Perfect Diary’s parent company, Yixian E-commerce, may not be a company with the best products. It is definitely a good marketing company, but can the marketing ability be favored by the capital market?
Editor’s note: This article is from the micro-channel public number “BT Finance” (ID: btcjv1), Author: BT Finance.
Before the U.S. stock market on March 11, 2021, Perfect Diary’s parent company Yixian E-commerce released its 2020 fourth quarter and full year performance report. In the fourth quarter, Yixian e-commerce achieved a substantial year-on-year growth of 71.6% in total revenue, but the net profit in the same period last year turned into a net loss, and the chain loss expanded by more than 243%.
For the whole year of 2020, Yixian E-commerce has a huge loss of more than 2.688 billion yuan. What’s strange is that in 2020, the total operating cost and marketing expenses of Yixian e-commerce are 5.281 billion yuan, which exceeds the total annual revenue of 5.233 billion yuan.
Does Yixian e-commerce expand sales, occupy market share, and continue to lose money in order to tell the capital story better? And in order to keep the gross profit margin at a high level of more than 60%, the actual product cost is included in the marketing cost?
A good marketing company
In the prospectus, Yixian E-commerce proudly stated that it had created a DTC business model and explained that the so-called “DTC” is a model that directly faces customers. It sounds tall, uncle B translates, in fact, it is to promote sales through Tmall, WeChat, and Xiaohongshu.
From the perspective of the speed at which users’ minds are occupied, the Perfect Diary team is a good e-commerce team.
Perfect Diary’s most well-known marketing method is to spend a lot of money to invite KOLs to advertise. In the prospectus, “in-depth cooperation with 15,000 KOLs” and “successful cooperation with Li Jiaqi” have become their proud capital. This model made Perfect Diary quickly become famous. After acquiring Xiao Aoting, Yixian e-commerce repeated this process, and also instantly opened Xiao Aoting’s popularity.
However, this model has no moat effect and is very easy to replicate. With the decline of Xiaohongshu, the rise of Douyin Kuaishou, and Taobao’s efforts in live broadcasting, brands both large and small have begun to focus on advertising and selling goods through KOLs such as beauty bloggers. Domestic cheap and fast-selling cosmetics brands Huaxizi, Judou, Colorkey, and international big-name cosmetics brands MAC, Lancome, YSL, etc., have entered the KOL competition.
Under the fierce competition, the “founder of the mountain”, Perfect Diary, was even beaten back. According to the statistics of CICC, the sales growth of Shiseido, L’Oreal, and Estee Lauder will all exceed 60% in 2020, while the sales growth of Perfect Diary in the same period is only 22%. Yixian e-commerce companies should realize at this time that deep binding with KOLs is not the company’s core competitiveness, but their weakness.
Another important marketing model of Perfect Diary is monetization of private domain traffic. Objectively speaking, the private domain constructed by Perfect Diary.US) released an 89-page short report, pointing out that Ruixing Coffee had fabricated the company’s financial and operating data. The report stated that the average daily sales of Luckin Coffee in the third and fourth quarters of 2019 were inflated, and the average number of products per unit continued to decline from the second quarter of 2019 to the fourth quarter of 2019. The effective sales price was in 2019. The third quarter of the year was inflated. At the same time, Luckin Coffee exaggerated advertising costs and used this part to increase revenue in the third quarter of 2019.
Subsequently, the State Administration of Market Supervision issued 61 million yuan of “extraordinary fines” to Ruixing and the 45 companies involved in the case. Since then, Ruixing Coffee’s stock price has entered a downward channel, and the stock price has plummeted by 85%.
After the financial fraud incident, Luckin Coffee worked hard to cut the problem with the management. At the end of June, Luckin Coffee was delisted from Nasdaq and the stock was transferred to the pink sheet market (OTC market).
How to make products without research and development?
Some people believe that Shanghai Jahwa has skin care brands such as Yuze, Herborist, Yuze, Maxam, and Gaofu, and Marumi also has skin care brands such as Marumi and Chunji. The frequency of use of skin care products and makeup, and the cost of sales, etc. It may be different and cannot be compared with the perfect diary.
If the profit margin of skin care products becomes high, why not make skin care products in Perfect Diary? Because it may not be possible now.
