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Weekly #21: The market-moving audio clip of Coco Lee 🔊, Xiaohongshu bets on luxury e-commerce 🥂, China’s beauty retail sales slide 💅| Following the yuan
Amid a reorg, Xiaohongshu is placing its bets on the very luxury e-commerce startup it previously sued for trademark infringement.
Last week, I attended Pet Fair Asia, one of the world’s largest pet fairs, in Shanghai. Just when I thought I’ve seen it all with The One Pet Fair earlier this year — I was wrong. The showcase featured everything from automatic toilets for cats and coconut water pouches to luxury pet burial services. It's astounding how domestic companies consistently manage to outdo themselves as its foreign competitors whose eye-catching elements relatively fall flat.
Exhibitors were in an uproar by the listing of KKR-backed Gambol Pet Group (SHE: 301498) on Shenzhen Stock Exchange that took place in early August, which was constantly mentioned by speakers as a symbol of a rising market. This energy is paired by the active participation of notable platforms such as instant delivery giants Ele.me and Meituan, social e-commerce platform Douyin, and video streaming platform Bilibili, that are eagerly vying to secure pet shop owners and brands as clients.
I also have to say that aside from streetwear trade shows, I’ve never seen such an enthusiastic audience, who travels with luggages the size for international trips to get freebies and new products for their fur babies. I will write a deep dive about my observations later this week.
Now, let’s turn to a rare scandal in China’s entertainment industry that has nothing to do with the country’s crackdown on celebrities.
1. The market-moving audio clip of Coco Lee 🔊
The renowned Chinese singing reality show, Sing! China 中国好声音 (formerly known as The Voice of China), recently garnered attention after a 9-minute audio clip featuring the late Hong Kong-American singer Coco Lee went viral.
In the clip, Lee voiced her concerns about an unfair judging system that allowed contestants with fewer points to advance, and she also discussed the mistreatment she experienced on the show. Her mentee, Wang Zeping, confirmed in a Weibo post that the show’s producers had severed communication channels between them, leading to Lee's onstage fall.
Star CM Holdings, a public entertainment company that owns the show’s IP rights, saw its stock cut by more than half to HK$ 57.90 as of Wednesday as a result of the controversy. Sing! China is a primary source of revenue for the company.
Zhejiang Media Group, which oversees the TV channel broadcasting Sing! China, responded after three days, stating they would investigate the issue. The show's ratings on Douban plummeted to 2.4 out of 10, a significant drop from its debut rating of 7.5 in 2012.
Dig Deeper: This incident surfaced two characteristics about the China market: one is that the stock market can be sentiment-driven with an overwhelming number of retail investors, which remains a a historical problem. As of the end of 2019, institutional investors accounted for only 11.6% of the Chinese market, in contrast to 43% in the U.S. The Bank of China Institute also noted in 2021 that even the institutional investors in China often exhibit a herd mentality, leading to significant market fluctuations.
Also, unwritten rules in the entertainment industry remain under the radar unless they culminate in severe consequences, especially loss of life. The sudden cardiac death of Taiwanese-Canadian model Godfrey Gao in 2019, while filming at midnight for Zhejiang Media, had already led to a public outcry. Viewers were reminded about the past incident and decided not to let it go this time.
2. Xiaohongshu bets on luxury e-commerce startup it once sued 🥂
Senser, a platform specializing in fashion and luxury culture, recently announced the completion of its B+ financing round with an undisclosed amount. The sole investor for this round is Xiaohongshu, a social e-commerce platform that has faced challenges monetizing its 200 million active users.
Founded in 2017, Senser initially focused on selling to buyers and distributors. It collaborated with European luxury offline counters and shopping malls to cater to these groups. It launched a consumer-facing app early 2021. Interestingly, XHS sued Senser in that year for unfair competition and trademark infringement for 30 million yuan, claiming that Senser had scraped content images from its platform.
XHS is set to host an industry event this Thursday to showcase its buyer strategy. This comes after its announcement to merge its e-commerce and livestreaming divisions today, positioning them on par with its community and business departments.
Dig Deeper: Can Xiaohongshu’s bet on Senser buck the trend of ‘consumption downgrade’? While hard luxury items like jewelry and group-owned brands are likely to persevere, those with less brand cachet might suffer in the short to mid-term.
No other luxury e-commerce platforms can claim they have cracked the China code. This could be due to their business models being overwhelmed by stock and overspending on new business expansion, as with the Nasdaq-listed Secoo – which might not remain listed for much longer. Alternatively, the challenge could be rooted in the market itself, as suggested by Farfetch’s CEO José Neves in the most recent earnings call, where he mentioned that recovery in mainland China might be less optimistic.
One last guess… based on my insights from watching Suits lately, I have a wild hunch that a character like Harvey Specter, representing XHS, might have proposed the deal. Perhaps the startup couldn't cover the 30 million yuan fine (there is no public record of the result), and XHS capitalized on this, securing a favorable deal for themselves.
3. China’s beauty retail sales slide 💅
In July, according to The National Bureau of Statistics, China's retail sales of cosmetics amounted to 24.7 billion yuan. This represents a year-on-year decrease of 4.1%. Meanwhile, the retail sales of consumer goods overall increased by 2.5%, reaching 3676.1 billion yuan.
Domestic business publication Jiemian reported in 2021 that while beauty retail sales were also at a low point back then, high-end brands and original equipment manufacturers were performing well.
Yet, the landscape seems to be evolving this year. Consumers are increasingly leaning towards domestic producers. For instance, L’Oreal's sales in mainland China for Q2 grew by 5.9%, which fell short of the anticipated 9.5% growth predicted by analysts. On the other hand, domestic beauty heavyweight Proya reported a substantial net revenue increase of 65% for H1. Likewise, Shanghai Jahwa's revenue is expected to surge, potentially ranging from an 81% to 100% increase, as indicated in a pre-earnings announcement.
Dig Deeper: As mentioned in a reported piece this month, consumers are gravitating toward value purchases. The term 'value' can encompass both products they truly appreciate, as well as discounts. Domestic beauty products may be winning for now, as they are seen with less markup.
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