The formula of the glory of domestic products has failed, is Juduo being marginalized?

Currently, the domestic skin care products market is booming, but the cosmetics industry is another story.

The market value of skincare company PROYA has increased tenfold in five years since its listing, creating a wealth legend; while Perfect Diary's parent company Yatsen E-Commerce, which mainly engages in cosmetics, has seen its stock price fall since its listing. In just two years, its share price has dropped from US$10.5 per share to US$1.47, a drop of 86%.

Mao Geping, a long-established domestic cosmetics brand, has yet to obtain approval for listing since submitting its prospectus in 2017.

Recently, an investor told Zidan Financial that Juduo's parent company, Juyi Group, is launching an IPO. However, after verification, Juyi Group denied the above statement to Zidan Financial, but at the same time said that the company has completed multiple rounds of financing and listing is a process that will definitely be taken in the future, but the time is not right yet.

The capital story of cosmetics brands is difficult to write. There is the previous experience of Perfect Diary and the hard work of Mao Geping. Regardless of whether to launch an IPO now, it is always a good thing to prepare for a rainy day. So, for Juyi Group, what are the remaining hurdles on the road to capitalization?

1. Frequent equity changes

"We currently have no listing arrangements. From a business perspective, the company has maintained positive cash flow and has no financing needs. Judging from the current state of the capital market, this timing may not be the best choice." Recently, "Bullet Finance" asked the company whether Juyi Group will start the listing process in the near future. A person in charge of the public relations department of Juyi Group said.

Although the above person in charge said that now is not the right time to go public, there are also successful cases compared with peers. For example, in early November this year, Juzi Bio, a professional skin care product company, was listed on the Hong Kong stock market and received oversubscription.

The market's speculation about Juduo's listing is closely related to its frequent equity changes in the past year or so.

In July last year, some media found through inquiries on the National Enterprise Credit Information Network that Zheng Ziyue, the founder of Juduo, had withdrawn and private equity firm General Atlantic Capital had become the 100% controlling shareholder. They therefore questioned whether the management of Juyi Group had cashed out and the company had "sold itself" to foreign capital.

However, Juyi Group quickly denied this statement, emphasizing that the founding team is still the company's largest shareholder and Juduo is still a domestic brand.

In September 2021, the equity of Juyi Group changed again, and the company's controlling rights were returned to Juyi Hong Kong, with Juyi Hong Kong holding absolute control and Pan-Atlantic Capital holding only a small amount of the remaining shares.

Juyi Group later explained that the company was in the process of changing its equity at the time, and since it involved professional knowledge in finance and law, it was very complicated to explain clearly, so it waited until the change was completed before explaining it to the public.

"Zhu Zi Financial View" found that in addition to the equity changes in July and September last year, a series of equity changes also occurred in Juyi in September this year. On September 23, 2022, General Atlantic Capital withdrew, and the controlling shareholders of Juyi Group were changed to Juyi Hong Kong and Juyi Singapore.

(Photo/ Tianyancha)

The holding of a domestic company's shares by an overseas company owned by the founder is a relatively common equity arrangement for domestic companies, and is often used to prepare for overseas listings.

"In fact, the company's series of legal entity changes in the past few years were aimed at better expanding its overseas business." The above-mentioned person in charge told "Zi Zi Financial View" that the company's products are selling well in overseas regions, and the equity changes since last year are more of some adjustments made by the company to expand its overseas business.

However, it is not common for a company not owned by the founder to hold 100% of the domestic parent company during the equity change process, as happened with Juyi Group. Assuming that the equity change mentioned above by Juduo is just a preparation for the promotion of overseas business, it also shows the immaturity of the company in equity arrangement.

The impact of this blunder on the Juyi brand is still ongoing. A Baidu search shows that since last year, a large number of media reports related to Juduo have involved the topic of "Juduo being sold to foreign capital", and some consumers even said on social platforms that they would no longer buy Juduo products.

The reason why the trust and reputation of domestic cosmetics are so fragile is related to their operating methods.

Using channels and traffic bonuses to seize the market is a common way for domestic cosmetics brands to stand out. They do not have any special moat or irreplaceability in product technology and raw materials. Any slight disturbance can affect user perception. This is probably also a hurdle that domestic cosmetics brands that have grown up in the e-commerce era must face.

