The Crisis Of Urban Beauty: Declining Performance, Positioning Vacancies, User Churn

"Increase in purchasing power and

2010 became

Chen Sunzhu, a clerk, had seen the company CEO Zheng Yaonan three times.

For the first two times, she was so busy in the shop that the executives hurried around without disturbing her and the staff.

Only in May this year, she and Zheng Yaonan, who had been promoted to the store manager, sat down in the shop and discussed the matter for 20 minutes seriously.

Behind the decline in store sales, the biggest Chinese company.

Retail companies is facing a crisis of performance.

In the face of executives' enquiries, Chen Sunzhu's explanation is: the economy is down, and consumers are no longer willing to pay for shopping.

At that time, there was no better way for Zheng Yaonan to guide Chen Sunzhu. Instead, he changed the family dress of three families into a couple's home clothes display in a prominent position, which could also attract consumers who had no children.

Zheng Yaonan understands that these simple adjustments will not bring the urban beauty close to $5 billion a year back to the track of rapid growth.

According to the company's 2015 annual report, after six consecutive quarters of rapid growth, the growth rate of urban beauty declined, and its revenue growth dropped from 37.4% to 23.6%. By July 18, 2016, the company issued a profit warning, and its net profit in the six months was down 35%-40%.

In 2013, according to the Market Research Report of global growth consulting firm Frost&Sullivan, the company's market share reached 4.9%, which was more than second of the underwear market at that time (4.2%) of the total of second to fifth (ANN Li Fang, Adam, Sullivan, Ordifen).

In the past, Zheng Yaonan's sense of crisis came from how to maintain the advantage of being far ahead. Now, the market changes make the city's beauty high level discuss the future strategy of the company fiercely.

"This year will be a crucial year. Today's choice will determine our future life and death."

Zheng Yaonan told business weekly / Chinese version.

This is not a simple task, because consumers have changed, and urban beauty still has no idea how to cater for them.

Consumers are upgrading

Deng Lisha, a yoga instructor in Yiyang, Hunan's four line city, used to be a loyal consumer of urban beauty. But in the past two years, she has stopped buying urban beauty underwear.

"I often buy it when I was in University and just graduated, but now my income has gone up, I have the ability to buy better brands."

After earning 8000 yuan a month, her options include searching for secret shopping in Vitoria on the e-commerce website and buying underwear such as Manifen in Changsha shopping malls.

The price of these brands is over 300 yuan, which is generally priced at 70 yuan -150 yuan.

Chen Sunzhu clearly felt that the best selling products in the shop were no longer the cheapest products, and those underwear with more than 100 yuan were equally popular.

In the eyes of analysts, this is precisely the new change of Chinese consumers - the upgrading of consumption.

With the improvement of income, consumers are no longer pursuing simple and inexpensive products.

Guotai Junan's research report published in November 2015, "the secret of underwear industry" shows that the income of Chinese residents will further improve in the future. The lowest end of the brand will gradually upgrade to the low-end brand products, while the low-end market group will gradually upgrade to the middle and high end.

Guotai Junan positioned the urban beauty as the low-end brand.

Middle and high end cities are not familiar with urban beauty.

Before creating urban beauty, Zheng Yaonan was a security guard at WAL-MART supermarket in Shenzhen.

After leaving WAL-MART in 1998, Zheng Yaonan once opened a bookstore, a restaurant, sold video discs and socks, and then decided to enter the field because he found that the sales of the roadside bra stand could reach 1000 yuan in 60 minutes.

At that time, the women's underwear market was highly polarized, and the high-end brands in the shopping malls were high priced. Wage earners usually bought underwear in supermarkets or stalls, and the mass products with moderate price and quality assurance were absent.

City beauty aimed at this market and began to open 30 square meters of storefront in Shenzhen street, priced at 50-100 yuan.

With the advantage of cost performance, the urban beauty has gained a firm foothold in the industry, built a lingerie manufacturing factory and realized the expansion of the store through the franchise mode.

In 2009, the urban beauty introduced capital investment today. Under the suggestion of investor Xu Xin, the company completed an important pformation: stripping the manufacturing plant, and all products were subcontracted to operate the company in light asset mode.

Xu Xin also invested in Jingdong mall and three squirrels.

After stopping independent manufacturing, the profit margin of urban beauty increased from 5% to over 20%, and the turnover speed of inventory also increased.

This pformation laid the foundation for urban beauty to become the largest company in China's underwear market.

After adjusting the mode of operation, the company shifted its focus to supply chain management, channel expansion, product development and brand marketing, and began to maintain more than 30% growth annually, from 2000 in 2009 to over 6000 in 2014.

