Core Viewpoint - The domestic functional skincare brands in China are facing challenges despite achieving significant sales during promotional events like Double 11, with concerns over product quality and market positioning becoming increasingly prominent [1][2][3]. Group 1: Market Overview - The Chinese skincare market has evolved over the past fifty years, starting from local brands like Meijiajing and Yumeijing in the 70s and 80s to the dominance of international brands such as Estée Lauder and L'Oréal, which now hold over 60% market share [2]. - As consumer expectations have shifted towards products that address specific skin issues, domestic brands struggle to compete against established international labels that have ingrained safety and efficacy perceptions in consumers' minds [2]. Group 2: Brand Strategies - Brands like Winona and Yuze have focused on soothing sensitive skin and barrier repair, capitalizing on a market trend that prioritizes these attributes over traditional Japanese skincare concepts [3][4]. - The success of domestic brands is heavily reliant on online sales channels, with companies like Betaini (Winona's parent company) reporting that 82.34% of their sales came from online platforms in 2021 [5]. Group 3: Financial Metrics - Domestic brands face high customer acquisition costs, with sales expense ratios for Betaini, Giant Biological, and Shanghai Jahwa at approximately 46%, 22%, and 40% respectively, compared to international brands like L'Oréal and Estée Lauder at around 30% and 25% [7]. - Research and development (R&D) expenditure remains low for many domestic brands, with Betaini's R&D rate at 2.99% and Giant Biological at 1.6%, significantly lower than international competitors like Shiseido at 4.3% [7]. Group 4: Future Challenges - Despite positive sales trends, the core competitiveness of domestic skincare brands hinges on their R&D capabilities, which need to improve to compete with international brands that showcase advanced technologies at events like the China International Import Expo [8][9]. - The overall market for domestic skincare is entering a new cycle, with uncertainty about which brands will successfully navigate the challenges ahead [10].

Core Insights - The domestic beauty industry in China is expected to undergo a significant restructuring by 2025, with companies showing rapid growth driven by strong single-brand performance and a shift in consumer focus towards verified efficacy rather than just ingredient composition [2][10] Revenue Performance - Proya has become the first domestic beauty company to surpass 10 billion yuan in revenue for 2024, achieving 10.779 billion yuan, maintaining its top position [4] - Shangmei Co. has shown the fastest revenue growth, with a 62.1% increase from 4.191 billion yuan in 2023 to 6.793 billion yuan in 2024, rising from sixth to second place among the sample companies [3][4] - Other notable companies include Betaini with 5.736 billion yuan, Shanghai Jahwa with 5.679 billion yuan, and Juzhibio with 5.54 billion yuan, all showing varying degrees of growth [4] Brand Performance - Shangmei's brand Han Shu generated nearly 5.6 billion yuan in 2024, accounting for 82.3% of the group's total revenue, with a growth rate of 73.7% [5] - Juzhibio's brand Kefu Mei achieved 4.54 billion yuan in revenue, representing 82% of its total revenue, with a growth rate of 62.9% [6] Market Trends - The popularity of hyaluronic acid is declining, while "recombinant collagen" is emerging as a lucrative ingredient, reflecting a shift in consumer preferences towards efficacy-driven skincare [7][9] - The market is witnessing a transition from ingredient-focused to efficacy-focused products, with companies like Proya leveraging this trend to capture market share [10][11] R&D and Investment - There is a growing disparity between revenue growth and R&D investment among companies, with Proya's R&D expenditure at only 1.95% of total revenue, the lowest among the sample companies [12] - In contrast, Juzhibio, despite its rapid revenue growth, has a low R&D investment ratio of 1.9%, indicating a potential risk in long-term sustainability [12] Industry Dynamics - The beauty industry is moving towards a phase where product efficacy and R&D capabilities are becoming critical competitive factors, as opposed to relying solely on marketing [13] - The gap in revenue between leading and mid-tier companies is widening, suggesting a trend towards market consolidation and structural transformation within the industry [13]