Chinese DTC Brands Going Global: Perfect Diary’s Expansion Plus Acquisition Strategy

Over the past few years, numerous Chinese DTC brands have emerged and quickly become leaders in their product categories. After achieving massive success within China, we are now seeing many of them start expanding internationally including cosmetics brand Perfect Diary, collectible toy maker POP MART, and lingerie brand NEIWAI, among others.

Yet establishing themselves outside of China may be easier said than done, especially for these young brands whose key advantages against Western brands in China include their deep understanding of Chinese consumers and their innovative use of Chinese marketing and sales channels – advantages they don’t necessarily have when going abroad.

To find out more, I interviewed representatives from several of these brands. In this series of articles, I explore these brands’ decisions to move into international markets, the results they have seen so far, and how they’ve had to adapt their business strategies.

In this article, we’ll take a look at Chinese cosmetics industry disruptor Yatsen Holding and its hero brand Perfect Diary.

Previous articles in this series:

Chinese DTC Brands Going Global: Interview With Justin Moon, Vice President Of POP MART

Chinese DTC Brands Going Global: Interview With Xiaolu Liu, Founder Of NEIWAI

Anyone who does business with China will tell you that things move fast there. Founded in 2016, beauty group Yatsen Holding is a prime example.

One year ago, I interviewed Vincent Chen, co-founder of Yatsen Holding about the success of the company’s hero brand Perfect Diary and its plans to expand into lower-tier cities in China as well as massively increase its offline footprint by opening 600 stores across China over the next three years.

For those who aren’t familiar with Perfect Diary, it is one of the pioneers in China’s now flourishing domestic beauty industry. Launched in 2017, only two years later in 2019 it was ranked the No.1 color cosmetics brand and Top 3 beauty brand on Alibaba’s Tmall.

Not long before the interview with Chen, Yatsen Holding had just launched its second brand, a skincare brand called Abby’s Choice.

Fast forward to today and Yatsen Holding has since launched another brand (Pink Bear), acquired two domestic brands (Little Ondine and Dr. Wu), acquired two international brands (Galenic and Eve Lom) and listed on the New York Stock Exchange (NYSE:YSG). All the more remarkable, this occurred at the same time that many other companies around the world were struggling to stay open in the face of a crippling pandemic.

As if that wasn’t enough on its plate, in 2020 Yatsen Holding started acting on its desire to become an international company, launching the Perfect Diary brand throughout Southeast Asia.

However, unlike the other two brands I interviewed previously, Neiwai and POPMART, Yatsen’s expansion strategy doesn’t stop there. In addition to taking its homegrown brands abroad, Yatsen has also begun acquiring international brands that it thinks have significant potential in the China market.

When I reached out to Yatsen Holding to learn more about its global expansion strategy, the company shared that, “For us, the expansion into international markets also means the acquisition of appropriate and high-quality international brands to complement our existing product portfolio, bringing more and better beauty choices to Chinese consumers.

We are currently selling our products in Southeastern Asia through our international website and plan to gradually bring our existing brands to more markets. In addition, we will continue to search for quality brands that meet the diverse needs of our customers both domestically and overseas and develop a team with international vision and deep understanding of the Chinese market. Our goal is to make Yatsen a multi-brand beauty group with international influence.”

But first back to Perfect Diary. Perfect Diary is currently being sold in several Southeast Asian countries including Vietnam, Malaysia, Singapore, and Philippines through Perfect Diary’s website as well as local e-commerce marketplaces such as Shopee.

Despite being in market for less than a year, Perfect Diary is already ranked #1 in color cosmetics on Shopee in Singapore and Vietnam. It is also #1 in Malaysia in the lip product category and #1 in the Philippines in the setting powder category.

In Southeast Asia, Yatsen is following a similar DTC, digital-first marketing playbook to China.