Located in the largest and most widely distributed low-income group, urban beauty has established a sales network covering the major cities and counties in the country. When the number of 200 million female consumers in three or four line cities and rural areas changed from buying brand name underwear to brand underwear, the urban Li people became the biggest beneficiaries.

In 2014, urban beauty landed on Hong Kong stocks and became the first underwear market in the mainland with a market value exceeding HK $10 billion.

In the light asset mode of urban beauty, adding sales point and maintaining the same store sales growth rate is the key factor determining the growth of performance. However, as the competition environment becomes more intense and the industry growth rate slows down, the company begins to face the turning point of its performance.

"Urban beauty has a brilliant development course, but now the company is facing difficulties," said an analyst who asked anonymous. "Its listing has a strong demonstration effect, which has led to a large number of competitors."

The research report released by CICC analyst Guo Haiyan in June 2016 showed that due to the high base in the first half of 2015 and the slow pace of expansion, it is expected that the company's revenue and net profit growth in the first half of 2016 will be under pressure and may slow down to single digits.

{page_break}

Another major change in the market is a new gap in the product layer.

In the view of Wu Guoli, the design director of urban beauty, the low degree of mechanization and the high cost of labor cost of the clothes and clothing enterprises have been greatly impacted. In 2014, a number of second-line brands collapsed in Jiangsu, Zhejiang and Guangdong, and there were obvious vacancies in the high-end positioning products of 150 yuan -200 yuan in the market.

For this new opportunity and new market, urban beauty seems to have yet to think of a way to win.

In the past, Zheng Yaonan's business philosophy was cost-effective, and urban beauty relied on street stores. The strategy used over the years was to open shops in the areas where people concentrated, instead of controlling the economic capacity of the mall or the consumers.

However, the popularity of underwear has passed, consumers are aware of this product, and brand awareness is fully awakened.

"The underwear of women's underwear is endowed with the connotation beyond the daily necessities, and begins to change from traditional functional consumption to emotional consumption. The increase of purchasing power and the enhancement of brand awareness have prompted more consumers to migrate from the low-level consumer market to the middle and high level market."

Guotai Junan analyst Lv Ming said so.

Consumers have their own opinions.

In the portrait of urban beauty, Deng Lisha is a typical consumer: under thirty years old, living in three or four line cities, pursuing cost-effective products.

According to the consumer survey of urban beauty, 45% of the customers are less than thirty years old, and Zheng Yaonan expects that when they have a partner, become a mother, they are still urban beauty customers, and even buy their first underwear for their daughter, they will still step into the beauty of the city.

But the underwear brands that consumers can get to know and understand are not only city beauties who are setting up shop on the street.

In early 2016, after watching the secret show in Vitoria on Iqiyi website, Deng Lisha quickly bought a black lace lace underwear in the show.

Businesses are encouraging consumers to buy more and updated underwear. Deng Lisha has been educated: underwear is also one of fashion products.

"Of course I still pursue high performance price ratio, but I also want to pay more for good looking and sexy underwear."

She said so.

The shopping experience of urban beauty never reached her expectations. The lights were dim and the store was narrow, and even the air conditioning could not reach a comfortable low temperature.

"If the store has five or six customers at the same time, it must be sideways on the aisle."

Simple store decoration ensures that urban beauty and franchisees can reduce costs and provide consumers with parity products, but when consumers get higher incomes, they leave.

As a mother of two years old, Deng Lisha often buys cosmetics, clothing and baby products through Taobao and Xiao Hong. Although living in four line cities, she still thinks she still has a keen sense of fashion. "I want sexy underwear, but this brand has nothing to do with sex appeal."

Located in the largest and most widely distributed low-income group, urban beauty has established a sales network covering all major cities and counties in China.

Users are far away from the original shopping habits, which are the most inherent incentives for urban beauty to face strategic pformation.

Urban beauty perceives that this generation of consumers is more interested in personality than cost performance.

"The middle and low end of the three or four line consumers are still in the stage that I said she listened to, but the emerging consumers have a clear idea of what is popular now and what they need, rather than relying solely on the recommendation of our shop assistants."

In an interview with BusinessWeek / Chinese edition, Zheng Yaonan described his findings on the market. "After they enter the store, they will specifically say," do you have a body without a steel ring or a sexy underwear? "

A typical consumer will clearly express: what I want, can you meet my needs, I can continue to choose here, no, I will go, I will not come any longer, this is a big change.

In the view of underwear designer Yu Xiaodan, Chinese women have been on the road of awakening.

