Summary of Key Points
The performance of the domestic beauty group, Shangmei, plummeted in the first half of this year: total revenue dropped by 8.6% to 3.757 billion yuan, and net profit plummeted by nearly 80% to just 126 million yuan. The initial reaction from the outside world was that the main brand, Hanshu, had failed due to its decision to abandon the influencer-based sales strategy it previously relied on and switch to its own live streaming approach. However, upon closer investigation, it became clear that this was just a catalyst for a series of long-standing issues within Shangmei, ranging from channel distribution to brand building and the development of new brands. This decline in performance has exposed all the hidden problems the company had been dealing with.
---
Detailed Analysis
1. Abandoning influencer-based sales was not a fatal mistake; it was a attempt to take control, but the execution was poor and wasteful
Many people thought Hanshu made a hasty decision to give up the profitable influencer sales model. In fact, this move was quite reasonable: nearly half of Hanshu's sales used to come from external influencers, which meant the company's success was tied to their performance. As influencer commissions increased, and they might switch to competing brands, Hanshu's sales could be halved overnight. By moving to its own live streaming platform, Hanshu aimed to control traffic and customer base, reducing long-term risks. However, the implementation was flawed. Hanshu failed to invest in creating high-quality content or improving its live streaming capabilities. Instead, it hastily expanded from having just over 30 live streams to more than 1,000, with each stream selling only one product. The scripts, backgrounds, and hosting styles for all the hosts were uniformly copied and pasted, resulting in a lack of engagement. Of the accounts, only the main account had over ten million followers, while the majority of the other streams had fewer than 200,000 followers. As a result, the company's sales expenses increased by 6.2% in the first half of the year, with 66 yuan out of every 100 yuan spent on sales going towards traffic and live streaming costs. This not only failed to save money but also missed out on the sales volume that used to come from influencers.
2. Channel distribution was a risky strategy, with all bets on TikTok
Hanshu's current channel distribution strategy is quite risky, with over 90% of its revenue coming from TikTok, leaving it with very few options outside of this platform. The company started with offline beauty stores but shifted its focus to online sales in recent years, neglecting its traditional channels. Attempts to revive these channels, such as opening concept stores or entering partnerships with retailers like Watsons and KTV, have been unsuccessful. This year, during the 618 shopping festival, international brands like Estée Lauder and Helena Rubinstein invested heavily in TikTok influencers, capturing a significant share of the market. Hanshu, on the other hand, failed to attract enough viewers to its own live streams, leading to further losses.
3. Weak brand strength makes it difficult to increase prices and retain customers
The affordable beauty market is highly competitive, with brands like Perlaia, Olay, and L'Oréal competing fiercely in the same price range. Hanshu's reputation has been associated with low-price promotions through live streaming, making it difficult to raise prices and retain customers. Its TikTok repurchase rate is only 18%-22%, meaning less than 20% of customers buy again. In contrast, Perlaia has a 45% repurchase rate for its core products, indicating that half of its customers no longer remember Hanshu. Hanshu also invested heavily in brand enhancement, such as signing several endorsers and launching new anti-aging products, but these efforts were ineffective. Consumers are more familiar with well-known brands like Botox and retinol and not with Hanshu's own anti-aging ingredients, leading them to switch to more established brands.
4. Lacking a second growth driver, no other brands are strong enough to support the group
For a beauty group to thrive, it cannot rely on a single brand. Perlaia, for example, has several successful sub-brands, each generating over 100 million in annual sales. Shangmei, on the other hand, has no other strong brands. Its once-popular brand, Yeyezhi, has seen its sales drop significantly in recent years, and new brands have struggled to gain momentum. The group's success is now tied to Hanshu, and without it, the entire company is at risk.
---
Concluding Summary
The sudden decline in Shangmei's performance is not due to the decision to abandon influencer-based sales alone. It reflects years of relying on TikTok for quick profits without investing in long-term strategies such as content creation, offline channel development, and brand building. Now that the traffic benefits have faded, all the previous shortcomings have come to light, leading to a sharp decline in performance.