16 Years of a Small-City Cosmetics Shop: This Market Isn't What You Think

Behind the distributor networks and retail outlets that big companies are so proud of stand individual people. The owner of this cosmetics shop helped shape that industry, and her story is also a small portrait of how one generation's spending gave way to the next.

Walk out of Guogou Plaza, the busiest shopping center in Xuancheng, Anhui, follow Diezhang West Road and Diezhang Middle Road, and keep going until you reach Central Hospital on Jincheng South Road — about 1.5 kilometers. Along the way you will pass at least eight cosmetics shops.

LED light boxes outside the shops scroll through new arrivals and discounts. The owners put Estée Lauder and L'Oréal Paris in the most prominent spots, and stock alongside them domestic brands you have probably never heard of, like Meisu, Shiting Luya, and Love for Keeps.

The shops sit wedged in among phone-repair stalls, export-surplus clothing outlets, gold and jewelry stores, and drink stands. From a digital-goods store under a giant Apple logo comes the noise of promotional ads.

About ten years ago, this was where people in Xuancheng bought cosmetics, and there was no real alternative. There were far fewer cosmetics shops then, of course, but there were also far fewer ways to buy cosmetics. Taobao did not yet exist; WeChat and WeChat-based micro-commerce were still at least 11 years away; large supermarket chains had only just begun to spread in China — Walmart arrived in 1996 and RT-Mart in 1997, both starting in big cities like Shenzhen and Shanghai. Watsons came to the mainland even earlier, opening in Guangzhou in 1994.

The cosmetics shop is a product of the pre-Taobao era. Most were run by individual proprietors, though some were regional franchise chains. Every shop had its own decor, display design, and choice of products, and floor space ranged from just over 20 square meters to more than 100.

These shops covered nearly everything locals spent on personal care: skincare and makeup, but also shampoo, shower gel, and the like.

E-commerce has hit brick-and-mortar retail hard, yet the cosmetics shop has turned out to be old but sturdy. According to Euromonitor, in 2015 all of China's cosmetics specialty stores together accounted for 9.7% of sales in the entire cosmetics market, about half of what e-commerce accounted for. Between 2010 and 2015, cosmetics shops were the only channel in cosmetics retail besides e-commerce whose sales kept growing steadily.

Min Mei opened her first cosmetics specialty store — the industry's formal term — in November 2000. She pooled 100,000 yuan from relatives and friends and rented a space of just over 20 square meters on the busy Jincheng North Road in Xuancheng, naming it Yanong, meaning "elegant you." Min Mei took the character "nong" from Shanghai dialect; asked why, she said, "Shanghai itself is fairly forward-looking, and 'nong' means 'you.'"

Xuancheng lost its county status in 1987 and became a prefecture-level city in 2000. It sits in southeastern Anhui and has a population of about 2.8 million. In the words of local taxi drivers, it is a place that is "fine for everyday life, but no match for the big cities."

It is also fertile ground for cosmetics specialty stores. Before opening her own shop, Min Mei had spent three years selling at a cosmetics specialty store called Green World. Sixteen years later, she and her husband run four Yanong stores and a beauty salon. The largest store, more than 140 square meters, is inside Guogou Plaza — 20 meters from a Watsons and 50 meters from the Yaohan department store.

Min Mei's first store turned a profit in its fifth month. She no longer remembers which brands she was selling then. At the start she simply picked up unbranded cosmetics at a wholesale market. "Back then nobody had any concept of brand," she said.

Distributors began coming to her on their own in 2004. The first was Shiseido.

In 2005, Shiseido created a brand called Urara. Its official description calls it "a beauty brand developed specifically for Chinese women," priced below Shiseido's other lines. By then Shiseido had been in China for 23 years, with its main market in first-tier cities. To reach more consumers, it developed sub-brands like Urara aimed squarely at lower-tier markets.

One cosmetics-shop salesperson in Xuancheng described Urara as Shiseido's "most basic, mass-market brand." Posters of the actress Wang Luodan now cover the Shiseido counters in cosmetics shops. Its products generally cost less than 300 yuan; a 120-milliliter bottle of lotion sells for 220 yuan at the counter.

