As the world’s second-largest cosmetics market, Chinese consumers are a key driver of the global beauty industry. And according to Morgan Stanley
With this massive demand and growth potential, it comes as no surprise that the majority of top international beauty brands are already heavily entrenched in and attribute a significant portion of their sales to the China market, with many of them historically dominating sales rankings on Chinese e-commerce platforms.
However, this leading position can no longer be taken for granted. Over the past few years there has been significant shift in market share of the Chinese cosmetics industry, as homegrown Chinese brands have risen in popularity, particularly among China’s young Generation Z consumers.
Launched by parent company Yatsen Global in 2017 and often referred to as the “Glossier of China” (and even sharing investors), Perfect Diary has already surpassed its Western counterpart with a recent valuation of $2 billion USD.
And it has no plans of stopping there – while Perfect Diary’s initial success came from its innovative online marketing strategies and ability to rapidly develop and launch new products, Perfect Diary is betting on China’s lower-tier markets and experiential retail for its next phase of growth, having unveiled ambitious plans to massively expand its offline footprint by opening 600 stores across China over the next three years.
That’s not all, on June 8, parent company Yatsen Global officially launched its second brand Abby’s Choice, during the press conference mentioning the company’s plans to continue adding new brands to its portfolio as well as its aspirations to eventually expand overseas.
In this exclusive interview, Vincent Chen, co-founder of Yatsen Global gives us a closer look at Perfect Diary’s brand culture, the reasons behind the company’s explosive growth, and its vision for the future.
Hi Vincent, Could you start by introducing yourself and Perfect Diary?
Guangzhou Yatsen Global Co., Ltd was established in 2016, and is named after the three co-founders’ alma mater, Sun Yat-sen University in China. I am one of the three co-founders. Our management team consists of alumnus of Harvard, Yale, Columbia and Sun Yat-sen University in China, with professional experience from Proctor & Gamble
In 2017, Yatsen Global launched its first brand Perfect Diary, with the mission “Unlimited Beauty”. We closely track European and American beauty trends and customize them to suit Asian women’s facial structure and skin features.
Perfect Diary is committed to developing an iconic, stylish, and high-quality Chinese cosmetics brand at an affordable price point with the goal of empowering more women to feel beautiful, both in China and globally. Currently we provide offline experiences for customers in most major cities in China and we plan to rapidly expand our offline footprint over the next few years.
Our target consumer is Generation Z or young women ages 18-28. 70% of our consumers are age 30 and under, and 50% and age 20 and under. China’s Gen Z consumers are a very diverse demographic and they are constantly changing. Generally speaking, they love expressing themselves and exploring what it is that they like and want, more so than the previous generations.
These consumer characteristics have become part of our brand attitude and keywords: perfection, discovery, difference and diversity.
Why do you think Perfect Diary has achieved such great success in only three years?
We can attribute the phenomenal growth rate of Perfect Diary to two things. First, we believe in the power of a good product, both the actual product and how it is presented, so we attach great importance to our products’ packaging, concept, and quality.
For example, we collaborated with the Discovery Channel
With the emergence and development of domestic cosmetics brands, young Chinese consumers have greater autonomy in choosing cosmetics, and they have higher expectations on product quality and service.
Second, we work hard to maintain a close relationship with our consumers. Our team is young, at an average age of 25 years old. The company’s flat team structure and constant coordination between product, operation, and marketing teams enables us to respond quickly and launch products that are popular among young consumers.
To us, the purpose of marketing is to maintain constant, dynamic communication with consumers; therefore, we never limit ourselves to a fixed strategy. We will be where the consumers are. We hope to be a brand that stands with the consumers.
Consumers from lower-tier cities in China are seen as the next big market opportunity. Is this a segment that Perfect Diary focuses on?
Our core focus is on first-tier cities as these consumers have driven the brand’s success, particularly Guangzhou where the largest percentage of our online customers are from. It’s also where we opened our first offline store.
Yet at the same time, we firmly believe that lower-tier cities are the next growth market. According to Chinese e-commerce platform JD.com, in 2018, consumers in 3rd to 6th tier cities accounted for 48% of the platform’s total orders. If we look at data from 2016-2018, it’s clear that the order growth rate of Chinese brands in low-tier cities is higher than that in 1st tier and 2nd tier cities. Young shoppers in 2nd tier and lower-tier cities have contributed significantly to Perfect Diary sales.
In these cities, the cost of living is lower. On top of that, this group also has more leisure time than young people in 1st tier cities. They usually go home from work at 5 or 6 p.m. and their commutes are often shorter than those of consumers in big cities. Thus, they have more free time to eat out, chase the latest fashion trends, and shop for products that they feel can improve their quality of life and social status.
We have kept this in mind when planning our offline expansion. In order to enable consumers all over the country to have an offline experience, Perfect Diary plans to open 600 stores throughout China over the next three years, covering all the 1st tier cities as well as many 2nd, 3rd, 4th, and 5th tier cities.
Speaking of offline expansion, I’d like to know more about that. Could you share how relevant offline stores are for driving sales and why Perfect Diary is planning such an ambitious offline footprint?
At present, e-commerce still accounts for the majority of sales, however, we are confident that offline stores will become a key segment for Yatsen Global and will see the most rapid growth in the coming years.
This year, we are planning to open more than 200 stores, and as we were just discussing, the lower-tier market will be our strategic focus. We expect that the number of the 3rd and 4th tier cities in which we have an offline presence will grow from only three in 2019 to nearly 80 by the end of this year.
Offline retail is an important part of the journey because it allows consumers to experience our brand and products with all of their senses. At Yatsen, when designing a product, we stress what we call the “four sensations” meaning how the product looks, feels, whether it is easy to apply, and whether it photographs well.
These aspects can be difficult to convey online, therefore offline stores are an important channel to engage consumers and optimize their experience with the brand.
Yatsen Global hopes to build a long-lasting brand and we feel we need to open offline channels to do so. We are willing to shoulder the costs of offline retail to give our consumers the perfect experience.
With such a strong emphasis on offline retail, how did Perfect Diary deal with shut-downs due to Covid-19?
Throughout Covid-19, our “online + offline” model has been one of our major advantages. With this model, our offline stores can flexibly shift their staff to support our online business. For example, our sales associates can begin live streaming.
E-commerce live streaming has experienced massive growth in China during the Covid-19 pandemic and we took full advantage of this. According to statistics, in February, the number of live streaming sessions Perfect Diary held on Alibaba’s Taobao Live Streaming platform increased by 28% month-to-month, and sales grew nearly 170%.
The average number of viewers on our WeChat mini program live streams was 3-10 times higher than the month before, and the conversion rate was 2-3 times higher than streams on other platforms.
Lastly, let’s talk more about marketing. Working with mass numbers of KOCs (key opinion consumers) on the Chinese social media platform Xiaohongshu and running thousands of private WeChat groups are two marketing tactics that Perfect Diary has become famous for.
These tactics can be very labor intensive, why has Perfect Diary chosen them?
Like I mentioned earlier, we want to be a brand that stands with consumers. To us, the term “marketing” means building a communication bridge between us and our consumers. Maintaining close contact with them allows us to gain a deeper understanding of their preferences and needs, thereby enabling us to launch products they like. That is what inspired us to use these tactics, because they let us stay close to consumers.
What’s more, we believe that reputation is not built through marketing, but by maintaining consistency between word of mouth and product quality. ‘Product power’ is the core driving force in the development and growth of Perfect Diary.