Historically, underwear has undergone various forms of evolution. This thin garment is considered to symbolize the bondage and freedom of women. Until 1950s, bra had completely replaced the bra and became the most feminine symbol of clothing, and became hundreds of millions of dollars of industry.

Before China's opening to the outside world, it was an item that could not be mentioned in public. Until 1979, China had only the first lingerie underwear factory in the South China Sea in Guangdong.

Over the past thirty years, the first batch of underwear brands such as Liz has disappeared from the market. The industry has changed, and people's attitude towards underwear has changed. Underwear advertisements have appeared in prime time broadcasts of major TV stations. Consumers are no longer afraid to enter underwear shops on the street.

"In most parts of China before, there was a notion that clothes were worn to outsiders, and very low requirements for outsiders' unseen underwear.

It is very difficult for the garment industry not to be demanded by consumers.

Yu Xiaodan told BusinessWeek / Chinese version.

But now, "underwear is not only practical clothing, it is now carrying women's self expression, and Chinese underwear design is also giving designers more daring challenges."

{page_break}

Consumers are changing fast.

When consumers migrate, the urban beauty must make trade-offs. Which ethnic groups will attract the main consumers in the future, the rising new middle class and the quasi middle class, or the price sensitive mass class?

In June 2016, the chief information officer of the city beauty, Sha Sha, was two hours late for his interview with BusinessWeek / Chinese version. He revealed that the company had introduced McKinsey consulting to participate in the formulation of the company's future strategy, and the meeting with the other party had forced him to postpone the meeting.

Lining, a former executive in the city, joined in the city beauty market. At present, besides being responsible for the business, ERP (enterprise resource planning, integrated management information system) and other businesses, he was also appointed as the high-end brand Ordifen trader by the company this year.

Sha Sha believes that the deep ploughing of the existing mass market should remain the core: "abandoning the core must die."

Ordifen is just a supplement to us as a channel, so that consumers can feel that we can also make high-end products. "

Ordifen is a Taiwan lingerie brand with more than 600 stores in a department store and shopping center in one and second tier cities. The urban beauty completed the acquisition of the brand in the first quarter of 2015 and retained all the members of the core design team.

Although Ordifen took charge of how to occupy the high-end market, Sha said that the company did not make much preparations in this regard.

Southwest Securities analyst Xiong Li pointed out that, compared with the early 2016 plan, in order to cope with the sharp decline of department stores consumption, urban beauty is suspending the expansion of Ordifen department store channels, plans to open stores to residential areas and high-end commercial streets, and plans to launch arose Ordifen brand under Ordifen brand.

"What is the urgency of the mass market? We haven't finished it yet," Sha said.

There are opposite voices inside the company.

Wu Guoli once worked in Ordifen, and she believes that when the market has changed, and then rely on the previous cost-effective strategy to attack the market, it may lead the company to lose the leading position: "upgrading of the brand must be carried out at the same time in the process of mass consumption upgrading.

If we compete purely by cost performance, there will be a strong brand in the end. The quality and price of the product are almost the same as ours. But because the brand is built well, the shopping experience is comfortable, and the whole is more in line with the needs of consumers.

At that time, we will not have any advantages.

Upgrading should be a project that we must continue to do in 35 years. Otherwise, we will succeed in the last two or three years using the advantage of price alone, but without other advantages, the price advantage will not be an advantage soon. "

The characteristics of China's high-end underwear brand is that the product price is higher than 200 yuan, the sales channel is not through the street store, but in the first and second tier cities' shopping malls and department stores.

Wu Guoli acknowledges that brand upgrading will damage existing channels and may even threaten franchisees to survive. In a competitive environment, franchisees may not have the power to follow the company to upgrade their store and brand image and to sell higher priced products in the market.

Most of the urban beauty stores are located in the three or four tier cities. Wu Guoli believes that whether or not to adhere to the three or four line crowd and the low-end market will ultimately depend on the trend of China's population flow and the speed of income growth.

At present, China's first tier urban agglomeration has gathered more than 10 million people. The Matthew effect is enabling these cities to get more and more resources and influx of population. On the other hand, the Chinese government encourages the first tier cities to dredge the population and the urbanization of the three or four line cities.

Wu Guoli believes that the strategic choice of urban beauty depends on whether the economy of the three or four tier cities in China has sustainable growth and how fast the local consumers' incomes will grow.

She said: "if the economy can maintain strong growth in the three or four tier cities, these cities are still the markets that we can not give up."

The difficult choices faced by urban beauty are reflected in the fact that China's retail industry has entered a new growth cycle, and retail enterprises are facing the current situation of slowing down and changing consumer habits.