Compared with color cosmetics, skin care products have a longer R&D cycle and higher initial investment. The long-lasting big-name skin care products have their own foundations, such as L’Oreal’s Bosein, Estee Lauder’s Difid Yeast, SK-II’s PITERA, and Shiseido 4-MSK. Behind these “eating tools” are years of research and development and huge investment. Looking at the R&D investment of Yixian e-commerce, it is clear that it does not currently have the strength to produce skin care products.
The R&D expense rate of Perfect Diary is accurately controlled within 1.5%, which is so small that it can be ignored next to the sales expense.
Without research and development, how are the products of Yixian e-commerce made? In the prospectus, Yixian E-commerce is very honest and stated that their products are produced through ODM/OEM. The source person from L’Oréal told Uncle B that they don’t even have someone specializing in R&D, and that “the product manager directly connects with the factory.”
The source of the source also said that the above-mentioned two foundries have a very high level of foundry, which is consistent with Perfect Diary’s statement that “big names are replaced” and “one foundry is used with big names”. When asked why OEMs can both research and develop and produce, why not make their own brands, Xinyuan said that they seem to have tried their own brands, but they are not very successful, perhaps because marketing can’t keep up.
Combined with the analysis in the first section, the positioning of the “Internet marketing” expert of Yixian e-commerce has almost gone. It is also true that “marketing with your heart and R&D with your feet” rumored on the Internet, after all, the main process of “R&D” may be to go to foundries.
At the end of 2020, Yixian e-commerce announced the establishment of a strategic partnership with Senxin Technology Group, a supplier of food, cosmetics and pharmaceutical colorants. The two parties jointly established an innovative color joint laboratory, and announced that it will rely on Shanghai, Guangzhou, and Singapore. Three joint laboratories established simultaneously in the three places carry out research in the areas of cosmetic color innovation, raw material innovation and quality management.
However, in the latest performance report briefing, only the cooperation with Senxin Technology Group is mentioned, and there is no corresponding expenditure or plan. I don’t know when the self-research results of Yixian E-commerce will come out.
Rely on acquisition and development, okay?
I don’t research and develop myself but still want to get involved in high-end brands and want to become “China’s L’Oreal”. Yixian E-commerce chose the fastest and most direct path-acquisition.
In 2020, Yixian acquired the French high-end cosmeceutical brand Galénic. On March 2 this year, it also acquired the high-end skin care brand, Eve Lom, the “Hermes in the makeup remover industry”.
It is understandable to rely on acquisitions to expand the product line. About half of the existing brands under L’Oréal are also slowly acquired. However, returning to the question mentioned before, L’Oréal at least has a “meal tool” in hand. After acquiring each line of brands, it can apply its core patents to its product line in different proportions based on price positioning, so that it can cover all levels of users. Groups are also conducive to cultivating user loyalty.
What does Yixian e-commerce have? At present, the greatest value of Yixian e-commerce is its marketing ability. Except for the marketing side, Yixian has no other ability to empower the acquired brand. Since Perfect Diary, Xiao Aoting, and Wanzi Xinxuan are all positioned at the low price class, after the acquisition of high-end brands, the high-end brands have beenSome images will inevitably be damaged.
Some netizens have said that they heard that Eve Lom was acquired by Yixian e-commerce, and felt that the two bottles of Eve Lom they just bought in their hands are instantly worthless. In order to maintain the original sales volume of the brand, Yixian e-commerce will inevitably pay higher marketing costs.
While the marketing expenses of Yaxian e-commerce companies continue to grow, R&D has stagnated. At the same time as the annual loss is getting bigger and bigger, it has to blindly expand acquisitions. This is too much for Yaxian e-commerce companies to tell a good capital story. Difficult.
Industry insiders pointed out that in the U.S. market, as long as companies can maintain user growth, the market is willing to give a relatively high valuation even if it is not profitable, but the premise is that the data on performance growth or traffic must be true. Once the data is falsified, the business logic and business story of the company will fall into a false environment, and this set of valuation system will completely collapse.
According to legal sources, the SEC in the U.S. capital market has a sound civil compensation mechanism and a delisting system for listed companies for fraudulent acts, which will completely deprive any company that has major “violations of laws and regulations” in the capital market. Capital value. This will also have a huge reputational impact on all Chinese companies listed in the United States (Chinese concept stocks), especially Internet-based Chinese concept stocks.
To be honest, Uncle B hopes that all the speculations in the article are wrong, and that Yixian E-commerce knows what he is doing. The last bitter fruit of burning money expansion, so-and-so coffee has been tasted, right?