Mr. Wang is a cosmetics distributor in City Y, having been in the industry for eight years. Although he represents only a few brands, they are all top-three open-shelf brands in supermarkets, covering channels including supermarkets and cosmetics stores, with annual sales of about 20 million yuan. It is often said that cosmetics have large profit margins. In the good years, Mr. Wang bought a car and a house through his cosmetics agency. Back then, it seemed that as long as products were placed in stores and two girls were hired to stand there daily, business would thrive. Why has his business become difficult now?

This is because all the brands Mr. Wang represents are supermarket open-shelf brands, not specialty store brands.

Open-shelf brands vs. specialty store brands What is the difference between the two? Supermarket open-shelf brands are almost dominated by giants like P&G, L'Oréal, Unilever, and Beiersdorf. Among specialty store brands, except for Shiseido series (Aupres, Za, Aqua Label, Uara, etc.), they are basically dominated by private enterprises.

In terms of price, open-shelf brands generally range from 10 to 100 yuan. The fastest-moving categories are typically facial cleansers and toners, with high single-item transaction rates and an average unit price of around 50 yuan. Representative brands include Olay, Nivea, Pond's, Herborist, and Dr. Li. Specialty store brands generally range from 100 to 300 yuan. The fastest-moving categories are typically creams and lotions, with high combination set transaction rates and an average customer price of around 200 yuan. Representative brands include Chcedo, Proya, Aupres, Osman, and Meifubao.

In terms of gross margin, open-shelf brands have relatively low margins. Typically, distributors get a 10% discount, and stores get a 20% discount. Specialty store brands have higher margins. Typically, distributors get a 10%-20% discount, and retail outlets get 30%-70% (often the cosmetics store owner is also the distributor, allowing for maximum margin).

In terms of channels, open-shelf brands are generally sold in supermarkets, with customer self-selection as the main mode. Specialty store brands are mostly sold in cosmetics stores (often with a front-store-back-house model), with beauty consultant recommendations as the main mode.

Regarding target consumers, open-shelf brand customers are mainly students and white-collar workers, with strong brand awareness but relatively low purchasing power. Specialty store brand customers are older, have weaker brand awareness, and have higher purchasing power.

Regarding BA (Beauty Adviser), open-shelf brands typically have only one BA in-store, with a salary of base pay plus bonus, around 2,000 yuan per month, or even only 1,200 yuan in third-tier cities. Specialty store brands typically have two BAs per shift, with a salary of base pay plus commission (10%-20% commission, or even no base pay, only commission), ranging from 2,000 to 4,000 yuan per month.

Regarding cross-regional selling (channel conflict), open-shelf brands have high visibility, price sensitivity, and fast turnover, so they have a basis for cross-regional selling. Places like Guangzhou and Zhejiang, and even some large KA systems, are distribution hubs for cross-regional goods. Specialty store brands have high prices, low visibility, slow turnover, and strict manufacturer policies (such as fines for cross-regional selling and counter policies), so cross-regional selling is less common.

Originally, specialty store brands and open-shelf brands were like water and oil, each thriving in their own channels. However, some leading specialty store brands began to covet the vast mainstream market. With strong TV advertising, higher terminal margins (high margins are easier to gain procurement support and better shelf positions), stronger BA teams, and richer material support, they launched endorsements, roadshows, membership systems, and ordering conferences. At this point, private enterprises fully leveraged their high efficiency, with frequent copycats and diverse policies, deciding to surround the cities from the countryside. The irregulars wanted to defeat the regulars—many specialty store brands began to eye hypermarkets.

Single channel leads to being controlled by others With the above background, it is easy to understand why Mr. Wang wants to quit.

First, the brands he represents are all well-known open-shelf brands with low gross margins. Mr. Wang calculated: assuming all products are based on standard retail price as the deduction base, the manufacturer gives distributors an average profit margin of 35%, plus a back-end rebate of 4%, totaling 39%. Among this, retailers require a front-end gross margin of 20% and a back-end gross margin of 3.5%. Monthly personnel costs and warehousing/transportation fees account for about 8%. This leaves a profit of less than 10%. Representing well-known brands sounds prestigious, and annual sales rank high in supermarkets, but what does a VIP customer title mean? The actual profit may be less than what other small brands earn.

Second, the supermarket channel accounts for too high a proportion, making the business too passive. As the saying goes, "the big store bullies the customer." Sales increase every year, and contract terms also increase year by year. If negotiations fail, products are directly removed from shelves. Losing one supplier's business doesn't matter to the supermarket; persisting to the end is victory. It is often the distributor who cannot hold on—if there is nowhere to sell the goods, but monthly targets must be met, will the products just sleep in the warehouse?

