, “The cost of platform traffic is three to four times higher than before, which poses a significant challenge for brands that rely on information flow to acquire customers.” The director of a leading skincare brand also acknowledged, “Although significant traffic is still on Douyin (TikTok) in the past two years, we also feel that traffic is becoming more and more expensive, and the output will not be as high as it was two years ago.” This means that online channels are difficult to sustainably gain incremental growth. Furthermore, the situation of increasing losses with more investment will become the norm.
“Strengthening offline presence has always been a necessity for brands”
Of course, the return to the familiar offline battlefield is also related to the recovery of physical retail. According to the latest data from the National Bureau of Statistics, in 2023, the retail sales of department stores, convenience stores, specialty stores, and brand flagship stores increased by 8.8%, 7.5%, 4.9%, and 4.5% YoY, respectively, among retail units with sales exceeding a certain threshold. Obviously, many perceptive Chinese domestic beauty companies have also seized the opportunity to tap into this incremental growth.
A typical example is Kans, which, from the new product launch in cosmetics stores at the beginning of the year to the recent announcement of focusing on top 100 channels, confirms that returning to offline channels will be a major event for the brand this year. In fact, after achieving the top position as the number one beauty brand on Douyin multiple times, Kans needs a significant offline presence to accommodate the overflow of traffic. Lv Yixiong publicly stated, “For the cosmetics industry, strengthening offline channels has always been a necessity for brands. Only companies with retail genes are less likely to be eliminated in the long term.”
It’s not just Kans, Marubi also started off strong in the offline realm. At Marubi’s annual general manager meeting in 2024, Sun Huaiqing, Chairman and CEO of Marubi, clearly outlined the company’s current channel strategy: “E-commerce is the growth engine, department stores are the brand high ground, daily chemicals are the offline foundation, beauty salons are the professional base, and new retail is the new business territory.” It is evident that Marubi has placed continuous expansion of offline channels in a significantly important position.
Apart from these brands that are not unfamiliar with offline channels, online-born brands such as Kefumei and Florasis have also opened offline stores, taking another step towards a dual-channel layout of online and offline. Even Shuoguoyuan, which was primarily an online platform, has officially entered the CS channel and publicly disclosed that the brand has completed 80% of regional partnerships nationwide. Luo Yun, the founder of Xianji, believes that “with the recovery of offline consumption scenarios, offline channels will be an opportunity point this year.” Red, a rising Chinese domestic brand, revealed to CHAILEEDO that “this year, the brand will invest more energy into offline channels.”
However, currently, brands entering offline channels are selective and place more emphasis on adaptability and youthfulness. In the past, many brands entered offline channels mainly to gain the advantage of network scale. But now, with the younger generation of consumers becoming the mainstream, traditional and unchanging offline stores are no longer the preferred choice for brands. During CHAILEEDO’s visits in January for the “CHAILEEDO on the Frontline” segment, several brand managers candidly admitted, “Even if we enter offline channels, it is mostly targeted towards new beauty concept stores or trendy retail stores, rather than traditional cosmetics stores.”
How to Win Offline
Behind this, the direction of offline channels has already undergone changes, with new retail formats such as beauty concept stores and fashionable new retail gaining momentum. A typical example is the KK Group, which owns KKV and THE COLORIST, and has started to turn a profit. According to the prospectus, from January to October 2023, the KK Group’s revenue was 4.769 billion yuan, with an operating profit of 376 million yuan, compared to an operating loss of 460 million yuan in the same period of the previous year.
Among them, THE COLORIST, as a new beauty format, has performed impressively. According to the KK Group’s financial report, from January to October 2023, THE COLORIST’s revenue totaled 756 million yuan, a year-on-year increase of 43%, and its operating profit reached 128 million yuan, an increase of nearly 200% year-on-year.
In addition, the popular brand Miniso, which has regarded aromatherapy as an important category in recent years, has also shown its strength in “interest-driven consumption.” According to Miniso’s latest financial report, its Q1 revenue for the 2024 fiscal year reached 3.79 billion yuan, a year-on-year increase of 37%; gross profit margin rose to 41.8%; and adjusted net profit for the quarter was 640 million yuan, an increase of 54% year-on-year.
Whether it is the KK Group or Miniso, we can see the incremental opportunities brought about by the reconstruction of offline retail formats. Firstly, the scale effect drives the increase in brand value. As of January 23, 2024, the KK Group has a total of 800 stores, including 458 KKV stores, 243 THE COLORIST stores, 64 X11 stores, and 35 KK Pavilion stores. As of September 30, 2023, Miniso has a total of 6,115 stores worldwide, with 3,802 stores in China, a net increase of 533 stores compared to the previous year.
Secondly, the rich product lines meet the diverse needs of consumers. Miniso, including the cosmetics category, has over 8,000 SKUs in total. According to the KK Group’s prospectus, as of October 31, 2023, THE COLORIST has more than 2,800 SKUs, covering six categories including color cosmetics, men’s cosmetics, and beauty devices, offering 240 domestic brands and 132 overseas brands.
In addition, new retail formats such as THE COLORIST, Miniso, WOW COLOUR, and SanFu provide consumers with differentiated product experiences that are distinct from traditional stores by constantly introducing trendy beauty products.
It can be seen that while traditional offline stores face market challenges, there are emerging new beauty formats that keep up with the times and market trends, achieving significant growth. As the saying goes, standing on the shoulders of giants allows us to see further. We have reason to believe that even in 2024, when the offline market will see a new round of competition, offline channels will be crucial for domestic beauty brands to gain incremental growth.
Furthermore, the strength of a brand is not only reflected in its online marketing and influence but also requires the support of offline physical economy, including retail stores, customer experiences, after-sales services, and other physical operations. These direct points of contact with consumers are crucial. If a brand does not perform well in its offline operations, it will struggle to fully meet consumer needs and establish strong consumer trust and loyalty. In other words, without a strong offline presence, a brand will find it difficult to become a leader.
Taking the world’s largest beauty group, L’Oréal, as an example, it can be said that it has never stopped investing in the offline market. It is evident that Aesop has accelerated its offline expansion in China after being acquired by the L’Oréal Group. According to Aesop’s official website, including the upcoming store opening in Dongshankou, Guangzhou in March, the brand currently has nine stores in mainland China, with six in Shanghai and one each in Shenzhen, Chengdu, and Guangzhou. Although the Chinese market accounts for over 60% of L’Oréal Group’s online business, e-commerce sales account for less than 27% of the entire group.
Especially in the post-pandemic era, the value of offline commerce has been emphasized once again. Many brands have begun to value offline physical stores as places for customer experiences and social interactions, further supporting the key role of offline retail in brand strength. Brands with a strong offline presence are often better able to meet market demands comprehensively, build strong brand competitiveness, and become leaders in the market.
Only by grasping trends can one secure the future. This is the golden rule for business survival and seizing opportunities. With “Offline Reconstruction” as the theme, CHAILEEDO will hold the 2024 (9th) China Cosmetics Trend To win offline in the current market.