2. Marginalization crisis

Founded in 2016, Juduo excels at opening up the market by creating popular products. Its early popular products include single-color eye shadow, single-color blush, etc.

In 2017, Juduo entered Taobao and successfully became one of the best-selling cosmetics brands in just a few years. In addition to the positioning and characteristics of its products, a strong brand marketing strategy played a key role.

Overall, entering the market with small categories, creating explosive products, and influencing users’ minds and word of mouth is the first step for Juduo to “break out of the circle”.

Taking the early popular single-color eyeshadow as an example, unlike the traditional combination eyeshadow palette, Juduo single-color eyeshadow has rich color numbers and can be freely matched, providing consumers with more choices and combination methods, and also in line with the young people's pursuit of personalized style.

Moreover, a single box of eye shadow is priced at around 20 yuan, which meets the needs of students and makeup novices who want to try out the product at a low price, and attracts users with its cost-effectiveness.

(Photo/Juduo official website)

Comprehensive and detailed KOL tutorials and popular science recommendations are the second step for Juduo to achieve sales growth.

In the selection of KOLs, in addition to entering the top live broadcast rooms, Juduo also selects a large number of mid-level and tail-level influencers. Their overall image and account nature are closer to ordinary consumers, thus producing a more realistic grass-planting effect.

In the transaction conversion stage, in addition to achieving user conversion and retention through live streaming, Juduo also closely follows marketing nodes to increase sales. Whether it is the traditional e-commerce festival 618, Double 11, or traditional festivals such as New Year's Day, Valentine's Day, and Chinese Valentine's Day, they have all become nodes for sales explosion.

The marketing rhythm from point to surface has driven the growth of Juduo's performance. According to media reports, the total sales of Juduo's single-color eyeshadow has exceeded 13 million pieces.

With rapid growth in performance, Juduo completed multiple rounds of financing within two years, involving investment institutions including SoftBank Asia, Xinyi Capital, etc.

However, it is not realistic to achieve long-term development solely through product positioning and marketing strategies.

After all, domestic cosmetics brands that have developed by relying on channel dividends are growing and changing like mushrooms after a rain, and they have also become strong competitors of Juduo.

According to data provided by Magic Mirror Market Intelligence, Juduo ranked 46th with a transaction volume of 68.4 million yuan in the Tmall platform Double 11 cosmetics brand transaction list in 2020. During the same period, Perfect Diary ranked first with a transaction volume of 536 million yuan, while Huaxizi, Little Autine and Red Earth ranked 3rd, 15th and 18th respectively.

In 2021 and 2022, Juduo's ranking dropped to 47th and 48th. In the past two years, many new domestic brands have emerged in the top 20 list, including Caitang, Mao Geping, and Banfenyi; Huaxizi and Ke Laqi have remained in the top 20 for three consecutive years.

Juduo is not only facing a continuous decline in sales ranking. With the development of the beauty market and the growth of users, more requirements are put forward for product quality and performance in addition to demand positioning and cost-effectiveness.

In December 2022, the official account of Consumer Reports magazine released word-of-mouth evaluations and rankings of domestic lip makeup products, involving e-commerce platform evaluations of 13 domestic lip makeup products from 12 brands. Among them, the brands with the lowest scores were VENUS MARBLE (7.2 points) and the other was Ju Duo (7.1 points).

In addition, Juduo scored only 5.5 points in makeup lastingness, which also lowered the overall score.

"Zi Zi Financial View" noticed that it is not uncommon for Xiaohongshu users to complain about Juduo, mainly including problems such as poor color rendering, poor durability, and blush powder flying.

(Photo/Xiaohongshu)

"The investment logic of the cosmetics industry has shifted from marketing-driven to comprehensive competition in marketing, products and consumer operations. New emerging brands that once relied on marketing to seize market position also need to return to rational thinking about their future as traffic dividends fade and marketing costs soar," Guosen Securities said in a research report on the cosmetics industry.

3. What are the disadvantages of path selection?

The era of traffic dividends is gone forever. In the era of comprehensive competition, it is obviously more cruel for cosmetics brands whose functional and technological barriers are already weak.