Back then the distributor wanted Min Mei to carry the line, and offered to help her shop win Shiseido's authorization to become one of its "exclusive stores." In return, the shop had to make Shiseido its main business and rework both its counter displays and its overall look.

Min Mei saw a good chance to expand. "It's an international brand — how could I not take it?" As she saw it, Shiseido would lift both her reputation and her foot traffic.

"At first it was ZA. The sales rep asked whether we wanted to do Shiseido, and said that if we did, our store was too small and looked too shabby." To meet the distributor's terms, Min Mei simply put up the money, took over a storefront across the street, and opened a second cosmetics shop built around Shiseido.

Min Mei did not tell us how much traffic, or how many other brands' distributors, Shiseido brought in. But when she opened her largest store in 2014, she put "Shiseido Exclusive Store" in giant letters in the most prominent spot on the front, with the shop's real name, Yanong, tucked inconspicuously off to the right. Thanks to that, Shiseido now accounts for more than 40% of the store's sales — a striking share, given that the store carries more than 30 brands and several hundred products at once.

Neither the 2005 store nor the 2014 one ever put the word "Urara" on its sign.

Building sales channels in lower-tier cities quickly, through cosmetics specialty stores, bought many personal-care companies both time and profit. Xuancheng, and the Shiseido distributor hustling around it, are only a miniature of every city and every brand. For 10 to 15 years, personal-care companies — multinationals above all — poured nearly all their energy into this. They hired huge sales teams, which became the departments with the most say inside the company. With celebrity endorsers and blanket advertising behind them, they worked with distributors at every level to build sales networks as fine as capillaries, and pushed their products into China's vast, complicated market that way.

Min Mei's cosmetics specialty store is one endpoint of that enormous network.

When we met Min Mei, she was recording a WeChat voice message for a sales rep from another brand: "Come by when you can. First do some training, then get the staff 'brainwashed,' then run it alongside some promotions for a while and see how it goes... You'd better come over, there are a lot of problems."

That same day, sales staff from both L'Oréal and Shiseido dropped in at Yanong for routine visits, asking Min Mei how the past month had gone. For companies as large as L'Oréal and Shiseido, this kind of frontline information shapes later decisions. What they learn through cosmetics specialty stores matters. Beyond the most direct read on consumers, big companies care a great deal about talking to the channels themselves: a good relationship means richer sales resources than a competitor gets. There are always conditions, of course. In Shiseido's arrangement with Min Mei, each order has to total at least 100,000 yuan, though the terms differ from distributor to distributor.

In 2014, 58% of China's skincare retail sales came from third- and fourth-tier cities. The domestic brands that get plenty of attention today — Hanshu, Chando, Proya — all built their name and their money early on through cosmetics shops in third- and fourth-tier markets. By Proya's own figures, as of 2015 its namesake brand Proya reached some 15,000 points of sale, 90% of them cosmetics specialty stores; measured by sales contributed, the figure was 62%.

As a rule, goods from multinationals like L'Oréal and Shiseido cost a shop about 75% of the final retail price, while domestic brands can cost as little as 35%. In other words, international brands leave a far thinner gross margin than domestic ones. The two complement each other: international brands raise a shop's image and pull in traffic, while the domestic brands are what actually make the money. That is why cosmetics specialty stores are happy to sell brands you have never heard of.

Both the shops and the brands' distributors probably lived for at least five years off the gap in information. Before e-commerce and other internet services reached places like Xuancheng, consumers depended on these outlets to learn anything about personal-care products.

At the Yaohan that opened in Xuancheng only two years ago, the brands that count as "standard issue" in first-tier department stores — Chanel, Lancôme, Estée Lauder, Guerlain — are hard to find. In 2015, Lancôme opened its first department-store counter in Wuhu, Anhui, a city 75 kilometers from Xuancheng and second only to the provincial capital, Hefei, in economic weight within the province.

