Perfect Diary & Huaxizi: The growth code of the beauty dark horse

The two dark horses of domestic beauty brands - Perfect Diary and Huaxizi , have achieved astonishing growth rates. In just 2-3 years, Perfect Diary and Huaxizi broke through the annual sales growth ceiling of 1 billion for beauty brands.

Before the emergence of these two dark horses, the capital circle's annual sales threshold for Chinese cosmetics brands has always been around 1 billion, which is the scale of Mary Kay. It took Mary Kay about 10 years to grow from its founding to a billion-dollar scale.

However, Perfect Diary achieved annual sales of over 3 billion in just two years from 2017 to 2019. Huaxizi, founded in 2017, achieved annual sales of nearly 2 billion yuan on Tmall in 2019. This year, Huaxizi's annual sales are expected to be close to 3 billion yuan.

How were Perfect Diary and Huaxizi able to greatly shorten the sales growth period by reaching 3 billion in just 2-3 years? Why was it able to break through the annual sales growth ceiling of 1 billion in the beauty industry? Today, let’s take a closer look~

01 The underlying logic of rapid growth

Unlike traditional brands, emerging domestic beauty brands were born in the era of Internet expansion where “speed is everything”. Whether it is the product research and development process, the life cycle of e-commerce traffic, or the consumer's purchasing decision process, they all tend to be shorter and shorter.

1. Product development process

In the past decade, the rules of the entrepreneurial game have been changing. The Internet's "lightning expansion" model is becoming popular, the most typical of which are the taxi war, the food delivery war, and the shared bicycle war.

Blitzscaling refers to the pursuit of rapid growth in the face of uncertainty, prioritizing speed over efficiency.

Perfect Diary's speed in new product development and sales is astonishing. Compared with the average 7-18 month new product development process of international brands, Perfect Diary develops products in less than 6 months. It can be seen on the official website of the National Medical Products Administration that Perfect Diary registered more than 1,500 SKUs between 2018 and 2019, which is twice that of KISS ME. Perfect Diary has been launching new products crazily in the two major categories of lipstick and eye shadow, and has quickly captured the market with its low price of just over a hundred yuan.

Relatively speaking, Hua Xizi is not so radical. Hua Xizi chose to go all in on the loose powder subcategory. From August 2019 to August 2020, 44% of Huaxizi's sales came from the popular air loose powder.

Originally, most loose powder products were priced below 150 yuan, while Givenchy, Nars and Makeupforever were priced above 300 yuan. Huaxizi filled the price gap between 150-300 yuan and expanded the niche category of loose powder into a mass category.

Using the iterative thinking of Internet products, Hua Xizi sends samples to experience officers free of charge when a product has reached 60%-70% and continuously iterates its products based on user feedback.

2. The life cycle of e-commerce traffic

Perfect Diary has accurately grasped the traffic dividend of Xiaohongshu. Its advertising volume on Xiaohongshu far exceeds that of other brands.

Currently, Perfect Diary’s official Xiaohongshu account has 1.94 million followers, while international brands such as L’Oreal have only 290,000 followers, Estee Lauder has 210,000 followers, and Shiseido has 130,000 followers.

Hua Xizi took advantage of Taobao's live streaming to sell goods. Hua Xizi is deeply bound to Li Jiaqi and accumulates traffic with the help of Li Jiaqi's live broadcast room. In September 2020, Li Jiaqi sold 28.34 million yuan of goods for Huaxizi, and Huaxizi’s Tmall GMV for the same month was estimated to be 191 million yuan. In other words, Li Jiaqi alone brought 15% of Huaxizi's sales. In October, during the pre-sale period of Double Eleven, it was estimated that Li Jiaqi brought in 126 million yuan worth of goods for Huaxizi, while the GMV of Huaxizi's sales on Tmall that month was estimated to be 195 million yuan, with Li Jiaqi's sales accounting for 64.6%.

Douyin, Kuaishou, Xiaohongshu, Taobao Live...major Internet platforms are competing for traffic. In the limited traffic life cycle, investing heavily in resources has become the only way for young consumer brands to stand out and grow rapidly.

3. Consumer purchasing decision process

The advent of social e-commerce has greatly shortened the time it takes for users to buy something and improve sales conversion rates.

According to a survey conducted by Clour Research, 67.8% of users believe that content that promotes products has a great influence on product selection and ultimate purchasing behavior, 74% of users have purchased products that have been promoted, and 80.7% of users will complete the purchase within a week after being promoted.

KOLs control product quality by trying out products. Based on their trust in KOLs, consumers begin to consider brands they are not so familiar with, and thanks to the convenience of online shopping, they quickly buy them. The shortening of consumers' shopping cycles has made it possible for Perfect Diary and Huaxizi to quickly increase sales.

02 The Password to Break Through the Threshold

Next, let’s discuss why Perfect Diary and Huaxizi were able to break through the growth threshold of “annual sales of 1 billion” in the beauty industry? This is inseparable from the explosion of the domestic cosmetics market.

The birth time of Perfect Diary and Huaxizi surprisingly coincides with the inflection point of the growth rate of the domestic cosmetics market.

Since 2017, the domestic growth rate has clearly turned upward, reaching 12.3%. In 2018, the overall growth rate of beauty products reached 14.9%, maintaining a high growth trend, among which the growth rates of skin care products and cosmetics were 15.2% and 26.5% respectively. (Source: Euromonitor International data)

At the same time, domestic per capita consumption in 2018 increased by 17% year-on-year to US$28 per person, surpassing the global average (US$27 per person) for the first time. However, there is still a big gap compared with Europe, the United States, Japan and South Korea. It is only 1/7 of Japan (US$193 per person), among which skin care products are only 1/6 of Japan, and cosmetics are only 1/10 of Japan. It seems that the domestic cosmetics market still has a lot of room for improvement.

The boundaries of consumer groups are gradually expanding, and Generation Z has become the main force in the cosmetics market, bringing development opportunities for new consumer brands such as Perfect Diary and Huaxizi. Generation Z accounts for a small proportion of the total population, but has strong Internet stickiness and makes a large contribution to e-commerce consumption.

Data from PricewaterhouseCoopers shows that the new internet generation born after 1996 accounts for 25% of China's population, but contributes 60% of the overall consumption growth. Alibaba data also shows that people born after 1996 contributed the fastest per capita consumption growth for fast-moving consumer goods on Tmall and Taobao, with per capita consumption increasing by 30% each year from 2016 to 2018.

They have a higher acceptance of domestic beauty products that focus on "high cost-effectiveness"; they are more willing to accept recommendations from KOLs; they have a higher sensitivity to the appearance and color of products, which has opened up a breakthrough for Perfect Diary and Huaxizi.

03 Conclusion

In just 2-3 years, Perfect Diary and Huaxizi achieved annual sales of over 3 billion, and have boarded the fast-growing domestic cosmetics market. Under the Internet's gene of "speed is invincible", they grasp the traffic dividend of e-commerce channels and quickly occupy market share through new product iterations, Xiaohongshu recommendation, Taobao live streaming and other methods. At the same time, the consumer decision-making cycle from planting grass to pulling grass has been greatly shortened, making it possible to "accelerate the sales chain."

Whether in terms of growth rate or sales threshold, Perfect Diary and Huaxizi are running faster and farther in the domestic beauty track. However, to compete with international brands, one must have brand power that can stand the test of time and influence that gradually expands overseas. When all the dividends are gone, being able to still be the top is the best gift for coming of age.

Author: Vinky

Source: Sanyan Liangyu