Watson Crossing: KOL after Sephora

When comparing the changes of Sephora and Watson's operation in the Chinese market, it is always inseparable from consumption upgrading. In March of last year, Li Jiacheng retired and Li Zeju officially took over his father's trillion-dollar business empire and his 175-year-old Watson family.

On March 21 this year, Watson's parent company, Yangtze River Heji Industries, released its earnings report for 2018. Watson's China's turnover in 2018 was HK$23.855 billion (about RMB 20.3 billion), up 10% year-on-year; its profit increased 7% to HK$4.557 billion (about RMB 3.89 billion); but its gross interest rate dropped by a point to 19%. Meanwhile, 337 new stores were opened in 2018, bringing the total number of stores to 3608. It is noteworthy that the new stores are located in the mainland of China.

Watson's best performance in three years? The same-store revenue is still declining!

According to the financial report of the minister and group, Watson's retail business revenue continued to decline in the first half of 2014-2017, especially the same-store sales of health and beauty products in China, which declined by 4% in 2016 and continued to decline by 6.2% in the first half of 2017. Watsons closed 446 stores in China in the two years from 2015 to 2016 amid continued declines in performance. The performance of 2018 seems to be out of the doldrums, but the fact is that the growth of performance comes from the growth of profits of new stores.

In this way, the mystery of Watson's performance recovery in 2018 has been solved, and the Grottoes have been filled by frantic opening of stores. However, the same-store sales of health and beauty products in China have shown negative growth for four consecutive years over the same period of last year. In 2018, the same-store sales continued to decline by 1.6%. Although the downward trend has narrowed down, it is an indisputable fact that the same-store sales have gradually declined while the number of stores has maintained a growth momentum of 6.03%. On the one hand, Watson's exclusive agency of foreign brand goods can partly control pricing power and improve profits; on the other hand, Watson's entry channel charges are high. Watsons is accused of relying too much on background profits, including various connection fees, promotional fees, bar code fees, entrance fees and so on. Such background costs have greatly changed the relationship between supply and zero, making the brand to an unbearable extent. Gao Hongda, the new acting chief executive of Watson's China District in 2017, said, "Watson's business in 2018 involves online and offline platforms, which need to be focused and balanced." The first thing Gao Hongda did after taking office was actually to set up a "Lettuce Experience Zone" in Guangzhou to promote the application of lettuce. At that time, the orientation of lettuce APP was "more understanding of young girls'cosmetics question-and-answer shopping platform", that is, a content e-commerce platform. But the lettuce APP did not succeed, and then it was upgraded to Watson's official APP. In August of last year, Watson launched the Watson Shop program, a social e-commerce under the banner of "self-purchase, saving money, self-sale and making money". But now open the small program again, which shows that the platform is being upgraded. Subsequently, Watson's China began opening up online and offline channels last year, as well as the membership points system of Tianmao flagship store and Watson's. Competition under Brand Upgrading

LVMH's authoritative global cosmetics retail brand, Sephora SEPHORA, entered the Chinese market in 2005 and quickly occupied the prominent position of first-and second-tier city shopping malls with Watson's, becoming the counterparts of high-end and low-end cosmetics retail, respectively.

When comparing the changes of Sephora and Watson's operation in the Chinese market, it is always inseparable from consumption upgrading. Watson's brand has been upgraded in recent years, which is reflected in the eighth generation stores and brand differentiated sales, although the target group is young women aged 20-35 who earn more than 2500 yuan a month. And its competitors also jumped out from Wanning, Jiaolan Beauty and so on, and are embarking on the road of higher passenger unit price, but consumption upgrading is not only high-end, just as Sephora is not high-end Watson. Apart from the opportunities offered by the market, Sephora's own brand structure, store layout and experience are the important factors influencing its steady development under the impact of e-commerce in all offline channels. According to Euromonitor, although Watson's income in China is much larger than Sephora's, Watson's income in 2017 is more than 16 billion yuan and Sephora's is 3.5 billion yuan. However, 2011-2012 has become the watershed of Watson's and Sephora's operating efficiency, showing a trend of decline and decline. According to the data of

Euromonitor, the composite annual growth rate of revenue in Sephora from 2012 to 2017 is about 12.41%, which is higher than the growth rate of stores in the same period (9.57%), reflecting the effectiveness of endogenous growth. From 2012 to 2017, Watson's single store income compound annual growth rate is about - 10.75%.

In November 2011, the 100th Chinese store in Sephora opened in Jinan and officially entered 100 stores. By the end of 2018, Sephora had opened about 230 stores in 74 cities in China. In 2015, the shopping platform of Sephora Beijing East Line was launched, and in September 2016, Tianmao was stationed, covering 111 brands including skin care, makeup, fragrance and so on.