Putting a counter inside a department store means higher labor costs, and personal-care companies also owe the mall a cut of sales. Department stores, meanwhile, are not friendly to young domestic brands with limited clout, which left those brands weak in distribution early on. Xinbai Department Store, which opened in 1993, was the first large department store built in Wuhu and was once the city's favorite place to shop. We counted about 20 cosmetics brands on Xinbai's first floor. Apart from a handful of international names — Avène, Maybelline, Olay, Biotherm, L'Oréal Paris, Vichy — all the rest were domestic, including Herborist and Forest Cabin.

Only places like Watsons and Sephora carry much the same brands here as they do in first-tier cities. In 2012 a Wanda Plaza opened in Wuhu, bringing the city its first Sephora. Watsons now covers every important commercial district in Wuhu. Bao Jing, who used to work in the cosmetics business, told QDaily that many people in Wuhu go to Nanjing or Shanghai to shop on weekends — two hours and three hours by train one way. "More brands, and everything the malls sell is genuine."

Consumers are changing fast. Bao Jing recalled managing a DHC store in Wuhu ten years ago. DHC had just entered the city, and she often saw mothers bring their high-school-age daughters in to pick out cosmetics sets costing close to a thousand yuan. What she thought at the time was: "How are girls this young using such good products already?"

Now in her early thirties, she says "one trip to Korea and I can stock up on a whole year of cosmetics." She left DHC about four years ago and runs a clothing store, selling imported cosmetics through WeChat on the side. Told that someone had never bought anything from a WeChat seller, her eyes went wide: "Never?!"

Another Wuhu woman, Shan Jingnü, born in 1991, still remembers browsing cosmetics counters as a child. Her mother took her to a mall counter and ended up spending more than 1,000 yuan on an Aupres set. "It felt so expensive at the time," she said. Today the single items on her vanity often run to four figures, most of them bought for her by friends traveling abroad.

Shi Ranping, who came to Wuhu to study and work ten years ago, says she only runs to a specialty store when she genuinely needs cosmetics in a hurry.

"Girls now, even ones who graduated not long ago, all have their channels. Friends' recommendations, say — everything has its personal shoppers and WeChat sellers now, because going abroad is so easy these days. Hong Kong, Australia, Japan, Korea — a trip costs 2,000-odd yuan, right?... Young people also go to Vipshop, Jumei... Because girls use so many products now, if a fake has even a bit [of the wrong ingredient] in it she'll break out, and she has too much information on her phone to be fooled about what's real. These [cosmetics shop] owners generally can't put one over on young people like that."

Min Mei and Wang Qunzi both admit the brick-and-mortar cosmetics business is getting harder, and both have noticed customers slipping away. Wang Qunzi manages a cosmetics specialty store called Yaru in Wuhu, Anhui, and has no business ties to Min Mei.

Her store sits beside an old residential compound in Wuhu. Local drivers say that ten years ago nearly every residential compound in Wuhu had a personal-care shop nearby. "These past few years they all suddenly vanished."

Perhaps because people in Xuancheng cannot get to Shanghai or Nanjing as often as people in Wuhu can, the shock to its cosmetics specialty stores is not yet as visible. Even so, and even allowing for all the risks she can see coming, Min Mei is somewhat resistant to the new things. "No energy for it," she said. E-commerce and WeChat selling both need someone parked in front of a computer or phone all day, and that would cut into the time she gives the store. As she sees it, a store's greatest advantage is the service it offers — massages, for instance — and reading a customer's skin in person. "How can you recommend a product without seeing the customer herself?"

This is a selling advantage particular to places like Xuancheng. Whether a product moves does not rest entirely on the brand's name; it has more to do with who is selling it and how. Min Mei disagrees with the line that "business is hard to do in Wuhu." As she sees it, if you are willing to work hard and put your heart into it, there is no business that cannot be done well.

By her own account, she receives 10 to 15 customers every morning for shoulder-and-neck massages. In a sense the beauty salon she runs is an extension of product sales: people buy massage oils, leave them at the salon, and get a more attentive experience. We did not ask about the salon's licensing or how exactly it operates, but she said that as long as regulars feel good about the products and the service, they keep spending — and that costs far less than cultivating new customers.

Wang Qunzi is trying the same thing. Not long ago she introduced a "30-minute" gua sha service. Buy massage oil at the store and you get multiple gua sha sessions. She posts at least one video a day on Moments of herself massaging or scraping a customer.