The company shared, “Our highly social, digitally native sales and marketing strategy works effectively, as our target – young consumers, are more receptive to marketing through KOLs (Key Opinion Leaders, the term often used in Asia for influencers) that they identify with. We are a leader in using a broad range of KOLs and celebrity partners to drive viral online social marketing campaigns and rapidly build vast and loyal fan followings for our brands and products. Additionally, our technology and data-driven business model enables us to build performance-based marketing campaigns that deliver higher returns on investment and increase brand equity.”

Southeast Asia has become a first move for many Chinese companies trying to expand into overseas markets. A key reason for beauty brands is that facial features and skin tones are somewhat similar, requiring less customization of products and marketing assets than entering Western countries would.

What’s more, while the platforms are different, the shopping behaviors of Southeast Asian consumers have many parallels to Chinese consumers, who tend to first connect with brands through marketplaces, social channels, and messaging platforms as opposed to standalone websites.

However, not all of the tactics Perfect Diary used to catapult itself to success in China may work abroad due to differing consumer behaviors or simply because comparable platforms and channels aren’t available.

For example, in China, the brand pioneered the now popular marketing concept of ‘private traffic’, operating thousands of WeChat groups filled with loyal consumers, offering them exclusive discounts and driving traffic to its WeChat mini program store.

Perfect Diary has also become a classic case study as a leader in the use of KOC (Key Opinion Consumer) marketing. In its early days, Perfect Diary engaged with thousands of micro-influencers and regular consumers on Chinese social product review platform Xiaohongshu, a relatively low-cost means of generating word-of-mouth marketing on a mass scale.

And then there’s e-commerce live streaming, which Perfect Diary leverages as a key sales channel, with regular appearances on the broadcasts of top live streamers such as Austin Li as well as daily brand-run live streams on multiple channels including Taobao Live, WeChat, Douyin (TikTok), and Xiaohongshu.

Without these channels, Perfect Diary may have to turn to more costly marketing tactics and find it harder to develop a strong base of loyal customers.

As mentioned, the second component of Yatsen Holding’s international expansion strategy is the acquisition of overseas brands that have strong potential in the China market. It has been targeting niche prestige brands which can complement its current portfolio of lower-price point brands.

In January 2021, the company purchased French skincare brand Galenic. Then in March, Yatsen Holding announced it was purchasing British beauty brand Eve Lom.

Prior to the acquisitions, both of these brands had decent levels of awareness among niche groups Chinese consumers. For example, Eve Lom’s iconic makeup remover is well-known among Chinese beauty and skincare enthusiasts, however neither brand had a strong mainstream presence in the market.

While it’s too soon to tell, it’s safe to assume that Yatsen Global will be able to leverage its well-developed digital and sales channels to rapidly accelerate the growth of these brands in China. In a recent report, Yatsen shared that the number of viewers of Galenic’s Tmall livestreams already grew 360% in the first quarter of this year – a positive sign.

While Perfect Diary’s initial foray into Southeast Asian markets has gone well, expanding into Western markets will require a much heavier lift. Consumer behaviors and aesthetics are different, and a greater level of localization will be needed.

Charlie Gu, founder and CEO of global marketing agency Kollective Influence, has worked with several Chinese brands expanding into the US, “I think the biggest challenge Chinese DTC brands face going West is brand storytelling. In China, most brands tend to focus on key benefits of the products combined with celebrity endorsement when pitching their brand to consumers. In the US and European markets, many consumers are more interested in learning the story behind the brand, i.e., who is the founder, why is the brand created, what’s the brand philosophy, how it is making my life better. This level of storytelling needs to stay consistent and integrated into all marketing activities, including advertising, media relations, and influencer collaboration.”

Between seemingly constant brand launches, acquisitions, and new offline store openings, does Yatsen Holding have the bandwidth for the extra effort needed to bring Perfect Diary to the US and Europe? Will the brand’s story and aesthetics resonate with Western consumers?

Or would its energy be better focused on acquiring more international brands and leveraging its home-market expertise to grow these brands in China? Let’s wait and see what Yatsen chooses to focus on.

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