Under the wave of the rise of new consumption, it has given the younger generation the opportunity to surpass the older generation. In the beauty industry, there has been no shortage of “overnight success” in the past five years, with new players who create commercial miracles in just one or two years.
However, soon many of these newly acclaimed brands in the new consumer market flashed by like meteors, disappearing in the vast business jungle. In the industry’s view, the current business environment is not conducive to new brands, and it is even more difficult to become a “cutting-edge brand”.
Zhang Guoliang, the General Manager of Chuyanfuture (Guangzhou) Biotechnology Company Ltd. and the founder of the FAIRYHERB brand, bluntly stated, “I don’t really recommend starting a new brand now because the barriers are getting higher, the requirements are increasing, and the risks are greater. It’s becoming increasingly difficult to become a super brand.”
The program “CHAILEEDO in the Frontline” also discovered during its visits that the difficulty of establishing new brands has become an industry consensus, and some emerging brands that have gained some scale cannot hide their anxiety. As the Chinese beauty industry enters a period of low growth, brands are no longer facing the challenge of surviving through the winter but rather the harshest aspect of business: life or death.
The entry channel is becoming narrower
The formula “5000 Xiaohongshu reviews + 2000 Zhihu (China’s Quora) posts + winning over Li Jiaqi = a new brand” once swept the new consumer circle. It must be familiar to beauty brands born around 2018. At that time, new brands leveraged this formula to enter the market by focusing on a specific category, achieving explosive growth in a short period, surpassing traditional brands, and establishing a certain level of consumer awareness, evolving from new brands to cutting-edge brands.
At the same time, capital inflows poured into the cosmetics industry, driving innovation and growth. Tempted by various opportunities, an increasing number of imitators and entrepreneurs entered the beauty industry, fueling the wave of new brands.
However, the threat of the COVID-19 pandemic, saturation of online traffic, and capital retreat have posed survival challenges for many emerging brands. The beauty industry quickly transitioned from prosperity to decline, and the cost of starting a new brand has increased significantly.
According to incomplete data compiled by CHAILEEDO, there were 29 domestic beauty brands born between 2022 and 2023. Among them, there are fewer relatively unknown startup teams, and most new brands are backed by financially strong leading beauty conglomerates, cross-industry giants from medical aesthetics or other fields, or experienced brand operators and cutting-edge brand teams.
Zhang Guoliang also admitted, “In fact, there are relatively few new brands in China in the past two or three years, and most new brands have a solid background. The financing market is also relatively weak. It takes courage for a newly established team like us to enter the industry. Fortunately, our brand has achieved healthy growth.”
The program “CHAILEEDO in the Frontline” also discovered during its visits that the entry barrier for new brands is getting higher, the number of cutting-edge brands is decreasing, and it has become an industry consensus that becoming a super brand is increasingly difficult.
Several industry insiders from OEM factories and brand owners have stated that if someone decides to start a new brand, they need at least six months to a year of preparation for research and development, product registration, and other tasks. Zhao Kun, the Chairman of Guangzhou Q-Mas Biological Technology Co., Ltd., told CHAILEEDO, “The entry barrier for new brands will definitely become higher. Whether it’s the comprehensive abilities required of the founder, financial strength, or the requirements for brand channels, product development, and supply chain capabilities, they are already quite high. Especially now that the industry has entered the stage of multiple brands, the cosmetics industry is not something you can casually enter and play with.”
In addition to the increasing entry barriers, new brands face the challenge of dwindling financing opportunities in the beauty industry. Looking at recent years’ funding situations, brand financing is scarce, and the brands that still receive capital favor are typically established for about three years, with a certain level of recognition and substantial sales. In other words, the previous approach of storytelling to attract investment and quickly gaining attention no longer works for new beauty brands.
The founder of a plant-based skincare brand in South China also expressed that new brands entering the market now must have sufficient patience and capital to gradually build up their brand. This is one of the most significant challenges for new brands. They stated, “In 2023, we found that we put in real effort and invested money, but the feedback from consumers isn’t as immediate. Previously, we might have seen results in three months, but now the entire recovery period takes six months or even longer.”
According to Deng Jianming, the founder of OSITREE, the Matthew effect in the industry will become more severe, and large companies will gradually cover all categories, leaving no space for any competitors. He said, “If you want to compete with giants in this situation, you must have core competitiveness. This core ability is definitely not about partnering with a particular blogger or merely securing funding.” He further emphasized.
The bottleneck of a 500-million-yuan scale growth
The industry’s entry barriers have further increased, brand financing has cooled down, the expansion of leading enterprises and industry consolidation have changed the soil on which new brands rely for survival. The entry channels for new brands are becoming narrower, and even the emerging brands that have gained some scale and market recognition are not without worries.
Generally speaking, in the consumer goods industry, new brands often go through two stages: achieving sales of over 100 million yuan and breaking through the 1 billion mark to complete their first lifecycle from 0 to 1. Looking back at the development process of these cutting-edge beauty brands, after reaching the small goal of sales exceeding 100 million, most brands will encounter the 500-million-yuan sales watershed.
