Click "Read Original" for details After a day of visiting CS channel stores, Lao Wang returned to the office feeling tired, but his heart was even wearier. Watching platform e-commerce, vertical e-commerce, live-streaming sales, group-buying platforms, Douyin, Kuaishou, and community group buying steal foot traffic day after day, offline CS stores are finding life increasingly difficult... Lao Wang thought to himself that this year's CS channel targets would definitely not be met, and what worried him even more was what to do next year. Through the floor-to-ceiling window of his office, the building across the street displayed a clear advertisement: "Are you ready? Double 11 Carnival"—perhaps this is just an online carnival, but for offline CS channels, it's a carnival of disaster... "You can't restart 2020, but what we can do is, as Churchill said, not waste this crisis. We must use the power brought by this crisis to accelerate innovation and change, look forward and move forward, to survive and live longer." The above quote is from the head of a national top cosmetics chain. This year's wave of store closures in offline cosmetics stores can be described as a nationwide "channel disaster." In fact, over the past few years, foot traffic in cosmetics stores has been continuously declining, and the days of offline chain channels have been far less prosperous than before. However, the outbreak of the pandemic has accelerated the shift of consumers from offline to online. The target consumer group, mainly young white-collar women, has been fully diverted by online new retail and vertical new e-commerce, posing severe challenges to the offline CS channel. At this critical juncture, first-tier city managers of manufacturers need to step forward to help and guide this channel out of difficulties and gradually transform and upgrade. In recent years, among the major FMCG channels, the cosmetics store channel (referred to as CS channel) has seen the fastest and largest migration of foot traffic from offline to online, as the customer base of offline CS stores highly overlaps with online beauty consumers. The explosive growth of live-streaming sales during the pandemic this year has dealt a second blow to the already struggling CS channel, adding insult to injury. Facing irreversible channel innovation and consumption trends, how will the CS channel evolve and develop? As an old and important professional niche channel for daily chemical FMCG manufacturers, how should first-tier city managers respond correctly? This article may provide you with some thoughts and inspiration. -01- CS Channel: The Market Has Changed, Winter is Coming The CS channel in each city market (this article focuses mainly on local small and medium-sized CS chains closely related to first-tier city managers) has long relied on head daily chemical hot products for traffic generation, combined with BA (beauty advisor) professional services to sell high-margin local beauty products, enjoying the "money-making effect" of high gross margins and high average transaction values. Many CS chain operators originated from traditional wholesale channels. At that time, they were dissatisfied with the low gross margin model of traditional wholesale distribution products, so they transformed into cosmetics wholesale and retail through information asymmetry and service enhancement, growing step by step. Many CS customers became local cosmetics channel leaders, dominating their regions, gaining both fame and fortune. In recent years, with the booming development of e-commerce and new retail, many traditional offline CS customers failed to seize the dividend period. Instead, they narrowly exploited the convenience and timeliness of e-commerce to further speculate and resell hot products from head manufacturers. While they seemed to profit, they lost the professional guidance and service from manufacturers, and their business did not improve but rather shrank. In the past, offline cosmetics stores mainly used head brands and daily chemical standard products to attract traffic with low prices, then earned gross margins by selling small domestic brands. They profited through the naked price model and discount subsidies from domestic cosmetics manufacturers. In previous years, these brands were popular, sold well, and were profitable, but in the past two years, as consumers' beauty concepts have been fully educated by vertical e-commerce platforms like Xiaohongshu, young target consumers are no longer easily fooled by concepts and promotions. The once high-margin local small and medium brands have collectively failed in the offline CS channel. Coupled with the pandemic this year, the already diluted foot traffic has become even less frequent in offline cosmetics stores. After all, cosmetics are not like baby formula or other FMCG categories that rely on consultant-style sales. The offline face-to-face services of BAs and sales associates are not a rigid need for these consumers. Therefore, it can be concluded that the trend of declining foot traffic in offline cosmetics stores will continue. With fewer customers, making money from high-margin small brands is also harder—this is the major trend in the CS channel. When facing a crisis, the first thought is to change the way of doing business. With the outbreak and continuation of the pandemic, these CS channels have been forced to start paying attention to live-streaming sales, community marketing, and WeChat selling. Although many stores have turned the situation around and offset some losses, the overall transformation is still not ideal. The latest data shows that 46%-50% of stores have not yet started community operations. Practitioners in cosmetics stores are relatively traditional and slow to innovate and change. On