Haitong Securities issued in December 2015, "2 trends and opportunities in retail industry" pointed out that the current consumption from extensive growth to stock competition pattern; consumption upgrading, group changes, more emphasis on commodity quality and service, commodity management and service experience optimization is a clear direction, from physical consumption to service consumption upgrading is also an important topic.

Lining, a city beauty who insists on changing or expanding the original way of expansion, regards him as a warning.

The biggest local brand in China, which once tried to catch up with Nike, was once at odds with Nike and Adidas in the sports brand market. But in 2010, revenue and profits began to decline as a result of entering the high-end market, so that the three or four tier cities were gradually handed over to Anta and other brands.

Since then, the strategy of changing brand slogans and facing post-90s has not been recognized by the market, but has alienated the old customers.

In an article entitled "Lining's reflection on Lining" released by Chinese Entrepreneur Magazine in July 2013, Lining explained in an interview: "I firmly believe that China (market), 4 trillion of the power is very strong, but no one is God."

According to its earnings data, Lining lost three consecutive years until the earnings announcement was announced in 2015.

"We can never take the road of Lining and let the mass market go hand in hand."

This is so good.

{page_break}

Zheng Yaonan judge that the income improvement of the middle and low income people in China will be a process of ten years, so the mass market will still be the core of the company's future strategy.

Zheng Yaonan, 41, is the founder of this year. He is more than 1 meters in height and 78. He speaks slowly and often with a smile.

He acknowledged that city beauty is now in a major strategic pition.

It's interesting that the economy is fluctuating and the consumption is escalating. It sounds like a fallacy.

In theory, the economy should go down, and consumers should not go up and go down together. "He thinks that because of the economic downturn, consumption upgrading is a long-term process, but it will be a long-term process." the urban beauty is on the side street shop, relying on the three or four line crowd to start. This is the secret of my success and will not be shaken. "

Zheng Yaonan is also unshakable as well as franchisee mode.

According to its 2015 annual report, the company's distribution network includes 8058 retail outlets, of which 6937 are franchised stores and 1121 are proprietary stores.

Zheng Yaonan told business weekly / Chinese version that China is a country with significant regional differences. Franchisees can not replace them in the short term: they are more familiar with local markets and consumers and have stronger territorial operation capabilities.

"I must hand over the main battlefield to those who are more familiar with the local area and fight this battle."

He said.

This mode of operation also allows franchisees to take part in some products inventory, allowing the company to have a faster inventory turnover.

However, the disadvantage of joining is also obvious. Guotai Junan research report pointed out that underwear companies use franchising channels to make it difficult for companies to face consumers directly, respond slowly to demand, and have high supervision costs and weak implementation of sales policies.

Adjustment strategy

Urban beauty competitors are also studying Zheng Yaonan's ideas. They are trying to break the advantages of Zheng Yaonan's hard work by playing other ways.

In Chen Sunzhu's view, the "100%" of the brand belongs to the mass brand, which is an important opponent of the urban beauty in the southern region.

"Their shop decoration is very modern, and some shops have good service attitude."

In the 100% Industrial Park in Longgang District of Shenzhen, business week / Chinese edition met Zhang Jingfang, director of commodity company of 100%.

He explains that the secret of a company's rise comes from two points.

"There are many derivative brands in other brands. For girls, students, white-collar workers, ladies and so on, we have only one brand and one location: to provide cost-effective products for women aged 30 and young."

Besides, 100% realized the importance of shopping experience two years ago, so decided to decorate the store with brighter and fashionable style, which is considered to be more attractive to consumers.

And urban beauty will adhere to the strategy of joining, 100 percent said that the company is adjusting strategy, will be mainly self operated stores.

In the early stage of brand development, the franchise mode can expand rapidly.

But the biggest problem of this mode is that the interests of franchisees and companies are not always consistent. "Zhang Jingfang said that after the company reached a certain scale, joining is not a good way to expand." our future plan is to deepen Guangdong, Hunan and other South market, open more outlets, improve the performance of single stores, and will not pursue the number of stores.

Zheng Yaonan did not regard this regional rival as less than 1 billion of its revenue as a rival.

"New start-ups and high-end brands have the opportunity to win this market, but our brand and channels have the advantage of first out and will not be easily defeated."

He said.

In the basic mass market, regional rivals attack vigorously, while the high-end layout of urban beauty is not as good as expected.

