On the evening of October 28, Shanghai Jahwa released its third-quarter report for 2024. In the first three quarters, the company achieved revenue of 4.477 billion yuan, a year-on-year decrease of 12.07%; net profit attributable to shareholders was 163 million yuan, down 58.72% year-on-year; and non-GAAP net profit was 120 million yuan, down 59.74% year-on-year. The report attributed the Q3 performance changes to factors such as significant industry-wide pressure, business headwinds, and strategic adjustments. Public data shows that Shanghai Jahwa has a history of over 125 years and was listed on the Shanghai Stock Exchange in 2001. Well-known brands under its umbrella include Liushen, Herborist, Dr.Yu, GF, Maxam, and Shuangmei. In May this year, Shanghai Jahwa announced a leadership change. The former chairman and CEO, Pan Qiusheng, resigned for personal reasons. On June 1, Lin Xiaohai officially took over, and as of October 29, he has been in office for 150 days. Lin previously worked at Procter & Gamble for over 20 years, including serving as President of P&G (China) Marketing Co., Ltd. for Greater China from 2014 to 2016. Before joining Jahwa, his most notable role was CEO of Gaoxin Retail, the parent company of RT-Mart. He brings 30 years of marketing and management experience in the FMCG industry.
Lin Xiaohai (Source: Shanghai Jahwa official website)
Shortly after Lin Xiaohai took office, Shanghai Jahwa released a semi-annual report showing declines in both revenue and net profit. This report exposed the thorny challenges Lin faced. At the shareholders' meeting on June 26, 2024, Lin made his first public appearance and disclosed that in the second half of the year, he would focus on three things: channel reform, brand strategy changes, and organizational structure reform. Subsequently, Shanghai Jahwa initiated its largest organizational restructuring in recent years — the original three business divisions (Beauty & Skincare and Mother & Baby, Personal Care & Home Cleaning, and Overseas) were reorganized into three new divisions: Personal Care, Beauty, and Innovation. The Beauty division focuses on four brands: Dr.Yu, Herborist,典萃 (Diancui), and Shuangmei; the Personal Care division retains Liushen and Maxam; and brands such as Jia'an, Qichu, and GF were placed under the new Innovation division. The three divisions also saw leadership changes. Ye Weimin stepped down as deputy general manager and also resigned as general manager of the Personal Care division; he was a veteran of Shanghai Jahwa. Zhang Xiaojuan, former general manager of the Beauty & Mother and Baby division, was transferred to the role of Chief Marketing Officer for Brand and Marketing, while Chen Jing, general manager of the Overseas division, also resigned. During the same period, Shanghai Jahwa recruited several industry talents from companies such as Proya and Coty, and announced new appointments for the general managers of the Beauty and Innovation divisions, as well as the brand director for Dr.Yu. These moves signal Lin Xiaohai's firm determination to push through reforms. However, turning a giant ship around is no easy task. Before Lin, the chairman position at Shanghai Jahwa had changed hands four times, and each CEO with impressive resumes had tried drastic measures to reform this century-old company. Yet through years of continuous change, Shanghai Jahwa has experienced ups and downs, and its former status as the "No.1 daily chemical stock" and "leader in the A-share cosmetics industry" has been gradually eroded by domestic beauty brands like Proya, Betaine, and Shanghai UBM. Bai Yunhu, an expert in cosmetics industry management, pointed out to the author that Lin Xiaohai's professional background, valued by Ping An and Shanghai Jahwa, is similar to that of the previous three CEOs—all highly capable individuals. But the biggest problem at Shanghai Jahwa is precisely the frequent organizational changes, leading to unclear and inconsistent corporate positioning, inability to consolidate organizational efficiency, and lack of continuous improvement in team capabilities. Given the current competitive environment in the beauty market, the time and strategic space available to Shanghai Jahwa are being increasingly compressed. This Q3 report is the first quarterly report card under Lin Xiaohai's leadership. On the numbers alone, Shanghai Jahwa is still in the painful period of reform. What follows can only be a fight for survival.