the other hand, even if they have implemented community operations, average sales account for less than 10% of store revenue. In summary, these stores' attempts to go online are either not resolute or not professional. Of course, these two points are complementary: because they are not resolute, they are not professional. Lack of professionalism also leads to lack of resolve, ultimately resulting in poor results and a vicious cycle. Compared to the past, when they were used to good times and easy money, now facing the impact of various new models, CS offline channel owners are beginning to realize they must embrace digitalization and iterate their business. However, the current reality is that most do not understand the internet or digitalization, and their transformation posture is awkward. Mentally, they are not fully prepared, as the pandemic came too suddenly, leaving them caught off guard and flustered, resorting to any remedy in a panic. Thus, we see a phenomenon: in the past two years, small and medium-sized customers in the CS channel have been particularly keen on banding together. Whether cosmetics retailers or wholesalers, alliances are being formed everywhere. But frankly, this kind of banding together is more about gathering to seek lower prices and greater bargaining power. By centralizing procurement and distribution to compress costs, they engage in price negotiations with upstream head manufacturers, but the professionalism of alliances is still a work in progress and needs refinement. On the consumer side of the CS channel, I have a feeling called "consumption not upgrading." In the past, big brands and large manufacturers did not pay much attention to the CS channel, but now more and more big brands are lowering their profiles, targeting the mid-to-low-end market with very affordable prices. The market share of head brands is increasing, especially in the era of e-commerce dominance and the supremacy of hot products. The trend of "big brands, quality products, and good prices" is becoming more evident. The market is facing impact, which naturally brings more challenges and pain points to city managers of FMCG manufacturers. -02- Price Chaos, Low Proportion of Daily Chemical Standard Products, and Insufficient Attention In cosmetics store channels, daily chemical standard products typically account for 10%-15% of a single store's sales. They have low gross margins! They are more often used as traffic generators, so regardless of the link in the chain, they are often given limited attention. From the perspective of a frontline city manager, facing the CS channel presents roughly the following three major pain points: Pain Point 1: Price Chaos Looking back at the owners of these small and medium-sized CS chains, many evolved from wholesalers. They were not satisfied with circulation products and channel hot products, disdained quick wins, and did not want to work hard for bulk profits, so they entered this high-margin niche channel. These chain owners essentially still think in terms of price competition, with the logic of cosmetics wholesalers and speculators pursuing extreme profits. It can be said they are born with the DNA of price competition, and the root of price chaos lies with them. City managers of manufacturers in the local area cooperate with these customers, but supply is inconsistent and unreliable. Now there are many channels to source goods, and even some counterfeit products. They seem to benefit from low prices when purchasing, but without manufacturer service and guidance, many goods expire unsold. If you calculate carefully, they are actually losing money! This is about vision; vision truly determines business. Pain Point 2: Unprofessional Management As a first-tier city manager, the requirements for dealer store execution will only become higher and more refined. However, due to the operational characteristics of cosmetics stores, daily chemical standard products are mainly used for traffic generation, and the SKU share of distribution is not high. The CS channel focuses more on high-margin products. Stores do not pay attention to daily chemical standard products, which leads dealers to also not pay much attention. Sales representatives visit infrequently and do not think about improving displays. Store staff, lacking professional guidance from manufacturers, prefer to give the best displays to the most profitable products rather than the most branded and traffic-generating products. Due to the business philosophy of the CS channel, all levels of the store severely lack attention to non-high-margin categories, which further makes dealers and manufacturer sales representatives lazy. Lack of professionalism extends to product distribution. Over-reliance on hot products leads to price inversions for these low-margin traffic products. Dealers and sales representatives become increasingly unmotivated; if it's not a hot product, it won't sell, and distribution shrinks further. Pain Point 3: Store Sell-Through Difficulties As mentioned earlier, daily chemical products account for 10%-15% of cosmetics store sales and are low-margin traffic products. Therefore, the in-store resources allocated to them—such as primary displays, secondary displays, promotional materials, and promotional resources—are often very limited. Even if high-margin daily chemical products are sold in, selling them out is a big problem, leaving stores in a dilemma! Secondly, for manufacturers, the business volume in the CS channel is smaller than in other retail stores and community supermarkets, and due to ROI considerations, it is difficult to invest heavily. Therefore, it is hard to have dedicated promotional sales associates stationed, and related promotional and pricing information is difficult to implement