Skin in the game

Perfect Diary endorser Zhou Xun

Washing your face is the most basic step of any skincare routine. But UK beauty brand Eve Lom has created a cult product that its devotees describe as turning face-washing into a ritual. Its bestselling balm cleanser, which costs $80 for just 100ml of product, is infused with botanical oils. The pitch is that the product not only gets rid of the most stubborn make-up but also keep the skin hydrated.

Chinese beauty giant Yatsen is also a fan. The company, which owns the beauty brand Perfect Diary (see WiC504), announced this month that it is to acquire Eve Lom from private equity firm Manzanita Capital for an undisclosed sum. Manzanita, which is also an investor in beauty brands like Diptyque and Byredo, will retain a minority stake in the business and start a strategic partnership with Yatsen.

Eve Lom has earned a “loyal following driven by its hero products,” Yatsen CEO Huang Jinfeng said in the statement on the deal, adding that the brand has shown “resilient sales and profitability” during the pandemic.

Yatsen raised over $600 million in a New York IPO last November and it also acquired the French premium skincare brand Galénic at the end of the year.

Both deals highlight how the Chinese cosmetics giant is expanding its portfolio to include more high-end labels, with a focus on reducing some of its reputation for cheaper products. “The prices of these two premium brands [Eve Lom and Galénic] are between Rmb300 and Rmb1,000 – a range that the make-up company, which was known for selling low-end beauty products [a tube of lipstick from Perfect Diary costs Rmb79 on Tmall], hadn’t been able to reach,” commented TMT Post.

Perfect Diary contributed virtually all of Yatsen’s revenues in 2019, according to its IPO prospectus. As more brands were added the proportion fell to less than 80% in the first nine months last year.

Local consumers seem interested in the new chance to buy the Eve Lom brand too, although some have missed the point on the premium pricing strategy. “After Eve Lom is acquired by Perfect Diary, will its products become more affordable?” one netizen asked hopefully.

News of Yatsen’s latest acquisition comes after an announcement from its rival Chicmax that it is in preparation for an initial public offering in the domestic A-share market. Founded in 2002, the Shanghai-based Chicmax owns several domestic skincare brands like Kans and One Leaf. Like Perfect Diary, it has struck a chord with consumers with its savvy marketing. For instance, the name Kans evokes the image of a Korean brand (and the first character of its Chinese name means Korea), tapping into the popularity of ‘K-beauty’.

As first-tier cities are often saturated with the bigger foreign beauty firms, Chicmax tends to target shoppers in less developed cities and more rural areas, where lower prices are the main attraction for consumers. The company’s top seller, the Kans pomegranate skincare set (a cleanser, toner, face cream and serum) retails for just Rmb139 and Kans regularly sells 1.9 million units a month on Tmall.

Chicmax has invested heavily in advertising from early in its existence and it was one of the first to embrace e-commerce livestreaming, a sales channel that few have ignored during the pandemic.

“Advertising does not necessarily make a brand, but it is difficult to make a brand without advertising,” claimed its founder Lu Yixiong.

Investors have taken heed. In 2015, Chicmax raised Rmb400 million from Citic Capital, Lianxin Capital and Mingyao Capital. Last November, there was another Rmb500 million round from other domestic funds.

So why IPO now? Chicmax is planning to boost its marketing spend. And if growth at One Leaf and Kans shows signs of slowing, it may need additional capital to fund the development of the lesser known brands in its portfolio. “With the emergence of new brands as well as competition from foreign firms like L’Oreal and Estee Lauder, Chicmax needs more exposure [i.e. marketing] and capital if it wants to stay relevant,” industry commentator Xu Xiongjun told Beijing Business Today.

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