Yatsen Pauses Acquisitions as Skincare Reaches 70% of Sales

The Margin Squeeze in Chinese Beauty

Across Asia, beauty retailers and rival brand operators see the high cost of buying market share in skincare. Premium creams deliver higher gross margins than entry-level lipsticks. Buying foreign labels, however, does not remove the need for heavy digital advertising across Chinese e-commerce platforms. Competing domestic giants such as Proya funded expansion through organic product development and steady operating cash flow, avoiding the integration costs Yatsen took on with European brands.

Financial pressure leaves Yatsen exposed if Chinese consumer spending softens further. Marketing outlays consume nearly the entire skincare top line. Retail landlords and department store operators will watch whether physical beauty counters for Eve Lom and Galenic survive without the promotional subsidies that carried Perfect Diary into shopping centres five years ago.

Infusing Skincare Formulations into Colour Cosmetics

To stem falling make-up sales, Yatsen is merging product pipelines under a process management calls skinification. Active ingredients and patented compounds from skincare laboratories will go into foundations, concealers and lip products under the Perfect Diary nameplate. Huang expects shared laboratory testing and distribution channels to lower per-unit development costs across both divisions.

“We still think there will be pretty big potential for our existing brands. At this stage, we will remain focused on growing our existing framework.”

From Mass Make-up Pioneer to Multi-Brand Group

Yatsen built its early valuation on social media marketing and cheap cosmetics before listing on the New York Stock Exchange in November 2020, when colour make-up represented more than 80 per cent of turnover. Rising customer acquisition costs on domestic livestreaming channels squeezed gross margins within two years. Management responded by buying overseas premium labels to raise average selling prices.

Third-quarter earnings filings in November will show whether marketing expenses ease as Yatsen halts brand purchases and shifts resources to its core manufacturing plant.