Retail woes: Yatsen set to shut more Perfect Diary offline stores in H2 this year

Since the start of the year, Yatsen had shuttered 58 Perfect Diary stores. As of June 2022, the company still operated a total of 228 brick-and-mortar stores.

Speaking during the firm’s second-quarter earnings conference on August 25, Huang Jinfeng said the firm was not done closing down more Perfect Diary outlets.

“Given the worsening retail environment in China, we plan to close additional underperforming stores in the second half of 2022,” ​said Yatsen’s founder, chairman and CEO.

The poor performance of the offline stores was attributed to the resurgence of COVID-19 in China, which resulted in severe lockdowns for almost two months in the first half.

Huang highlighted data from the China National Bureau of Statistics, which reported that beauty retail spending was down by 22.3% and 11% in April and May respectively, before slightly recovering in June.

“This is proportionate to the impact of offline retail spending nationwide, including our offline stores.”​

At the same time, there was stiff competition online, further impacting the sales of colour cosmetics.

“In the online arena, competition intensified as our competitors engaged in aggressive promotions to drive sales amid a sluggish market demand for colour cosmetics,” ​said Huang.

Moving forward, Huang said the firm would continue to monitor the offline retail environment to determine if further store closures would be necessary. At the same time, the company was exploring new offline channels to “serve offline customers profitably”.​

“Both Pink Bear and the Little Ondine, for example, expanded their distribution with KK Group to more than 300 KKV and The Colorist stores across the nation in the second quarter, which generated additional incremental revenue and profits for the two brands,” ​said Huang.

The company is open to collaborating with new partners on expanding into new distribution channels.

“Going forward, we will look to replicate this success and further expand collaboration with other distribution partners,” ​said Huang.

Decline for Q2

Against this, Yatsen’s total net revenues for the second quarter of 2022 decreased by 37.6% to RMB951.8m (USD142.1m). The decline was attributed primarily to the 50.5% decrease in colour cosmetics net revenue.

Gross profit decreased by 40.3% to RMB598.3m (USD89.3m) while gross margin decreased to 62.9% from 65.7% in the previous year.

The company said this was because of elevated levels of promotions during the 6.18 shopping festival and an inventory loss of RMB43.9m (USD6.6m).

On the other hand, the company’s skin care division did remarkably well. Net revenues grew by 49.2% and now account for one-third of the company’s earnings.

The company highlighted the strong performances of its skin care acquisitions, DR. WU, Eve Lom and Galénic, which collectively achieved year-over-year growth of 112%.

Huang said: “Supported by growing brand recognition, strong hero products, and a successful ramp-up across multiple e-commerce channels. Our skin care brands also exhibited superior gross margin and net profitability levels compared to our colour cosmetic brands and proved highly resilient during this period of economic uncertainty in China.”​