China Consumer

IPO diary

Yatsen is first Chinese cosmetic firm to list in New York


Zhou Xun: new ambassador

It is counterintuitive to think that cosmetics companies could do well during a pandemic – given that it has turned wearing a face mask into a social norm.

But Yatsen Holding has proved otherwise. In fact, the operator of Chinese makeup brand Perfect Diary has been faring well enough to launch a $100 million initial public offering in New York this month – doing so regardless of the prevailing Sino-US political tensions.

The four year-old company’s market debut was bolstered by its impressive financial results. In the first nine months the company’s revenue jumped 73% on the year to Rmb3.3 billion ($481.9 million), surpassing the full-year figure for 2019 (which itself was a windfall year, with a fivefold increase in the top line versus a year earlier.) Its customer base had also grown by 50% to 23.5 million individuals (largely served by direct sales).

When we first reported on Yatsen in WiC476, we noted that the trendsetting company, valued at $4 billion pre-IPO, owed its rapid ascent to micro influencers or key-opinion-consumers (KOCs) on the social e-commerce platform Xiaohongshu.

Since then, the expansion strategy of the fast growing Guangzhou-based company has evolved and become more multi-pronged.

First, the company has shifted from being internet-only to relying more on online-to-offline channels. Having opened its 200th Perfect Diary branded store in Shenzhen’s COCO Park shopping complex recently, Yatsen is on track to operate some 600 outlets by the end of 2022. Serving as showrooms where customers can experiment with its wide array of products and take part in promotional events, these bricks-and-mortar units are highly effective in generating sales. Nearly 70% of the customers who make purchases through Yatsen’s offline stores are new customers for the brand, reported Huxiu, a local news source.

Yatsen is seeking to add new brands to its portfolio too in order to diversify its offerings and extend its consumer reach. In 2019 it acquired Little Ondine, a cosmetics brand targeting women under 30. And in June, it launched Abby’s Choice, which is known for its safe and effective skincare products (see WiC504). Both brands appear to be replicating the speedy success of Perfect Diary. Little Ondine took eight months from its relaunch to achieve the same level of monthly gross sales as Perfect Diary in its first year and Abby’s Choice achieved the same in just three months. Perfect Diary itself became the top colour cosmetics brand (‘colour’ in this case means items like lipsticks and eye shadows but not skincare products) on Tmall by gross merchandise value within 13 months of launch.

Yatsen is now going premium, as signalled by the revamp of its brand logo, the hiring of A-lister Zhou Xun as a global ambassador and the acquisition of luxury skincare brand Galénic from France’s pharmaceutical group Pierre Fabre.

It is also taking more control over product quality by working with South Korea’s Cosmax, the world’s biggest cosmetics manufacturer which supplies brands such as Christian Dior, Lancome, and L’Oreal. Under the Rmb700 million partnership, Yatsen and Cosmax plan to establish a manufacturing hub with research and development capabilities in Guangzhou.

Separately, it is setting up a skin research lab at Sun Yat-sen University, the alma mater of the three co-founders of Yatsen (who named their start-up after ‘China’s founding father’).

“Over-reliance on OEM is unsustainable,” Chen Yuwen, a co-founder, told the People’s Daily, adding that the company will spend at least Rmb100 million on skin research in the next three years.

Yatsen’s effort have helped lift its average net revenue per customer to Rmb120.7 in September from Rmb82.6 in 2018, and maintain its gross profit margin of around 63% during the pandemic (compared to Estee Lauder’s 77% in 2019). However, its marketing expenses, which ballooned 2.5 times in the first three quarters, plunged the company to a net loss of Rmb1.1 billion.

It will set aside 30% of the funds from the share sale for strategic investments and acquisitions and 20% for data analysis technology and product development.

Yatsen will need to fend off many domestic competitors, whose products have been rising in popularity. These include Winona from Yunnan and Zhenyan, an OEM cosmetic company that has introduced a number of brands lately.

Pien Tze Huang Pharmaceutical, a traditional Chinese medicine producer, is also planning to spin off its cosmetics segment in a domestic IPO.

































Keeping track, Nov 16, 2020: Last Friday Yatsen updated its IPO plan, announcing to sell 58.8 million American Depositary Shares (ADSs) at a price range of $8.50 – $10.50. At the midpoint of the indicated range, Yatsen could raise $558 million on a fully diluted market value of $6.4 billion, according to Renaissance Capital, an IPO-focused investment firm based in Connecticut.

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