in stores. Managing and handling near-expiry products is also a practical key issue. Thus, city managers often face a "three difficulties" situation with the CS channel: difficulty investing personnel, difficulty managing prices, and difficulty supervising near-expiry products. These are the three key pain points city managers face in the CS channel. Facing these pain points and considering the overall trend of the CS channel, let's see how city managers, as frontline commanders, should handle this tricky channel. -03- Professional People, Differentiated Products, Intensive Cultivation The CS channel business is shrinking, so store owners have extreme demands for gross margins and expenses. But if first-tier city managers do not understand the channel's pain points, underestimate the channel owners' mindset, or lack professional insight into this type of channel, even the strongest brand will find it difficult to truly lead or manage this channel. Specifically, how to do it? Plan and layout from the three dimensions of "people, goods, and place." 1. Select Professional Personnel and Go Deep into the CS Channel At the regional level, we must achieve specialization. Professional channels must be matched with professional people. Do not hesitate to find professional people from the market to do professional things. Select professional personnel to go deep into the CS channel, understand the channel's pain points, key points, and critical points, and use point-to-area to achieve precise breakthroughs in daily chemical standard products. At the headquarters level, there should be a professional beauty team operation, from product selection to regional communication to regional sales empowerment, achieving professional operation. It can be foreseen that the CS channel will undergo a huge transformation from now into the next few years. Therefore, to do this channel well, the manufacturer's headquarters and ground teams must have a deep and forward-looking understanding and judgment of the CS channel's trends, current situation, pain points, and future development. If they only do routine distribution, routine sales aids, routine promotions, and routine maintenance as before, it will be hard to make significant breakthroughs. The CS channel's own business is difficult, and at this time, it needs manufacturer personnel to guide them more efficiently and accurately. In the market, we find that more and more CS offline terminal stores cannot continue operating and are beginning to transform into business models like "Miniso," using 1-yuan, 2-yuan, and 5-yuan items to attract traffic. They not only sell daily chemicals and cosmetics but also some daily consumer goods, attempting to use low-priced daily consumer goods for traffic generation. This may be a temporary necessity, but it cannot be a routine operational move. More and more CS store owners understand that the old methods will not work. Therefore, the manufacturer's selected professional CS channel sales personnel must have a deep understanding of the channel's evolution and lead local stores and practitioners to iterate and transform together. Why is the offline CS channel easily impacted by e-commerce? The core is the lack of service; it is still just a place to sell products. Why can mother-and-baby stores maintain relatively strong vitality despite e-commerce's onslaught? Because they have professional services that e-commerce cannot match. Where is the service in cosmetics stores? This is what every store owner needs to think about. Remember: "E-commerce can offer speed and cheapness, but service and experience must ultimately return offline!" Of course, this is also what local city managers and manufacturer sales personnel responsible for the CS channel need to think about. Operational upgrading is service upgrading. How to build value through service and build a moat for cosmetics stores? In the future, the moat of cosmetics stores will not be products but service. Regarding dealers, first, the capabilities of comprehensive sales personnel need to be improved. Through management and incentive optimization, sales personnel should pay more attention to the quality of CS store visits and execution precision. Professional brand sales associate training should be upgraded, from selling price to selling brand to selling service. In the 1.0 era, cosmetics stores sold price; in the 2.0 era, they sold brand; in the 3.0 era, they sell service. The same applies to dealer sales personnel responsible for the CS offline channel. Undoubtedly, in third- and fourth-tier cities, the influence of local small and medium brands is declining. As city managers of first-tier head brands, they should lead the team to guide store owners in category upgrading and optimization, assist store owners in introducing the concept of service, and not only do Sale-in and Sale-out but also Sale-service. Only with this trinity can business be sustained long-term. 2. Differentiated Products, Precise New Product Launches, and Improved Gross Margins Regarding products, first, select regular hot products and continuously increase the operational share of first-tier brands, reducing some small and medium brands or miscellaneous brands to help customers enhance sales per square meter. In the past, high-margin small and miscellaneous brands no longer sell; it is necessary to increase the operational share of first-tier brands and improve overall gross profit through faster turnover. Second, introduce quality "small but beautiful" categories. The beauty and skincare category has entered a stage of intense competition. While upgrading categories, it is necessary to extend the breadth and depth of consumer needs. For example, foot masks, hand masks, eye masks, and sleeping masks—these more segmented small categories are worth planting and cultivating. Third, differentiate new product launches, stay away from gross margin troughs, and make the CS channel's product line distinct from other channels, especially online. City managers should think from the perspective of the overall category: which segmented products can improve CS channel gross margins while having relatively safe price margins. 