Watsons Stays in the Black in H1 as Offline Retail Market Slumps

Abstract: Watsons’ first-half China revenue declined 17.6%. But it remained one of the few offline retailers to keep profitable amid the challenges of the epidemic lockdowns.

On August 4, Watsons’ parent company, CK Hutchison Holdings Limited, released its financial results for the first half of 2022. As a result of the epidemic in the first half of the year, Watsons’ revenue in China declined to $1.23 billion, down 17% year-on-year. Its sales in stores decreased 17.6% year on year. However, CHAILEEDO learned that Watsons remained profitable overall. It recorded an EBITDA of $79.4 million making it one of the few retailers that did not lose money in the first half of the year.

Since 2018, China’s new beauty collection stores have taken off with innovative brands such as The Colorist, KKV, and Harmay emerging one after another. It has impacted traditional beauty collection stores like Watsons. According to a report released by the Forward Research Institute in 2022, the market size of new beauty collection stores in China was $209 million in 2020 accounting for 2.9% of the overall market size of beauty collection stores. It is expected that by 2026, the market size of new beauty collection stores will reach $6.6 billion.

Beauty collection stores were growing by leaps and bounds between 2018 and 2021. Take KKV as an example, KK Group, KKV’s parent company, released a financial report showing a CAGR of 246.2% in GMV from 2018-2020. The main brand KKV’s GMV in 2019, 2020 and the first half of 2021 was $14.4 million, $171 million and $203 million, respectively. The figure showed an obvious growth. In comparison, Watsons’ same-store sales growth in China was -1.6% in 2018. With a small rebound in 2019, it achieved 2% year-over-year. However, it slips 21.8% by 2020 during the epidemic.

However, in the first half of 2022, there were more serious COVID-19 cases in some provinces and cities in China causing many beauty companies’ logistics supply chains to be affected by this inability to deliver in a timely manner. It affected customers’ purchase demand and their willingness to consume beauty products. National Bureau of Statistics data shows that in the first half of this year, China’s overall total retail sales of cosmetics consumption declined for the first time in nearly 10 years.

Offline retail stores have also been affected by the pandemic and weak customer spending. In April 2022, a number of stores of HAYDON, a collection store brand of high-end beauty retail, located in Hangzhou, Shanghai and Harbin, announced temporary store closures. Sephora, a global high-end beauty retailer, also mentioned in its earnings report that offline store traffic decreased in the first quarter of 2022 due to hygiene restrictions in China.

As the sluggishness of offline retail channels, traditional beauty collection stores such as Watsons and others also need to seek transformation in order to survive the downturn in the offline retail market. In 2018, Watsons accelerated its digital transformation and subsequently pioneered Online+Offline retailing. It used digital technology to gain better insight into users’ consumption preferences. In addition, Watsons has also entered the live streaming platform in recent years to explore the way for live streaming.

In March, Watson announced its financial results for the year ended December 31, 2021, with global sales of $22.1 billion in 2021, up 9% year-on-year. Its health and beauty products segment accounted for 84% of the retail segment’s revenue in 2021. In China, Watsons’ full-year revenue for health and beauty products reached $2.9 billion, up 14% year on year. It is the largest increase in the past five years. The report also mentioned that Watson expanded its customer base by integrating offline stores with its online platform. This O+O retail model was an important factor in its return to sales growth.

Overall, Watsons’ evolution over the past few years has been based on digital transformation. Its O+O retail model provided consumers with a better and more efficient shopping experience and this model will become a new direction for beauty companies to explore.




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