Guotai Junan research report shows that the underwear with a price of less than 150 yuan has more than 90% of the underwear market, but with the change of consumers' preferences, the underwear market will be compressed. The middle and high-end market will expand from 39 billion yuan to 68 billion yuan by 2019.

In the eyes of Zheng Yaonan, the acquisition of Ordifen in 2015 is the beginning of urban beauty's comprehensive coverage of high-end crowd, but he is not satisfied with the development of high-end market, Ordifen is still under the suppression of high-end brand love, and so on.

"Takeover is the right choice, but now the slowdown in China's department stores has led to slower growth (Ordifen).

It will take two to three years for it to revitate itself. "

What worries Zheng Yaonan more is that domestic high-end brands are also eyeing the low end market.

Lv Ming, an analyst at Guotai Junan, said that the mainstream female lingerie enterprises including urban beauties adopted the multi brand strategy to meet the needs of women of different ages. The merger and acquisition expectations of Hui Jie share holding company with Manifen brand were also widely used by other underwear industry companies as an important means of future growth. With the promotion of underwear brand, high-end brands will also sink to the three or four line area, seize the market share of local brands and improve the concentration of industries.

Industry competition is considered to be further intensified. In the United States, the first big brand Vitoria's Secret occupies 20% of the market, while the top five brands in the United States account for nearly 70% of the total market share.

According to the research report released by China Everbright Securities in April 2016, "the leading position of underwear industry is strong, and the mass market space is vast", the total market share of the top five underwear brands in China (urban beauty, love, Ting Mei, man Ni Fei and Wacoal) is less than 20%.

Wang Xinmin, editor in chief of China underwear fashion network, once said that the underwear industry is not so much a competition as it is fighting for itself. The top ten brands are not too prominent.

He believes that the underwear industry shuffle is sooner or later.

At present, except for urban beauty, the number of other lingerie brand stores is below 2500 HP, and is distributed around the headquarters and economically developed provinces.

Love, Manifen and other brands have begun to attack the middle end market through Deputy cards. Sha Shuang said that rival Manifen's brand Coyeee, the price of 100 yuan -150 yuan, online sales outstanding performance, impressed him.

Apart from domestic enterprises, foreign competitors are also interested in the Chinese market. Vitoria's Secret entry into the Chinese market has made substantial progress and will open its first store in Shanghai this year.

In the earnings warning report issued by urban beauty in July 18, 2016, the company's main reason for its decline was micro competition.

Micro business is a seller who sells and displays products based on WeChat. Micro dealers can buy goods from agents, conduct product display and development agents through friends circles, and complete payment and payment pactions on WeChat.

Underwear industry, the main commodity is the 150 yuan to 200 yuan in the market, and the price of the micro underwear which is represented by the happiness Fox brand is 158 yuan and 188 yuan.

However, unlike the urban beauty who believe that the decline in performance and the impact of micro business are different, competitors believe that micro business is not a terrible opponent.

Zhang Jingfang said: "micro business objectively helps the industry quickly popularize products and concepts, such as" no trace no steel ring ", but the advantage of the physical store is to try it on, consumers will have a cognition of products and will still come to 100% purchase. Instead, we will benefit from the development of micro businesses.

Sha said that the urban beauty had studied the micro business products, but he believed that the emphasis should be on the adjustment of the urban beauty itself: "the changes in the industry may be common in the future. We can not talk with the capital market. I was hit by the micro business today, and I was attacked by other competitors tomorrow.

The future needs urban beauty to have stronger market judgement ability and self repair ability.

All these changes mean that the urban beauty faces the competition of the regional rivals in the mass market, and the high-end and middle end markets will face the attack of the traditional high-end brands.

Zheng Yaonan's strategy is to upgrade the urban beauty into a mid-range brand from ten to four tier cities. The ten year plan means that in the short term, urban beauty will not take radical measures to enter the mid market.

"My position is to make urban beauties a national brand. I don't need to attract all consumers, and I can't do that."

In addition to urban beauty, the company also put resources on high-end brand Ordifen and young brands in their free time.

Besides the three brands, socks, clothing and other brands are also hatching.

For the core brand city beauty, Zheng Yaonan said he would complete all storefront upgrade in two years.

In June 2016, Chen Sunzhu's storefront completed the first pformation.

Despite dissatisfaction with the location of the cashier and the size of the warehouse, her store has welcomed a year-on-year growth of 15%.

"Now our store image is not lost to 100%."

She said so.

Zheng Yaonan believes that this is just the first step for urban beauty to cope with changes in competition and consumers, and the reform will continue.

"The power of reflection is very strong.

We will quickly find the company's problems and solve it quickly, "he said." we still have many opportunities. "