Deng Jianming pointed out that it is relatively easy for cutting-edge brands to achieve sales below 500 million yuan, but it is difficult to break through the ceiling of over 1 billion. “The higher you go, the thinner the air, and the fiercer the competition.”
When discussing the topic of 500-million-yuan brands, the founder of a cutting-edge beauty brand in Guangzhou raised a soul-searching question: “There are many such cutting-edge brands with good concepts, but do you know the second product beyond their flagship product? These brands haven’t done anything wrong, but their growth rates have also slowed down.”
A certain cutting-edge skincare brand currently at the 500-million-yuan mark also revealed that their core single product is no longer able to sustain the brand’s continuous growth. However, their attempts in the anti-aging category over the past year also didn’t receive significant response. The brand representative expressed with some emotion, “We are gradually exploring, but we don’t know where the future growth points lie.”
A certain functional skincare brand that broke through the 1-billion-yuan mark last year also faces the same growth bottleneck. The brand’s marketing director admitted, “We actually conducted a lot of competitor research and found that many brands are struggling with the same dilemma, which is that they can’t push serums anymore. Most brands are promoting affordable serums, but they can’t move higher-priced products.”
However, some brands believe that in the current market environment, building a solid foundation and preparing for long-term growth is a viable approach.
Bian Qianjin, the founder of Spring Letter, said, “It’s easy to achieve a high GMV in a short period of time, but consumers will quickly forget about it. I still hope to take it slow and have a process of gradual growth, ultimately forming brand awareness.” He hopes that when users need vitamin C products, the first brand that comes to mind is Spring Letter.
Xiao Xiran, the brand director of Skin Future, also revealed that in the future, the brand will continue to enhance the market competitiveness of its products by focusing on core ingredients and creating differentiated labels. She said, “From experience to product, from product to brand, let the equation ‘377=Skin Future=Scientific Whitening’ become a true consumer consensus.”
Brands can’t have weaknesses anymore
It is widely agreed upon that the era of rapid growth in the beauty industry has come to an end, and the strategy of relying solely on novelty and uniqueness no longer works. In this era of fierce competition, the key to brand competition lies in comprehensive capabilities.
Some industry insiders lamented, “In the past, a company in the cosmetics industry only needed to focus on channel distribution to sustain its business. Now, they must excel in multiple areas. If they are good at product development but lack marketing skills, they will fail. If they excel at marketing but lack product knowledge, they will also fail. Mastering both aspects is not enough; the next stage requires understanding brand strategies to thrive.”
The founder of a plant-based skincare brand mentioned earlier also told CHAILEEDO, “The current situation is apparent. It’s no longer about excelling in one aspect; brands cannot afford to have weaknesses. New brands must be relatively complete, with research and development, product quality, supply chain management, distribution channels, and marketing all in place.”
For emerging brands that have already achieved a certain scale, it is crucial to reassess their brand and team strengths and make appropriate adjustments to achieve healthy and sustainable development.
Bian Qianjin also stated that 2024 will be challenging, posing a significant test to the overall operational capabilities of the company. However, if they can rebound by the end of 2024, it will be considered crossing the cycle successfully. “Ensuring profitability and survival is the fundamental requirement. Our goal for 2024 is to accumulate strength and make the team structure, profit structure, sales ratio, and other aspects more rational, achieving a more balanced development.”
Red-hot brands that have achieved explosive growth in recent years believe that, in addition to product strength, their teams need to focus on refined operations. “There is still room for improvement in terms of event mechanisms, profit control, distribution layout, marketing strategies on different platforms, and more.”
Apart from the common challenges in product development, research, supply chain management, distribution, and marketing, several emerging brands also stated that they would strengthen their internal team’s content capabilities this year, aiming to have control over the brand’s message.
Bian Qianjin told CHAILEEDO that he strongly agrees with the notion that a brand provides users with both products and content, with content being the first point of contact with consumers. Therefore, by the end of 2023, the content team of the Spring Letter brand was reorganized and elevated to a department of equal importance to the e-commerce department. In his view, “The mindset of the content team also needs to change. It should not only focus on telling users how affordable the products are, as this approach cannot help the brand break through. Instead, the team should create content that users are willing to engage with. The core of self-promotion for a brand lies in producing high-quality content that drives conversions.”
Xian Ji’s founder, Luo Yun, expressed a similar viewpoint. In his opinion, brand marketing relies on both product-driven and content-driven approaches. Products and content are the foundation, while channels and influencers act as amplifiers. Once the foundation is solid, better amplification effects can be achieved. Luo Yun stated, “Currently, brands that heavily rely on influencers are still highly dependent on them. However, brands that produce their own content can truly establish their brand assets, attract brand followers, and even 1000 true fans can sustain a brand.”
In this ever-changing and challenging era, the battle among brands has become a comprehensive multidimensional war. In the fiercely competitive business arena, only brands that arm themselves comprehensively, constantly refine their growth strategies, and successfully transition from new brands to emerging brands have the opportunity to become super brands.
