Chinese cosmetics retail sales continue to decline by 2.1% in 2022 H1

Will it get harder in the last 4 months?

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Recently, according to Shanghai Jahwa's 2022 semi-annual report, the company achieved operating revenue of $544 million, down 11.76% year-on-year; net profit attributable to the mother company was $23.15 million, down 44.84% year-on-year.

Not only Chinese companies, but also international beauty giants experienced a decline in performance. According to CHAILEEDO statistics, from January to June this year, the global beauty giants Natura & Co, Johnson & Johnson and Shiseido all experienced different degrees of decline in performance, with Natura & Co experiencing the largest decline of 10.6%. At the same time, the average growth of the ten companies in the first half of this year fell 13.88 percentage points from 19% in the same period last year.

It is worth noting that when the end demand declined, the cosmetic upstream factories and packaging material companies also did not feel good.

On the factory side, in the first half of this year, Cosmax's global revenue was 4.158 billion yuan ($609 million), and while it achieved a 3.56% growth, China revenue was 1.56 billion yuan($229 million), down 6.6% year-on-year. In addition, the domestic head OEM/ODM Nox Bellcow's parent company, Fujian Green Pine Co., Ltd., forecasted net profit for January-June 2022 of -170 million yuan (about -$24.91 million) to -130 million yuan (about -$19.05 million), down 194.12% to 171.97% year-on-year, according to an earnings preview.

"It's not optimistic, the performance has dropped by at least one-third since the outbreak in Shanghai." The head of R&D of a color cosmetics factory in Guangdong revealed. "The performance in the first half of this year was indeed affected to a certain extent, and the overall business had a drop of about 20-30 percent." The founder of a cosmetics foundry told CHAILEEDO.

The same is true for packaging material companies. As a packaging material supplier for well-known domestic and international cosmetic companies such as Estee Lauder, L'Oréal and Shanghai Jahwa, Zhejiang Jinsheng New Material's operating income in the first half of this year dropped 2.18% year-on-year, and net profit attributable to shareholders of listed companies fell 79.09% compared with the same period of last year.

For most of the cosmetic companies' performance decline, many industry players believe that the decline and shrinkage in the consumption level caused by the global economic downturn and the direct impact caused by the epidemic are the main reasons.

According to data released by China's National Bureau of Statistics, from January to July this year, total retail sales in the cosmetics category amounted to 216.1 billion yuan ($31.664 billion), down 2.1% year-on-year. In addition, from January to July, China's national online retail sales amounted to 7,322.4 billion yuan ($ 107,926 million), up only 3.2 percent year-on-year.

Luo Yun, founder of Shanghai Xianji Biotechnology Co., Ltd., said, "At present, consumption momentum and expectations at the consumer end are being adjusted downward, and categories like color cosmetics are still more obviously affected by consumption expectations. The listed brand companies' expectations are adjusted downward, and the upstream packaging and raw material companies will adjust accordingly."

In addition, at the beginning of this year, the epidemic affected two major industrial gathering places in Shanghai and Guangzhou one after another, and the pressure on the supply chain, logistics and storage was unprecedented. The above mentioned whether Estee Lauder, Shanghai Jahwa or Cosmax, etc., are based in Shanghai, and the factory shutdown, logistics shutdown, resulting in corporate performance ultimately did not meet expectations.

The data from listed companies is more straightforward. Shanghai Jahwa said in its earnings report that its beauty warehouse was completely sealed and controlled during the epidemic, and as a result, its skin care revenue fell 34.84% year-on-year in the first half of the year.

Jinsheng New Material pointed out in its earnings report that the Shanghai subsidiary's sales staff visiting customers to conduct business was affected in the second quarter due to the need to prevent and control the epidemic, resulting in a decrease in orders. Overall, affected by the domestic and international epidemic and the macro economy, the company saw a decrease in orders and revenue to varying degrees in the first half of 2022.

In addition, many industry players believe that the global cosmetic raw material supply chain crisis has led to price increases for many raw materials, and for companies that rely on imported raw materials, strict customs import controls and longer lead times for incoming goods have made raw material costs infinitely higher, which has also led to a decline in business performance.

"Many upstream packaging companies net profit fell, mainly due to the bulk of raw material price increases. Due to the decline in demand, many packaging material companies have not implemented price increases for customers, but constantly compress profits. This led to the entire upstream, regardless of sales growth or decline, profits have been greatly affected." The above-mentioned package material enterprise responsible person pointed out.

Shanghai Jahwa, for example, in the second quarter of this year, the company's average purchase price of soap noddles, surfactants, packaging rose by a minimum of 0.6% year-on-year, the highest increase of 59%.

"The first half of the year suffered the biggest impact since the epidemic, the second half of the year may be more difficult." Many industry participants said that the socio-economic downturn, epidemic prevention and control and other uncertainties, will affect confidence.

The above-mentioned person in charge of the packaging enterprises said that the economic environment is bad, consumer power is down, consumers' two-for-one products stocked up in last year should not have been digested. For this year's double 11, most brands have not held much hope, so the second half of the year is not estimated to be good.

It is worth noting that, based on the performance of the first half of the year, many companies have lowered their performance targets this year. For example, Shanghai Jahwa has lowered this year's target to 7.5 billion, and the 10 billion revenue plan for 2023 has been temporarily overturned. Estee Lauder expects net sales for the next quarter to fall 10%-8% year-on-year.

However, Luo Yun said that under the epidemic, although categories such as color cosmetics have been affected to a certain extent, there are some categories, such as sunscreen and whitening products are very popular, in terms of use cycle and intensity, are greatly enhanced. In addition, offline consumption is slowly recovering, and consumer confidence is coming back.

He pointed out that, "Uncertainty may be pointed to the second half of the epidemic prevention and control. I hope there is no longer a large-scale closure and control, otherwise there will be a large impact on the supply chain and production."

Economic downturn, epidemic, rising raw materials..... For cosmetics companies, 2022 will undoubtedly be a tough year. But no matter what, no confidence should be lost.