The beauty industry in China has experienced an exhilarating journey over the past decade, with numerous domestic brands attempting to conquer the stock market. One of the industry’s most famous names, Maogeping Cosmetics, is finally set to go public. However, its journey has been anything but smooth, and this story reveals deeper cracks in the facade of China’s beauty sector.
The Long and Winding IPO Road
On November 7, 2024, China Securities Regulatory Commission approved Maogeping’s application for listing on the Hong Kong Stock Exchange. This development marks the culmination of an eight-year saga filled with setbacks. Initially aiming for an A-share listing on the Shanghai Stock Exchange in 2016, Maogeping faced multiple rejections, forcing it to turn to Hong Kong. After another failure in 2024, the company finally succeeded in the second attempt. Five tries across eight years to achieve an initial public offering (IPO) exemplify the struggle that Chinese beauty brands face.
The uphill battle was not exclusive to Maogeping. Other notable beauty players, including Proya, Lafang, Bloomage BioTech, and Yatsen E-commerce, managed to enter the capital market, sparking a rush of beauty companies seeking to follow their success. But the road is still fraught with difficulties, as shown by the repeated IPO failures of other beauty enterprises like the KK Group, Guangya Group, and Xianyu Bio. A number of companies even withdrew their IPO applications altogether, and the reasons for such failures highlight the turbulent landscape that China’s beauty industry now occupies.
Why Is It So Hard for Beauty Brands to Go Public?
One stark example is KK Group, a trend-focused retailer with a collection of beauty stores that filed for a Hong Kong IPO three times, each attempt automatically lapsing due to a lack of progress. The company managed to break even in 2023 after accumulating losses of over 7.6 billion RMB in 2020 and 2021, but its liabilities still stood at an overwhelming 13.3 billion RMB, with limited liquid assets to match.
More telling is the withdrawal of franchisees from KK Group’s business model. Franchise stores dropped from 424 in 2020 to just 109 in 2023, shifting the burden to self-owned locations, which now account for 85% of the company’s shops. This shift, together with steep marketing costs, has turned KK Group’s “lightweight” retail model into a financially exhausting venture.
The story of KK Group is mirrored across the beauty industry. From old giants like Guangya Technology, whose sales rely on an outdated offline retail model through drugstores like Watsons, to new contenders like Peptide Bio, which provides cosmetic ingredients and even dabbles in pharmaceuticals, every company seems to face hurdles on its way to market listing.
The challenges boil down to several factors: high marketing expenses, lack of distinct product barriers, customer reliance, and an inability to achieve sustainable growth in profits. Many brands are caught in a cycle of overspending to make themselves known while struggling to establish lasting customer loyalty.
The Rise of Maogeping and Its Profitability
Despite these difficulties, Maogeping Cosmetics finally achieved approval to go public, joining other names such as Bavi Cosmetics, an OEM beauty manufacturer, as part of the few who made it to the exchange floor.
Maogeping is unique in many ways. As the only Chinese brand in the top ten high-end beauty groups operating in China, Maogeping captured 1.8% of the market share in 2023, according to research from Frost & Sullivan. Known for its eponymous brand and the more niche label “Lifelong Love,” Maogeping stands apart due to its commitment to premium product positioning.
Maogeping’s revenues tell a story of success. Between 2021 and 2023, the company’s revenue grew at a compound annual rate of 35.3%, reaching almost 2.9 billion RMB in 2023. Its profit margins are higher than industry standards, boasting a gross margin of over 80% consistently during these years. By comparison, this is even higher than global beauty leaders like L’Oréal and Estée Lauder, rivaled only by the likes of Moutai, China’s high-end liquor giant.
The company has adopted a luxury-oriented brand strategy, which has led to profitability that far exceeds that of other domestic players. However, Maogeping’s challenges are not absent. Its research and development spending remains low, barely reaching 1% of its revenues, a stark contrast to its international competitors who invest heavily in product innovation. Instead, Maogeping, like many of its peers, has focused intensely on marketing—allocating almost half of its income to promotional activities.
A Symbol of the Industry’s Struggles
The pending IPO of Maogeping Cosmetics offers a window into the broader struggles of China’s beauty industry. Unlike the typical IPO narrative of rapid growth and glamorous expansion, the story here is one of high costs, financial vulnerability, and strategic decisions that prioritize market presence over technological innovation.
Bavi Cosmetics, another success story of 2024, also represents the upstream OEM side of the beauty industry. It provides formulation, manufacturing, and efficacy testing to various brands, showing that the strength of the Chinese beauty industry can lie in more than brand creation—it can also thrive as a backbone to the market giants. The company also achieved impressive growth, with revenue increasing year-over-year despite broader economic difficulties. Such successes point to the nuanced dynamics of the industry, where opportunities exist beyond branding and direct consumer engagement.
Challenges Facing the Beauty Giants
The beauty industry is not just facing issues at the IPO stage—it is a market under siege by internal and external pressures. L’Oréal, Estée Lauder, and even LVMH all reported disappointing results from their operations in China in 2024. With the Chinese economy still reeling from years of COVID disruptions, beauty giants found their sales growth severely hampered.
L’Oréal saw its North Asia sales dip by 1.7%, making it the only region with negative growth in its global portfolio. Estée Lauder cited similar issues in its financial reports, emphasizing how the high-end beauty market is losing momentum in China. Such stagnation has pushed global beauty brands to adopt cost-cutting measures, including layoffs of significant proportions—a move mirrored by their Chinese counterparts.
For domestic beauty brands, 2024 appears even more unforgiving. Top names such as Bloomage Biotech, Shanghai Jahwa, and Betteni reported shrinking revenues and profits, highlighting a downward trend that challenges their previous growth narratives. Shanghai Jahwa’s net profit fell by over 58%, while Betteni faced the paradox of increased revenue without accompanying profit growth.
Chinese beauty leaders have been blamed for relying too much on marketing and too little on product development. Proya, for instance, spends upwards of 40% of its revenues on sales and promotions, with only a meager fraction allocated to R&D. Such an imbalance leaves these companies vulnerable as consumers grow increasingly discerning and better informed.
The Future of Chinese Beauty Brands
The journey of Maogeping Cosmetics from IPO failure to market debut in Hong Kong is not just a testament to the company’s perseverance. It is a signal to the beauty industry about the shifting expectations from investors and consumers alike.
Rising consumer expectations, spurred by increased access to information, will force companies to rethink their product strategies. R&D investment needs to increase if these brands are to hold a long-term position in the market, particularly when international competitors are already miles ahead in innovation and quality assurance.
Moreover, recent market data hints at some hope for the future. Between January and October 2024, cosmetics sales reached 356.3 billion RMB, a modest increase of 3%. October alone saw a significant surge of 40% year-on-year in retail sales for cosmetics, primarily boosted by the annual Double 11 shopping event. Yet, the real question for these brands is how to sustain this growth beyond the seasonal sales spikes and build consistent, long-term demand.
As the high-profile journey of Maogeping unfolds, it draws attention to the urgent need for strategic pivots in China’s beauty industry. Embracing technological innovation, reducing overreliance on promotions, and building resilient consumer relationships will be pivotal as these companies navigate an increasingly challenging market landscape.
The makeup mogul’s arrival on the Hong Kong Stock Exchange is significant, not as the culmination of a success story, but as a chapter in the larger book of challenges, growth, and evolving dynamics within China’s beauty sector. For Maogeping and its peers, the journey is far from over—the real test lies ahead.
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