Service is what personal-care retailers usually point to when they explain how they differ from pure e-commerce. At the Forest Cabin brand store in Wuhu's Wanda Plaza, on a weekday afternoon just after 3, all four seats were taken by customers having skincare treatments. So it was at a Vinistyle store after 9 on a weekday evening. Vinistyle is a skincare brand founded in China in 2009 that now has about 500 stores nationwide.

Dong Wanjun, who manages a Vinistyle store in Wuhu, says selling cosmetics really means selling a relationship. When we came by at nine at night she was talking with the last customer before closing. Back and forth, the two covered not only skin but love lives and careers, and added each other on WeChat at the end.

Mr. Li, a Vinistyle distributor in Ma'anshan, said the WeChat account that customer added is the store's own account, run by the store manager. The brand wants every store to build a close relationship with its customers, check in on them regularly, and post the brand's latest discounts to that account's Moments feed.

"We don't set up group chats. Group chats put customers off." The job now, Dong Wanjun said, is not only to be close to customers but to make the closeness comfortable rather than intrusive.

Min Mei does the same. During a break in our interview, a customer sent her a WeChat voice message asking for help: she had broken out in a rash, photographed it, and sent the pictures to Min Mei. "Yanzi, this is a little sensitivity. Put a cold towel on it — looks like sun. Your outer skin layer is in better shape than before, though," Min Mei replied. She also calls her customers "kiddo."

Min Mei said requests like this come almost every week. Because she and her customers know each other, they are willing to trust what she recommends.

Bao Jing laughed when she heard that. Cosmetics are a necessity, she said; the service is not. As for reading someone's skin, word of mouth online, or what a friend or relative found when they used the product, can do the same job.

None of them brought up counterfeits or fraud, online or off, on their own. Talking with several Wuhu consumers, we found that worries about quality keep them and the people around them from buying cosmetics on Taobao. But a woman driving a taxi in Wuhu told QDaily that WeChat selling is very popular locally, and that she knows people who do it.

Perhaps because she sells that way herself, Bao Jing had nothing but praise for this way of shopping. When WeChat sellers post their receipts to Moments, she believes, it builds word of mouth and credibility for the products. Some even livestream their buying trips from a phone app, which turns shopping into something fun instead of just a transaction.

Min Mei showed little reaction to any of this. It was not the first time she had discussed it with someone. She seems to have accepted the situation, or has yet to find a good answer to it. She did look a little startled when we mentioned that the domestic cosmetics group Proya had announced a brand called Yuefuti and planned to open single-brand stores in second- and third-tier markets and below.

Last year a distributor for the Japanese skincare brand Albion came to Min Mei. It is a sub-brand of the Japanese Kose group, and a normal-size bottle of its lotion costs 300 to 500 yuan. So far it has counters only at Isetan Meilongzhen in Shanghai and Nanjing Golden Eagle International Shopping Center, but on Taobao it is an internet hit. Introducing it, Min Mei said things like "Fan Bingbing goes through several bottles a year just on her body."

In the personal-care industry's "capillaries," Albion is a latecomer. Like the big companies of a decade ago, it is still laying its own sales channels through this network of distributors and personal ties.

Shiseido, the marquee name in Min Mei's store, is meanwhile pushing a brand overhaul in China. On an analyst call at the end of 2015, Shiseido said it would restructure its low-end lines, including the open-shelf lines built for supermarkets: ZA, Pure & Mild, Urara, and DQ. Fujiwara Kentaro, who became general manager of Shiseido China on November 1, 2015, said the company had to face consumers directly, because "the era when one product could pull overall sales is over."

Across all her stores Min Mei employs 20 staff, and rent for a downtown storefront runs from 250,000 to 400,000 yuan a year. She and her husband used what Yanong earned to buy an apartment near the first store, in downtown Xuancheng.

"How to put it — this business won't make you full, but it won't starve you either. Xuancheng is all right, there's a living in it... If I felt it was still all right — 'forget it, I'm done with this' — I could hold on another three to five years, but it would be weeded out on its own," Min Mei said.

Cover image from Visual China Group