If you want to see the future look to China where old school brand building has given way to omnichannel integration grounded in a digital ecosystem that seamlessly connects bricks and mortar to e-commerce.
According to Statista data sales of cosmetic products in China reached $65.32 billion in 2019 and are projected to reach $69.87 billion this year. While the opportunity for beauty brands in China is real, one thing that has become clear is success requires a strong local partner to navigate the cultural nuances of the market and the fast-paced, wildly sophisticated marketing ecosystem.
Founded in 2017, USHOPAL is a brand acceleration group that partners and invests in the next generation of luxury brands in the beauty and wellness space. The business is uniquely positioned to focus on niche, global luxury beauty brands with limited awareness in China. In 2020, its gross merchandise volume (GMV) reached over $200 million.
Lu Guo, Founder and CEO, USHOPAL shared her insights on the dynamic Chinese market and the building of the unique USHOPAL beauty ecosystem.
Can you share a bit about the USHOPAL business and what differentiates your approach when working with brands?
We founded USHOPAL in 2017 with a unique focus on niche, global luxury beauty brands of the highest standards but with limited awareness in China. Our portfolio covers brands exclusively sold at high-end retail outlets such as Harrods from the UK, Le Bon Marché from France, Neiman Marcus from the US, etc. Within 4 years, we were able to quickly grow past $200 million GMV in 2020, and scaled our portfolio of luxury niche brands into major beauty players, such as Natura Bisse, Juliette Has a Gun, Chantecaille, and more.
We developed early on unique omni-branding and growth capabilities for portfolio brands with a fleet of more than 2,500 luxury influencers, an in-house content studio branding team, an omni-channel growth team, Tmall retail operations, global logistics and Bonnie & Clyde – our multi-brand luxury retail store and experience centers, to align all consumer touch-points on a consistent luxury experience.
In 2019, to better align long-term growth objectives with our brands, we built a large capital reserve of over $200 million to co-invest on brand awareness, and to scale up operations supported by equity investments. One recent example is the market-leading niche perfume brand, Juliette Has A Gun, which we invested in equity at the global level, scaling it to number 3 in the fragrance category.
Up to this point, most brands focus on entering the Chinese market cross border or, more specifically, with T-Mall. While e-commerce is essential, the Bonnie & Clyde beauty concept stores are a unique differentiator for USHOPAL. What was the thinking that informed the investment in brick and mortar retail?
We started Bonnie & Clyde to develop a curated retail space where consumers could trust our world-class assortment of leading luxury beauty and lifestyle brands. Bonnie & Clyde has become a top luxury beauty destination and sales channel at top-tier locations in Shanghai including the prestigious Jing An Kerry Center, HKRI Taikoo Hui, Plaza 66, and K11. With such a strong focus on the luxury consumer, we are able to develop an average transaction value over 5,000 RMB ($715) with customers often spending over 10,000 RMB ($1,500) per ticket. We are currently expanding to more metropolitan areas such as Beijing and Chengdu and will reach 11 stores by the end of 2021.
Unlike other beauty chains that focus on mass traffic, discounting, and sample-selling without government authorization and thus cannot access these top-tier retail locations, Bonnie & Clyde is fully authorized by the brands. We are able to showcase brand-dedicated shop in shops and feature gathering spaces for meet-ups with key opinion leaders (KOLs).
The Bonnie & Clyde click-and-mortar concept effectively merges online and offline operations. Can you share how you are selling cross-border retail in a physical retail location?
Bonnie & Clyde also offers customers the unique opportunity to experience non-animal-tested cross-border luxury beauty and lifestyle products across all their locations. Consumers then purchase the products online. Notably, Bonnie & Clyde is the only beauty destination with an infrastructure that will deliver all products within 4 hours to customers with customs fully cleared offering a seamless customer shopping experience.
Can you explain the importance of “traditional” retail in the Chinese consumers’ path to purchase?
Brick and mortar stores serve the vital purpose of enabling consumers to engage immersively with brands so it is crucial that offline retail create that connective brand experience beyond the purely transactional purpose. For example, Bonnie & Clyde has a very strong focus on educating and training beauty advisors to create long-term customer relationships that focus on helping solve their beauty concerns.
As the second-largest beauty market globally (for now), tapping the potential of the market is vital to the growth of international beauty brands. What are some of the best practices businesses should be aware of when developing strategies for the Chinese market?
Understanding how to develop a brand that can resonate with local consumers is the first hurdle brands must address. It is not enough to simply use other markets as reference and assume similar success. The way consumers engage with brands is much more fragmented, from sales to social to PR channels. Second, having an omni-channel strategy is key to success in this market. Too often, we see really great brands coming in without a cohesive strategy across channels; these brands fail to achieve their planned growth and market share and instead rely on discounting to drive sales.
The evolution of the social commerce landscape happens at such a fast pace it is hard for those of us outside the market to keep up. Can you share the most important elements and players that have emerged?
One of the largest social commerce platforms that has captured market share from both Alibaba and Tencent is Douyin (Tiktok). Douyin in China is quite different from its western Tiktok counterpart, as its whole e-commerce capability, conversion, and traffic buying function is already very mature. Consumers are leveraging live stream to discover products and generate sales conversions.
The Chinese consumer is wildly sophisticated, and Gen Z and Millenials are an essential and demanding demographic. What do they expect from brands and retailers in the premium/luxury beauty space?
Chinese gen-Z consumers today are not only knowledgeable about products, but also have a demand for brand purpose. They seek brands that they feel can represent their identity, and speak to them on an individual basis. Gen-Z consumers through social media is no longer tied to a location-based on city tiers, instead, they are tied to what we call interest tribes. Being able to capture that consumer mindset is the first step we as brand builders must achieve to ensure long-term healthy growth.
Animal testing has been such a hot topic for brands contemplating entering the Chinese market, especially clean beauty brands. While cross-border has been a way to mitigate this issue, it also caps the market potential.
Do you have any insight you can share on the topic related to timing, the impact on registration, and the size of the domestic opportunity?
We are already seeing regulatory easing throughout the entire testing process. However, there are still many hurdles and regulatory changes, from pathological testing methods, to importation. Although the domestic market can potentially drive growth for some brands, opening up the regulation also means a more competitive landscape.
I would love to dive into some trends that have been top of mind at BeautyMatter.What impact has the emergence of homegrown brands like GirlCult, Perfect Diary and Florasis have had on the beauty landscape for international brands?
Homegrown brands have for the past year been primarily focused on driving high sales volume, developed for a mass consumer base, which has captured market share from international brands that cannot adapt as quickly, or iterate on more localized products.
Clean beauty has been a high-growth category globally. How has the trend translated in China, and how important is clean beauty to the Chinese consumer?
Clean beauty as a whole has seen significant growth in the past 2 years. With the covid impact, it’s brought consumers to understand more about natural clean beauty, driving the overall demand for and acceptance of this category.