CEOs with High Starts and Low Ends
To deeply understand Shanghai Jahwa's current predicament, one might need to look at its development history. In 2011, Ping An Group acquired 100% of Shanghai Jahwa Group, becoming the largest shareholder of Shanghai Jahwa, marking the start of the "Ping An era." Within a year or so of Ping An's entry, Shanghai Jahwa's market value at one point doubled. In subsequent years, Ping An increased its stake through tender offers and secondary market purchases. However, with Ping An's entry and changes in shareholding structure, Ge Wenyao, regarded as the soul of Shanghai Jahwa, clashed with the major shareholder over the company's future development strategy, eventually being ousted by Ping An. After Ge Wenyao's departure in 2013, his old subordinates also left over the following year. In November 2013, Xie Wenjian, former China head of Johnson & Johnson Medical, took over as chairman of Shanghai Jahwa. However, during Xie's three-year tenure, Shanghai Jahwa's performance experienced a roller-coaster ride, with net profits of 900 million yuan, 2.2 billion yuan, and 200 million yuan respectively. During Xie's tenure, Ge Wenyao repeatedly criticized Xie on Weibo, accusing him of hollowing out this excellent company in three years. Amid the turmoil, Xie resigned in 2016 and was succeeded by Zhang Dongfang. She had held senior management positions at Vinda International and Firmenich, and was the first female leader in Shanghai Jahwa's century-long history. When Zhang took over, she faced the worst performance in nearly five years. Under her leadership, in 2017, Shanghai Jahwa established a business policy of "R&D first, brand-driven, channel innovation, and supply chain support," leading to a noticeable improvement in performance. But in April 2020, Zhang resigned from her positions as chairman and CEO, and Pan Qiusheng took over. At that time, media reported that Zhang's departure was mainly due to performance. During her tenure, although revenue maintained growth, the growth rate showed a clear downward trend. Another successor, Pan Qiusheng, took office in November of the following year. A new reform began, with Shanghai Jahwa establishing the "123 business policy": "1" directly targets consumers, meaning consumer-centric; "2" focuses on brand innovation and channel advancement as the basic points; "3" uses culture, digitalization, and optimization of system processes as boosters. But the story's trajectory did not change; after a performance rebound in 2021, revenue declined for two consecutive years. Observing the three executives appointed by Ping An Group, one can see that they all announced a series of reform measures at the start of their tenures, which provided a short-term boost to performance, but they ultimately lacked staying power, starting high and ending low. Eventually, these CEOs with impressive resumes resigned citing personal reasons. Bai Yunhu believes that as a typical representative of the modernization of China's cosmetics industry, the century-old Shanghai Jahwa has weathered multiple economic cycles and business transformations, accumulating certain strengths in product R&D, brand value, and user base. However, being gradually overtaken by "upstarts" is mainly due to two core reasons: First, in terms of changing consumer needs, Shanghai Jahwa failed to timely and accurately grasp trends in brand value iteration, product packaging design, and marketing and retail methods. Second, changing CEOs four times in 10 years, each with completely different professional backgrounds, led to frequent changes in corporate positioning and organizational structure, causing the company to miss the "golden decade" of China's cosmetics industry development. Now, the new CEO Lin Xiaohai has started this narrative, but the outside world expects him to deliver different results.
Swinging the Knife at Organizational Structure
Since Lin Xiaohai took office, the biggest change at Shanghai Jahwa has been its internal organizational structure. Therefore, at the Q3 report conference call, the progress of adjustments became a focus. Lin disclosed that currently, Shanghai Jahwa has divided the entire organization into front, middle, and back offices. The front office is divided into Beauty, Personal Care, Innovation, Overseas, and all offline departments have been consolidated into an offline sales department. Online e-commerce has been fully integrated into the business divisions, forming a closed loop with the divisions themselves, even at the brand level.
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He also revealed that in the past quarter, appointments for the general managers of the five divisions have been completed, and the middle and back office cadres are basically in place. Regarding how to use people, he previously stated at the interim report conference call that he does not avoid hiring relatives, but once they join, they must be treated equally. There are many difficulties, but the solution is to make everyone a newcomer. Growth will be the assessment standard for executives of each division. He said that in a stagnant market, achieving double-digit growth requires breakthrough innovation. This goal cannot be achieved by relying solely on grassroots employees through daily work; it must be entrusted to senior executives. The organizational restructuring is to reflect Shanghai Jahwa's four focus strategies: focusing on core brands, brand building, online, and efficiency. "Optimizing the system is to give frontline cadres who hear the gunfire more authority," Lin said at the Q3 report conference call. Currently, Shanghai Jahwa is reviewing the annual and long-term incentive mechanisms for core cadres, hoping to create a plan that aligns the company's profits and long-term development with the interests of all employees. However, it is worth noting that the major changes have been accompanied by rumors of layoffs. According to reports from Yilan Business, Shanghai Jahwa is currently conducting layoffs, mainly targeting the sales department, with an estimated reduction of about 15% of the existing sales team. Since regional branches are mostly staffed by sales personnel, they face the largest proportion of layoffs, and some regional branches have even been directly dissolved. Some employees even went to Shanghai Jahwa to protest with banners. At the conference call, Lin did not directly respond to the layoff issue but mentioned: "The short-term adjustments have removed some unhealthy businesses and bubbles, which did not have a significant impact on the company's operating profits, and also laid a better foundation for future development." On October 29, in response to reports of layoffs and banner protests, a Shanghai Jahwa spokesperson told the author that the reports were untrue and had not been confirmed with the company. The employees with banners were part of the normal organizational restructuring. The company's organizational adjustments are consistent with its "focus on efficiency" strategy. Another key piece of information from the conference call was that Shanghai Jahwa is still focusing on building interest-based e-commerce. Lin mentioned that in the past quarter, the company began building a learning organization, introducing a series of trainings on brand building and e-commerce operations, especially interest-based e-commerce. By bringing in internal and external experts, they use Fridays and even Saturdays to train core employees. The author also noticed that Li Hao, founder of Mars Culture, visited Shanghai Jahwa in September for internal training on omni-channel marketing. It is reported that Mars Culture is a data-driven short video content industry chain service provider. Additionally, Lin mentioned that Shanghai Jahwa is also strengthening content production, intensively launching various short videos, soft articles, images, and other content, testing them promptly on different platforms, and increasing investment in content that "performs well." At the interim report conference call, when discussing goals, Lin said that the long-term goal is the same every year: the basic goal is the passing line—outperforming market growth. "As long as we are slightly higher than the market, I think that's passing." "Shanghai Jahwa has been experiencing negative growth for several consecutive years. I think turning from decline to growth is a milestone goal." This time, he provided a clearer timeline: Shanghai Jahwa's online business has the opportunity to return to growth in Q4 this year, but offline will need another one to two quarters for adjustment. It is expected that by Q2 next year, all channels will return to a growth trajectory. For now, this transformation still requires patience and time from the outside world to achieve the desired results.