3. New Retail Integration and Building Lighthouse Stores Finally, regarding the place. New retail tools and methods must be put on the city manager's work agenda. Moments and community marketing empowerment, live streaming, and digital marketing tools should all be fully integrated. Of course, the new retail integration mentioned here is not simply posting on Moments or sending a few electronic coupons in the community, but professional operation, starting from small things, starting from the first order. For example, flash sales and 1-yuan exchanges are the main ways to maintain community stickiness and are also good means of traffic generation. Fully position the role and goal of each promotional method. Another example is the WeChat live streaming mini-program, which is the main live streaming platform chosen by small and medium CS stores. Kanjian Live is connected with WeChat and is easy to use. Guide terminals to do simple, easy, and efficient things. When the community reaches a certain size, the next step is how to activate users in the group, which is also one of the main confusions currently raised by most CS store owners. Traffic generation is the first step, but activation is more important. Why does community sales account for less than 10% of store sales? The core is low activity! Fission is too difficult! In community promotion maintenance, guide and encourage store owners and staff to choose more shareable content, such as hair care and skincare knowledge, conduct weekly promotional activities by theme, hold lucky draws, post product ads, etc. Second, professional dealers should do more detailed division of labor and positioning. City managers should actively influence dealers to pay attention to the CS channel internally, and it is best to set up a dedicated service and support team for CS. Think about it: can the promotional sales associates in the CS channel and the auntie promoters in hypermarkets be held to the same standard? Obviously, different standards. To help dealers do this channel well, my suggestion is to set up dedicated CS channel dealers if conditions permit, and not mix with other channels. Often, dealers who serve supermarkets cannot do well in the CS channel. Specialization is key; let professional people do professional things. Third, prioritize strategies based on geographic location. The layout should be hierarchical, prioritizing the construction of flagship stores in first- and second-tier city head CS channels. Especially the creation of head CS stores in core urban areas should be the top priority, including primary shelf POSM scenarios and regular roadshows. Then, according to core urban areas, county centers, and town centers, create flagship terminals and lighthouse terminals in a rhythmic and planned manner. The CS channel has a relatively fixed circle in every city, and word-of-mouth is very important. Therefore, if you want to do the head, once the head attack fails, it is difficult to truly open the CS channel in that city with second- and third-tier systems and terminals, and it is also easy to lose price control and thus lose the initiative. In third- and fourth-tier cities, it is necessary to achieve coverage through local influential dealers and find local CS alliances to achieve brand sinking. In summary, although the CS channel accounts for a limited share of daily chemical categories and is not the mainstream business channel for daily chemical manufacturers, in the current era of stock competition, city managers must pay sufficient attention to any channel with sales volume. If business does not grow, it is the city manager's fault. Where does growth come from? Besides competition in mainstream channels, it must also be dug out from other channels. Of course, in the context of increasingly limited single-store output, it is not about city managers personally handling every store, but rather standing on the overall trend of CS channel development and evolution, making arrangements earlier, refining a set of efficient methodologies suitable for local market CS channel growth, and leading our dealer team to execute and implement. The Double 11 advertisement across the street went dark, and the road downstairs gradually quieted down... After a night of review and reflection, Lao Wang also figured it out—no channel is destined to be eliminated; only organizations and individuals who fail to keep up with change will be eliminated. Compared to online, offline physical stores have advantages in service and experience, and customer acquisition costs are lower. Proactively using new retail and digital tools to establish connections between stores and consumers is the foundation of business. Although offline physical stores are still in trouble, with the improvement and upgrading of consumer awareness, offline channels will eventually re-demonstrate their value. Because speed and cheapness are not eternal consumer needs; experience and service remain the essential demands of consumers. This was true in the past and will be true in the future... About the author: Xu Xiang, currently Sales Director of Unilever South China, with 20 years of experience in FMCG daily chemicals, dairy, and condiments, deeply engaged in regional market management and customer marketing, willing to exchange and learn with peers for mutual progress. The above article represents only personal views.