At the same time, supermarkets can return goods at will, and damage is common. At the beginning of the season, they are the most active in placing orders, with procurement urging delivery daily for fear of missing sales opportunities. But once the season passes, the warehouse is filled with leftover sunscreen and creams from the stores, and even near-expiry and damaged goods. Arguing with the store is always fruitless. The tough store needs no reason; if you don't accept returns, they simply withhold payment. Suppliers seem to have no choice but to endure silently.

Third, terminal competition is fierce, sales are not increasing, and staff turnover is worsening. Not to mention fighting with other suppliers, even internal brands are fighting each other. Today, the business representative of Brand A comes to complain, "Why are all the end caps given to Brand B this month? Can you give me 1 square meter for an event?" Tomorrow, Brand B wants to do a roadshow and hopes Brand A will give up some of its floor space. When you go to procurement, they simply say, "All the end caps are given to you. What about Mr. Li? He pays higher end cap fees, and he signed a one-year contract. Resources are limited; you can adjust internally!"

As mentioned earlier, well-known brands have low margins, so BA wages are naturally not high. If frontline staff are not effective, sales become even less effective. Mr. Wang's company's peak turnover rate reached 40%. With low wages and high turnover, it is even harder to recruit new people. BAs are different from ordinary promoters and require higher skills. So even salespeople who should focus on sales are busy recruiting, training, onboarding, and then seeing staff leave, repeating the cycle.

Meanwhile, specialty store brands, with higher margins and a greater urgency to expand the market, enter supermarkets with high fees and educate procurement: "Your location deserves higher fees." It can be said that specialty store brands are invisibly driving up store fees and personnel wages, raising the barriers to competition.

Finally, cosmetics are highly seasonal, inventory days are high, store payment is slow, and return on investment is low. Although cosmetics fall under FMCG, their actual circulation is not as fast as instant noodles or milk. On average, they turn over every 2-3 months. In spring and summer, facial cleansers, toners, and sunscreen sell; in winter, creams and body lotions sell. When business is good, the manufacturer gives a 30-day credit period, and the store settles in 30 days, allowing inventory days to be controlled at 30-50 days. Cosmetics depend on the weather. If the temperature doesn't drop, creams are hard to sell. If they are stored until next year, they become near-expiry goods. If the store refuses to accept them or discounts them, the distributor suffers.

As manufacturer targets increase, terminal sales do not increase proportionally, and inventory days quietly increase from 50 to 60, 70, 90, or even 100 days. Stores gradually shift from purchase to consignment or pay based on inventory. Over time, the distributor's funds are frozen in inventory. Once capital turnover slows, return on investment decreases, and business becomes increasingly difficult.

Brand portfolio adjustment With so many problems, Mr. Wang cannot sit idly. He held several meetings with key staff, compared sales data of several brands, and decided to first adjust the brand portfolio.

First, cut products that are unprofitable, low-yield, or highly duplicated. The company currently represents 5 well-known open-shelf cosmetics brands: 1 color cosmetics and 4 skincare. Among the 4 skincare brands, Brand A focuses on the currently popular herbal care, with a rich product line, many new products, and good terminal feedback. Although its margin is low, the company lacks this category, so it is worth continuing.

Brand B was recently acquired by a foreign company, with strong financial strength, several new product lines, increased advertising investment, more terminal investment, and medium-to-low prices that fit the consumption level of City Y. Its prospects are good.

Brand C is an old foreign brand. Although it advertises less, it has strong word-of-mouth and influence, with several series ranking first in market share. It has a high self-selection rate and is popular with stores. Its prices are medium-to-high, but the downside is that it provides too little funding, requiring distributors to pay out of pocket. It is pending.

Brand D is a European brand with a good image, little advertising, and low self-selection, requiring BA guidance. The company has many policies and high fees, but requires distributors to advance payments, with long reimbursement times and excessive stock pressure. Some products overlap with Brand C.

From a market potential perspective, color cosmetics are a must. Brand A is the hot favorite and cannot be dropped. Brand B is a volume-driving line suitable for supermarket formats, and a simple end cap display works well. Brand C has distinctive product features and good market reputation, making it an important bargaining chip. Brand D is risky; although it offers many fees, they must be advanced, and sometimes it takes half a year to get reimbursed, seriously affecting the company's capital flow. The plan is to gradually phase out Brand D while ensuring the sales targets of the other three brands are met.

In addition to cutting Brand D, Mr. Wang plans to take on a mask brand and a beauty tool brand. Masks are the true FMCG in the cosmetics industry, with a turnover rate double that of ordinary products. They sell quickly, can be sold all year round, have high customer prices, and are easy to combine with other products.

