Tourist Stores Strategy Failed, XieFuchun Can't Carry It Anymore

Under the pandemic, XieFuchun, a century-old Chinese beauty brand, is having a tough time.

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The Chinese beauty brand Xie Fuchun has a history of 192 years, which has shone and survived a century of storms, but in today's beauty market, its figure is fading out of consumers' view.

CHAILEEDO summarized the financial reports of XieFuchun and KOPHENIX in the past years and found that they are all the same Chinese century-old beauty brands that started with the production of fragrance powder, KOPHENIX's losses improved year by year after the pandemic, while Xie Fuchun's net profit was on a downward trend year by year.

The business performance of XieFuchun and KOPHENIX are different as night and day

It is known that around 2000, XieFuchun once faced a crisis of production suspension, then it began to restructure and figured out a set of development strategies to rely on tourist stores for market expansion. Since 2011, XieFuchun has established several franchised chain stores and directly operated stores in major famous tourist attractions throughout China, and 80% of its products are sold to tourists around the world through these stores.

Before the pandemic, XieFuchun's strategy of laying out tourist stores did work, and in 2019, it achieved sales revenue of 13.51 million yuan ($1.954 million) from just one new directly operated store, up 1.98% year-over-year. From the perspective of previous year's financial reports, XieFuchun's operating income has been significantly reduced by half since the black swan event of the pandemic.

According to the financial report, XieFuchun's operating income in 2020 dropped 57.41% directly year-on-year. The first half revenue in 2022 still fell sharply, mainly due to the impact of the pandemic. Offline stores are set up in China's major tourist attractions, the first half of each province and city tourist routes are not back to normal, resulting in offline physical channel sales decreasing by 8,384,100 yuan ($1,122,600), with a 67.37% drop, making the "tourist bonus" supply chain directly missing.

However, KOPHENIX showed the exact opposite trend from XieFuchun. 2020 semi-annual report showed that the company's directly operated stores and franchised channels experienced a sharp drop in customer flow as a direct result of the pandemic, and led to a significant decline in sales, therefore it phased shutdown of some directly operated stores. In addition, the agency and distribution channel due to the addition of nearly 4 million disinfection and antibacterial products, resulted in significant growth in revenue.

In fact, many Chinese and overseas beauty brands during the pandemic turned to the production of pandemic prevention supplies, such as CHANEL, DIOR, CHANDO and other brands, but this innovative self-help approach is not a long-term solution. So, with the traditional offline channel growth weak, XieFuchun and KOPHENIX are beginning to look for business growth from the online channel.

In 2020, XieFuchun established a beauty e-commerce company to expand online sales channels. Although it brought some growth to XieFuchun in 2021, due to the recurring pandemic in the first half of 2022, logistics disruptions leave products stranded and orders lost. Meanwhile, flow on the Tmall platform shrank significantly, leading to a decrease in online sales of 2.78 million yuan ($402,100), down 37.41% year-over-year.

In 2021, KOPHENIX followed in XieFuchun's footsteps and also created an e-commerce company. In its financial report in 2021 and the first half financial report in 2022, it mentioned that the company's direct retail channel grew sharply due to the huge growth of online channels such as Tmall and Pinduoduo, and etc. In 2021, the combined revenues of the Tmall and Pinduoduo platforms soared 258.52% year-on-year, and in 2022, the company continued to focus on its e-commerce platform and the combined revenues of this channel grew 384.64% year-on-year in the first half, contributing the company's revenue to the year-on-year growth of 146.85%.

It is worth noting that after the pandemic, KOPHENIX shut down some of its stores, and the revenue share of its offline business was relatively small, so it had a low impact on the company's overall revenue growth trend. However, XieFuchun chose to carry out various promotional activities to maintain its sales market share as opposed to curtailing its offline business, so the impact of the pandemic had a greater influence on XieFuchun than on KOPHENIX.

Marketing is a driving force, quality is the root

By comparing the sales of XieFuchun, KOPHENIX and Pechoin's Tmall and Pinduoduo flagship store, CHAILEEDO found that, as the same old national brand, Pechoin's star products are obviously much more than XieFuchun and KOPHENIX.

Even if the Powder of Duck’s Egg Type is the most famous product of XieFuchun for 100 years, the monthly sales in the flagship store of Tmall were only over 700 pieces. KOPHENIX relies on the ingredient of portulaca oleracea to occupy a place in the mind of consumers, and horsetail hydrating spray has become its main product, with more impressive sales figures compared to XieFuchun.

In fact, century-old brands have been caught in the whirlpool of "selling sentiment" in marketing. Because of the long history and culture as the heritage, XieFuchun, and KOPHENIX, these old brands have their own brand story and connotation. But nostalgia marketing market size is limited, relying on the brand story alone is not able to support the new market.

In recent years, many old local Chinese brands are getting rid of their old image and towards rejuvenation through marketing methods such as co-branding crossover and IP.

For instance, in 2018, Maxam and White Rabbit Creamy Candy jointly launched the Maxam® White Rabbit Creamy Candy flavored lip balm, 920 pre-sale sets of products on the shelves were sold in seconds, and the official additional 20,000 pieces were also sold out in three minutes. In the same year, Liushen and Rio launched Liushen Floral Water Flavored Cocktail, which was packaged in Liushen' classic glass packaging, and 5,000 bottles were snatched up in 17 seconds on Tmall.

In 2020, XieFuchun had also launched a cosmetics palette in conjunction with the Jade Dynasty online game, but the monthly sales in the Tmall flagship store are only 100 +, only two pieces in Pinduoduo, and 7 notes in Xiaohongshu, in which even had consumer complaints. Some consumers said bluntly: "If you have the sentiment, you can buy, but in terms of practicality, indeed is not recommended.

Gone are the days of "just buy the formula of the foundry, change package design, and then tell a good brand story, it can sell great". Nowadays, consumers are becoming more and more professional and will check the record through the National Medical Products Administration, the ingredients formula from the professional platforms and other methods to determine the strength of the brand and the product safety and quality. This also forces China's local beauty brands to continuously innovate in technology and develop Chinese ingredients. For example, the green thorn fruit of Winona, the ProVTA of Pechoin, the pearls of OSM, the super yeast Hymerin of CHANDO, through the composition of their own creation and upgrade, constantly renew the consumer's understanding of the brand.

For XieFuchun and KOPHENIX, the lack of broad product lines, low R&D investment and the difficulty in producing new products are the most prominent problems. Compared to Shanghai Jahwa's 163 million yuan($23.58 million) and Proya's 76,583,600 yuan($11,076,400) in 2021, XieFuchun's R&D expenditure in 2021 was only 1,967,500 yuan($284,600) and KOPHENIX's R&D expenditure in 2021 was only 981,800 yuan($142,000).

Empty talk about national sentiment may be able to impress consumers in the short term, but in the long period, the essence is still inseparable from the clarity of the brand positioning, excellent core technology and continuous investment in scientific research. Marketing is a driving force, quality is the root, and brand power and scientific research capability is undoubtedly the key to the success of beauty products breakthrough.