In terms of product operation, Juduo adopts the path of extending from low-end products to high-end products and from low-end brands to high-end brands.

In the early days, Juduo established itself in the market with categories such as eye shadow and blush that consumers had relatively low requirements, and later expanded to concealer and lip products. However, foundation and lipstick belong to high-end categories of makeup, and consumers tend to have higher requirements and are more picky.

From this perspective, the foundation laid by low-end popular products such as eye shadow and blush often cannot build strong brand barriers and user dependence. This makes it easy to understand why products such as lip gloss launched by Juduo later triggered more user complaints.

In addition, Juduo's parent company Juyi also launched a new brand "Jiao Se" in 2019, mainly targeting urban white-collar workers, and also upgraded its price. According to Mojing market intelligence data, on Double 11 in 2022, the average price of Juduo on Tmall was 48 yuan, while the average price of Yao Se was 78 yuan.

Although the unit price of fermented color has increased significantly compared to Juduo, it is still low among domestic cosmetics.

On Double 11 in 2022, the average transaction price of Huaxizi on Tmall platform was 142 yuan, while the average customer price of Mao Geping and Caitang was 271 yuan and 184 yuan, which are 3 times, 5.6 times and 3.8 times that of Juduo respectively.

From the ranking changes of domestic cosmetics brands on e-commerce platforms in the past three years, we can also see a clear watershed: on one side are Huaxizi, Mao Geping, and Caitang, which emphasize product features and quality, and on the other side are Perfect Diary, Juduo, etc., which win with cost-effectiveness and market trends. The former shows a more obvious upward trend.

On Double 11 in 2022, Perfect Diary has disappeared from the championship position, while Hua Xizi still stands in the top three. At the same time, Caitang and Mao Geping also came from behind and ranked 11th and 16th respectively.

In the view of Essence Securities, it is more effective for the cosmetics industry to attack from high-end to low-end.

"Generally speaking, a high brand tone and strong category attributes can create a stronger moat. High-end brands enjoy a higher brand premium and do not need to lower prices by controlling costs. Instead, they are favored by customers by providing better products and services, and their customer loyalty is also higher." said Essence Securities.

It is not difficult to see that whether it is the rhythm arrangement of Juduo's main product categories or the brand incubation from Juduo to Jiangse, Juyi Group follows the principle of going from easy to difficult, which is the opposite. This also means that Juyi Group still has a tough battle to fight in the future to establish strong brand barriers and user trust.

Breakthroughs in products and operations are imperative, and Juduo is also seeking a breakthrough. According to public information, Juduo began opening offline direct stores in September 2020.

"Currently, about 20 offline flagship stores have been opened across the country." The above-mentioned Juyi Group official told "Zi Zi Financial View" that offline flagship stores can first allow users to fully experience a brand, including concepts, colors, products, etc. In addition, they can also allow users to experience the product before purchasing it, thereby enhancing the user experience.

"We didn't open stores aggressively, but instead ran the stores well and made this path practicable first," she said.

It is understood that Juduo's offline flagship stores are generally located in shopping malls in the city center, and they serve more as a way to showcase the brand image, communicate directly with users, and supplement online channels.

(Photo/ Shanghai Metro City Store (Juduo official website))

In addition to expanding offline channels, Juyi Group is also planning businesses such as skin care products, medical devices, and maternal and child care.

In March 2021, Shanghai Ligan Biotechnology Co., Ltd. was established. The company is 100% owned by Shanghai Juyi Cosmetics Co., Ltd. Its business scope includes cosmetics wholesale, Class I medical device sales, maternal and child products sales, etc.

According to the official website of Juyi Group, "Ligan is positioned as a scientific skin care brand with strong effects and no harm to the skin." Currently, the Ligan Personal Care Tmall flagship store has been opened, but no products are for sale. According to historical records, the store previously sold products such as safe masks, pore water, and cleansing foam, priced at 89 yuan to 139 yuan, but they have now been removed from the shelves.

"We will definitely continue to incubate new brands in the future, but no company can guarantee that a new brand will be successful. We will do our best to do all the preliminary research." said the above person in charge.

It is common for Chinese brands to be the "glory of domestic products", but it is difficult for them to continue to stand firm. Juduo obviously needs more time to prove itself.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.