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Startups

China's Perfect Diary woos cosmetics shoppers via social media

Its three keys to success: speed, price and big data

Perfect Diary opened a physical location at this shopping center in Guangzhou, China. (Photo by Yusuke Hinata)

TOKYO/GUANGZHOU -- Yatsen Holding, the Chinese startup behind the fast-growing Perfect Diary cosmetic brand, owes its dizzying ascent to a laser focus on the social media generation.

Yatsen nearly quintupled revenue in just a year. The former unicorn listed on the New York Stock Exchange in November and now boasts a market capitalization of around $11 billion.

"The colors are really great, and they make you look pretty," said a 23-year-old secretary surnamed Zhang in the city of Dalian of Perfect Diary's offerings. "They're appealing because they're affordable enough for young people to buy them."

Zhang said she and friends used Perfect Diary products in college. Nowadays, she regularly wears Perfect Diary eye shadow and lipstick.

Yatsen was co-founded in 2016 by CEO Huang Jinfeng, whose resume includes a stint at Procter & Gamble's China business. The Perfect Diary brand was established the following year.

Perfect Diary was initially sold only online, but the group has since opened brick-and-mortar stores.

The following Perfect Diary built among such Generation Zers as Zhang fueled the brand's rise. Yatsen's revenue shot up to 3 billion yuan ($457 million) in 2019 from the year-earlier 635 million yuan.

In China, especially among older women, there is a strong belief that makeup is bad for the skin. Trust in domestic brands is also weak. So Chinese beauty product makers have long struggled in the home market.

But Generation Z has shown a strong preference for domestic brands -- a trend eroding old notions regarding cosmetics. Perfect Diary took advantage via three secrets: affordability, speed and social media magic.

Price-competitiveness is a common Chinese strength. Perfect Diary's eye shadows come in 12 different shades and sell for around 120 yuan each.

The price is less than half of what Western upmarket brands offer, putting Perfect Diary's lineup within reach for young customers. Perfect Diary saves on costs by selling directly online, cutting out retailers and wholesalers in the middle.

Production is outsourced to South Korean and Italian contract manufacturers that also do business with European brands, enabling Perfect Diary to achieve similar product quality.

Perfect Diary "is cheap and practical," a 27-year-old woman in Guangzhou said. "There is also no problem with quality."

"As a testament to the effective and seamless way in which we operate our supply chain and manage our product development process, our typical process from concept to launch, takes less than six months," Yatsen said in its November prospectus. "This is much lower than the seven to 18 months that international brands typically need for new product development, according to the CIC [China Insights Consultancy] Report."

About 200 in-house engineers analyze such big data as postings and comments on social media, with the results used to inform product development.

Perfect Diary's eye shadow palettes are packaged in motifs conveying wild animals and China's landscape. People post photos of themselves wearing its products on social media, drawing new customers to the brand.

Yatsen is starting to spread its wings abroad, recently acquiring the Galenic skin care brand from French group Pierre Fabre.

For Japan, Yatsen has launched an e-commerce site, and its products are being sold in Southeast Asia through Singaporean e-tailer Lazada, owned by China's Alibaba Group Holding.

Yatsen swung to a 1.1 billion yuan net loss for the first nine months of 2020, set back by coronavirus-dampened consumer spending and by subsequent celebrity promotions. The company can ill afford stepped-up competition from foreign rivals in a growing Chinese market where it ranked in the middle of the top 10 in makeup market share in 2019.

"They could enter into a war of attrition," said a source from a firm specializing in sales promotion support in China.

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