Next stage of growth? The firm behind Perfect Diary refocusing efforts on skin care as make-up wanes

Founded in 2016, the Chinese cosmetics unicorn is one of the most successful beauty brands from China. The company's flagship brand, Perfect Diary, claims to be one of the top make-up brands in China in terms of online retail sales value.

However, the firm has been hampered by what it has observed to be the softening of the colour cosmetics category amid the deceleration of general consumer spending in China.

“This extended into the Singles Day promotion period between November 1 and November 11, during which colour cosmetics sales on Tmall fell by low-single-digit compared to the prior year,”​ said Huang Jinfeng, founder, CEO, and chairman of the company.

Despite the strength of Perfect Diary, the challenging macroeconomic backdrop saw the company’s make-up sales wane.

“Gross sales from our cosmetic brands, which make up approximately 84% of total gross sales decreased by mid-single-digit year-on-year in the third quarter,”​ said Huang. “The majority of this quarter's sales came from colour cosmetics. These factors inevitably slowed the group's overall growth.”​

On the bright side, the company’s skin care portfolio has had a stellar quarter, growing 257% year on year.

This quarter, skin care accounted for only 14% of total revenue, and the company believes this number has a lot of room to grow.

It is currently undergoing a transition that would improve its skin care sales overall.

“The whole company is taking a transition strategy, which means we are improving our sales in skin care brands. And then right now, skin care brands taking almost 14% of the revenue in Q3 and the total number will be almost increased to 20% in Q4,” ​said Huang.

“Looking forward, we believe the percentage of the sales of skin care brands will continue to increase next year. And the growth – the high growth rate of the skin care brands will also help to bring the company's growth to normalised stage. However, I think this might take a few quarters to reach that.”​

New players

The company first ventured into skin care with the launch of Abby’s Choice in June 2020. In the same year, it acquired premium French skin care brand Galénic and Chinese skin care brand DR.WU.

Then in March this year, it announced the acquisition of UK prestige skin care brand Eve Lom from Manzanita Capital.

During the Singles’ Day mega-shopping event this year, Eve Lom and DR.WU performed remarkably on Tmall, with sales recording growth by 100% and 1,400% respectively.

Additionally, Galénic saw one of its products become the top-selling imported facial serum during the period.

“The overall gross sales from our skin care brands grew by around 477% compared to the prior year’s Singles' Day period, underscoring the strength of our skin care business this year,”​ said Huang.

Getting serious about skin care

Recently, the company purchased another domestic company that owns EANTIM, a small skin care player in the microbiome beauty space.

Additionally, it also invested in Ming Med Biotech, which develops pharmaceutical products.

“With this investment, we intended to stand at the forefront of developing cutting-edge biomedical technology for future potential applications in the field of beauty,” ​said Huang.

Furthermore, Yatsen has also welcomed Ruijin Hospital of Shanghai Jiaotong University School of Medicine and Sun Yat-sen University to collaborate on skin care research.

The dermatological department of Ruijin Hospital is a national-grade clinic with speciality in refractory skin diseases and Yatsen said they would jointly establish a lab focusing on skin care R&D.

Yat-Sen University has agreed to a three-year collaboration covering five areas of research including the development of new ingredients to address specific skin issues.

“Our collaborations with these two preeminent academic research institutions will significantly bolster our open lab R&D capabilities,”​ said Huang.

According to the company, it has increased its R&D expenses to 2.7% of its third-quarter net revenue from 1.1% last year.

For its third-quarter earnings, the company recorded that total net revenue increased by 6.0% to RMB1.34bn (U$208.4m).

Its gross profit increased by 9.6% to RMB911.8m (U$141.5m) while gross sales increased by 8.3% to RMB1.56bn U$241.9m.

The firm’s operating losses amounted to RMB369.3m (U$57.3m), a decrease of 42.7% from the previous year.