A Business Description of Yatsen Holding Limited
Yatsen Holding Limited is a Chinese company operating in the beauty market. The company was founded in 2016, and since then, it has recorded significant growth (U.S. Securities and Exchange Commission, 2020). Yatsen has successfully launched three-fast growing brands in the Chinese beauty market, including Abby’s Choice, Little Ondine, and Perfect Diary. Between 2019 and September 30, 2020, these three brands managed to serve 46.9 million DTC customers (U.S. Securities and Exchange Commission, 2020). Perfect Diary, the company’s first brand, has grown to become the top cosmetics brand in China regarding online retail sales since its launch. The brand’s success is tied to its reliance on a digitally native DTC business model, which allows it to prioritize personalized services, innovative product development, and deep customer engagement. Yatsen’s growth has also been witnessed in its sales, as its gross sales increased to RMB3.5 billion in 2019 from RMB767.7 million in 2018, a growth rate of 363.7% (U.S. Securities and Exchange Commission, 2020). Over 90% of the company’s total growth sales have been linked to its online channels. Apart from these online channels, Yatsen had set up over 200 experience stores across China by September 30, 2020 (U.S. Securities and Exchange Commission, 2020). The company’s total net revenues have been increasing since it was founded. For instance, Yatsen’s total net revenues between January 1, 2020, and September 30, 2020, reached $481.9 million (U.S. Securities and Exchange Commission, 2020). The company’s performance in China’s beauty market has led to a focus on outside markets through acquisitions aimed at increasing its global presence.
The Benefits, Risks, and Other Implications Arising from the Recent Acquisition
Yatsen acquired Galenic, an iconic skincare brand in the French market, from Pierre Fabre, a pharmaceutical and dermo-cosmetic group (Pierre Fabre, 2020). The acquisition became effective on November 1, 2020. According to the details of the acquisition, Pierre Fabre was allowed to own a minority stake of 10% in the affiliate brand that Yatsen would create to help host Galenic’s assets in Europe (Pierre Fabre, 2020). A renowned French pharmacist, Mr. Pierre Fabre, introduced Galenic in the French market in 1970. Since then, the company has grown to acquire iconic status in the country through cosmetic innovations and selective distribution that targets high-end pharmacies. By 2019, Pierre Fabre had spread to over 130 countries and had over €2.4 billion (Pierre Fabre, 2020). The company has various brands that operate in beauty markets across Europe, which explains its high turnover.
The acquisition of Galenic by Yatsen fits into the company’s corporate strategy, which is focused on expansions through brand growth. Over the past years, Yatsen has been at the forefront of introducing new brands. Currently, the company has three high-performing brands in the Chinese market (U.S. Securities and Exchange Commission, 2020). Its brand growth is associated with meaningful product innovation and the attainment of productivity progress. The acquisition of Galenic allows Yatsen to explore new markets based on its corporate strategy, which is linked with brand growth. The company intends to rely on the Galenic brand to explore the French market. Since Galenic is a premium and iconic skincare brand in the French market, Yatsen will depend on this to expand its operations in the new market. Additionally, the acquisition of Galenic allows Yatsen to understand better the market’s cultural, historical, and institutional differences that may impact its corporate structure. According to Eiteman, Stonehill, and Moffett (2020), understanding historical, cultural, and institutional differences is necessary for international financial management. In particular, the focus should be on the aspects that affect corporate governance. In the case of the acquisition by Yatsen, the reliance on an iconic brand allows the company to understand the French market better.
According to Eiteman, Stonehill, and Moffett (2020), political risks play a significant role for companies operating in a given country by understanding political factors that can influence their economic operations. Yatsen needs to understand the political risks associated with operating in France through its acquisition of Galenic. The main political risk in France falls under country-specific risks, which is the requirement of making inward and outward payments through bank transfers using approved banking intermediaries (Euler Hermes n.d.). The country does not have restrictions regarding the transfer of royalties, interest, or profit. Foreign-controlled businesses are expected to have a resident French bank account and follow the same regulations as the country’s other legal entities. France’s political risk differs from those of China. For instance, regulatory crackdowns are common on social media in China, which is not the case in France (Magnus, 2021). Also, the company ranks low on various governance dimensions, which means that companies are likely to be exposed to uneven applications of the rule of law.
An overview of the economic profiles of China and France helps in understanding prospects for the acquisition. China’s economy has lost significant momentum in Q3 due to the disruptions caused by restrictions aimed at containing COVID-19 (Focus Economics, 2021). The country’s industrial output has been significantly curtailed as the country rushes to meet emissions standards. The country’s economy is expected to have slow growth in the coming year, and the momentum will pick up once the government eases containment measures (Focus Economics, 2021). According to U.S. Securities and Exchange Commission (2020), China’s beauty market is expected to continue expanding due to its high population of Gen-Z and Millennials. Trends among these populations are likely to alter China’s beauty market in the coming years. The country lacks a floating exchange rate, as its currency relies on the U.S. dollar (Focus Economics, 2021). France’s economy is projected to have a softer growth rate in the coming year due to a stricter base effect. Covid-19 uncertainty has impacted economic operations in the country; however, the government’s investment plan can help stabilize the economy (Focus Economics, 2021). The beauty market in France is characterized by the high valuation of skincare products, which represent more than a quarter of the sector’s total revenue. France’s domestic currency coexists with the euro in a fixed exchange rate regime.
Eiteman, D., Stonehill, D., & Moffett, M. (2020). Multinational business finance (15th eds.). Pearson.
Euler Hermes. (n.d.). Economic risk: France. Euler Hermes. https://www.eulerhermes.com/en_global/economic-research/country-reports/France.html
Focus Economics (2021). China economic outlook. Focus Economics. https://www.focus-economics.com/countries/china
Focus Economics (2021). France economic outlook. Focus Economics. https://www.focus-economics.com/countries/france
Magnus, G. (2021). Is it time to avoid investing in China? Financial Times. https://www.ft.com/content/fe0e9427-0cea-4421-9e14-ab382d3d8929
Pierre Fabre. (2020). Chinese beauty company Yatsen acquires iconic skincare brand GALENIC from French group Pierre Fabre. Pierre Fabre. https://www.pierre-fabre.com/en/press_release/chinese-beauty-company-yatsen-acquires-iconic-skincare-brand-galenic-from-french
U.S. Securities and Exchange Commission. (2020). Yatsen Holding Limited. Sec.gov. https://www.sec.gov/Archives/edgar/data/1819580/000119312520298091/d57580d424b4.htm