Beauty tools have been overlooked by distributors, lacking leading brands and advertising. At the same time, customers are not price-sensitive to beauty tools, so their gross margins are quite large, even 3-5 times that of cosmetics. For beauty tools, Mr. Wang's only requirements are attractive packaging and product compliance. The entry barrier for beauty tools is much lower than for cosmetics brands.

Reduce inventory, must balance channels Developing new channels is the most direct way to reduce inventory and grow the business. Previously, all business was done through supermarkets, which tied up capital, had slow payment, high fee ratios, and were easily controlled by supermarkets. To balance the business model, it is necessary to add new channels that require less capital, offer faster returns, and have lower fee ratios.

With the improvement of personal care awareness, cosmetics specialty stores have gradually risen and become a new pole driving cosmetics sales. Mr. Wang's network of cosmetics specialty stores is not large. Without expanding the current sales team, he will first select a few customers with good credit, large scale, and high cooperation from existing clients for focused cultivation.

To do well in the cosmetics store channel, more effort is needed than in supermarkets. Cosmetics store owners are different from procurement. They focus on real profits, not fees. They can buy with cash, but they can also self-source from Guangzhou, where prices are lower and logistics faster. Therefore, the local distributor's retail management and service quality are key to cooperation.

Open-shelf brands have always been ambiguous about the cosmetics store channel. They want to enter but cannot lower their status and prices, because once they do, chaos may ensue. A collapse in wholesale prices marks the beginning of a brand's decline. Mr. Wang wants to explore the path ahead of the manufacturer. The manufacturer's representatives gave the greatest spiritual support—everyone wants to increase sales—but material support is hard to come by.

Mr. Wang has his own ideas. He has only one requirement for the manufacturer's representatives: treat cosmetics stores like supermarkets, train store staff like their own BAs, and reserve sufficient materials for each event for cosmetics stores. In terms of pricing, Mr. Wang can conditionally ship at factory price, and each selected outlet must sign an agreement defining the responsibilities and obligations of both parties. Once obligations are put in writing, salespeople and stores have specific reference standards.

Among these, cosmetics stores must ensure that no other brand's products are placed on Mr. Wang's brand counters; terminal sales prices cannot be lower than 90% of the standard retail price, except for flyer specials; and monthly purchase amounts must be no less than 8,000 yuan.

Mr. Wang's support to cosmetics stores includes:

  • Task completion rebate: 3% (in kind based on purchase price);
  • Sample support: 3% (in kind based on purchase price);
  • Personnel support: arranged according to different promotion periods;
  • Inventory adjustment support: for seasonal products, Mr. Wang can assist the store in exchanging goods for free, provided it does not affect secondary sales; however, the amount of exchanged goods is not counted toward the task;
  • Activity support: during major holidays or store anniversaries, the store should support special price promotions. If conditions allow, they can set up booths at the store entrance or other high-traffic areas. For this, Mr. Wang can send salespeople for on-site support, along with additional gift support (all gifts require customers to fill out a receipt form). All activities should be notified at least 5 working days in advance.

Adjust BAs, do not force stock After adjusting brands and channels, BAs become a crucial factor in driving sales.

In the supermarket channel, BAs can directly take 10% commission from retail sales of masks and beauty tools, increasing monthly sales commission by at least 500 yuan. Additionally, set up awards for the highest customer price BA of the month and the best cross-selling BA of the month, with extra commission of 5-20 yuan for near-expiry products. This way, without much extra investment, BA enthusiasm is greatly improved. Happy BAs naturally sell more, converting more foot traffic into sales and more sales into higher cross-selling rates, immediately boosting retail sales for the month!

In the cosmetics store channel, add one supervisor team leader for every 12 stores, with effective counter visits to 6 stores per week and at least 2 visits per month. Supervisors are responsible for ordering, training, counter sales, and daily management. Each supervisor must carry retail targets. For private specialty store brands, supervisor counter visits are the most normal thing, but for well-known open-shelf brands, this is like Apollo walking on the moon—significant.

After adjusting the incentive system for BAs and supervisors, Mr. Wang also requires salespeople in all departments to make sales plans and activity plans one month in advance. All stocking must have reasonable retail support. No personal favor stocking is allowed. Retail and inventory are included in salesperson assessments. Seasonal products should be ordered cautiously, in small quantities and multiple times, with 4 orders per month, each order not exceeding 25% of the monthly target. At the end of the season, it is better to be out of stock than to overstock, to prevent old products in the following year.

After bold reforms in channels and brands, Mr. Wang believes that next year he will definitely reduce inventory and make big profits.

Editor's note: In the early unconscious management, distributors often unknowingly rely on a single brand or channel, which can help them make big money at the time, but in the long run, it leads them into a dead end. Therefore, distributors like Mr. Wang are at a critical moment to adjust their channels. Yes or No, it's all up to you!

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