"Physical counterattack—Unilever enters new retail, physical stores + WeChat business to help CS stores transform and upgrade, limited recruitment of 100 partners." On the scrolling product sourcing page of Pin Guan Wang, Lin Feng (pseudonym) noticed this Unilever recruitment advertisement. Running a cosmetics chain in Fujian, he often keeps an eye on new product trends in cosmetics. This is Unilever's first foray into the WeChat business channel. In mid-October, the foreign-funded daily chemical company announced that its WeChat business new retail project, the "Hazeline Snow" series, had begun nationwide recruitment in CS channels (cosmetics specialty store channels) and WeChat business channels. The series consists of skincare products and is scheduled to launch at the end of October. Following the rapid development trend of WeChat business in recent years, Unilever intends to integrate the WeChat business channel with the CS channel and further expand channel penetration. In fact, Unilever began building a factory in Sichuan in 2015, aiming to expand into second- and third-tier cities. In May of last year, it accelerated its channel penetration efforts, announcing a comprehensive expansion of CS channels in China. For the new project, Unilever's goal is to achieve annual sales of 250 million yuan. In an interview with China Business Journal reporters, Unilever appeared quite cautious. Its public relations officer stated that a draft response had been prepared after communication with the WeChat business team, but it needed to be reviewed by relevant leaders. As the deadline approached, the officer said, "The project is in the initial trial stage; we will accept media interviews once it gradually matures." "High-profile" recruitment Clicking into Unilever's recruitment advertisement, reporters noticed that this skincare set, specifically launched for WeChat business and CS channels, includes "lyophilized powder + essence" and retails at 398 yuan. The advertisement has been viewed by over 9,000 people so far, but only 25 have favorited it. According to Unilever, the company will merge the CS channel and WeChat business channel, allowing CS store practitioners to enter the WeChat business. Currently, cosmetics channels mainly include KA channels (i.e., supermarkets, hypermarkets), distribution channels (also known as "dealer channels"), CS channels, and e-commerce channels. CS channels specifically refer to cosmetics collection stores like Watsons and Gialen. According to reporters, Unilever's new retail project is not operated by itself but by a company called Next Scene Technology. Its chairman revealed in a media interview that the current progress is "a pilot in Guizhou." He explained that Unilever's physical WeChat business "means physical stores adopt the low-cost, high-efficiency development model of WeChat business to expand their business." The recruitment information sets high requirements for partners: "CS stores that primarily operate imported products with average annual sales of over 1 million yuan," or "agents and distributors with CS stores as their main sales channel and annual revenue of over 20 million yuan." Reporters noted that partner CS stores need to make an initial payment of at least 90,000 yuan to qualify for partnership. Guizhou Meimingzhi Chain Cosmetics Store has cooperated with Unilever, but the agreed targets are substantial, including "annual sales of 600,000 boxes for the project in 2019, net profit of 10 million yuan; develop 50,000 agents and 1 million members; contract or transfer each store within about 6 months to achieve asset-light operations." Unilever currently has four major divisions. Choosing cosmetics and skincare products to enter the WeChat business channel may be related to the business growth of the Beauty & Personal Care division. In the first half of 2018, Unilever saw declines in both sales and profits, but Beauty & Personal Care showed growth. Financial reports show that the Beauty & Personal Care division generated revenue of 10.1 billion euros, a year-on-year increase of 2.7%; Beauty & Personal Care and Home Care together accounted for 61.3% of total revenue. In the view of Zhang Honghui, general manager of Guangzhou Shangduo Cosmetics Company, "Unilever's attempt to use CS store practitioners to enter WeChat business is not surprising; it sees the prospects and development trends of WeChat business." According to the "2017 China WeChat Business Industry Development Report" released by the WeChat Business Working Group of the Internet Society of China, the overall market size of the WeChat business industry was 360.73 billion yuan in 2016, reaching 683.58 billion yuan in 2017, with a growth rate of 89.5%. The number of WeChat business practitioners is also increasing, surpassing 20 million in 2017. "However, due to factors such as insufficient supervision of the 'WeChat business' channel, most companies are in the exploration and wait-and-see stage. There have been many negative reports about WeChat business, including counterfeit and shoddy products," Lin Feng said. Reporters noted that in 2016, Liby announced its entry into the WeChat business market, with its main product being the "Dr. Pure" laundry sheet, which claimed six patented technologies. However, it soon encountered a counterfeit crisis: before the laundry sheet was launched, non-official agents were already selling imitation products on WeChat business channels, and the innovative concept of "Dr. Pure" itself was questioned by the industry as "not innovative." "The thorny issue that all brands entering the WeChat business channel must face is how to effectively manage this emerging channel. Faced with the proliferation of counterfeit products, whether they can effectively promote and manage in the next stage to maintain corporate reputation is something every company opening up WeChat business channels needs to consider. It is commendable that Unilever is trying to better penetrate relatively weak channels, but the results are uncertain and warrant long-term observation," Lin Feng said. Penetration is not easy Data from Euromonitor International shows that CS channel sales are growing at about 10%, making it one of the fastest-growing offline channels. Unilever is not alone in adopting similar strategies; since 2015, international daily chemical giants such as P&G, L'Oréal, and Shiseido have accelerated their competition for CS channels. Lin Feng's chain stores also sell Unilever products, currently only Dove and Clear brands. He believes, "Unilever's launch of products for WeChat business and CS channels is likely aimed at embracing consumers in third- and fourth-tier cities and further improving channel penetration." In developing lower-tier cities, Unilever opened a new factory in Meishan, Sichuan, in 2015. Besides policy incentives and cheap raw materials, the more important reason was to lay out the second- and third-tier markets. "In the past, we focused more on first-tier cities, but the real growth is in second- and even third-tier cities. Only by increasing our presence there can we maintain growth," Zeng Xiwen, Vice President of Public Affairs for Unilever North Asia, once told the media. Previously, to develop markets in lower-tier cities and remote areas, Unilever cooperated with JD Logistics and Alibaba's "Rural Taobao." Channel focus is also gradually shifting. "For a long time, the KA channel was the most important part of Unilever's distribution channels; now that importance may be diminishing," Zhang Honghui said. In May last year, it announced a comprehensive expansion of CS channels in China, including establishing a dedicated team for CS channels and launching exclusive products for this channel. Additionally, it launched the B2B platform "Meimeng," allowing CS channel customers to place orders and arrange delivery via mobile phones. "Looking back at the development of China's cosmetics market over the past decade or so, the CS channel has undoubtedly provided fertile ground for the rise of local cosmetics brands," noted Yang Ting, a writer for the daily chemical industry. By targeting markets in China's second-, third-, and fourth-tier cities and leveraging local CS channels, including small supermarkets and cosmetics specialty stores, local brands have begun to establish a foothold. For example, local brand Proya's prospectus at its IPO showed that in 2015, 62.28% of its sales came from daily chemical specialty stores, many of which are located in second- and third-tier cities and townships. Zhang Honghui believes that for large foreign companies like Unilever and P&G, "in lower-tier cities, the pricing system of channels (including CS channels) has its own rules, and the rule-makers are local brands that hold advantageous positions. Over the years, local brands have matured in their operations; they understand local consumption conditions and terminal markets, and they can easily gather local resources and connections. Foreign brands do not have such advantages." During the interview, Zhang Honghui also posted on WeChat Moments, mainly gathering cosmetics store owners and establishing a discussion group for business communication. More importantly, absolute control over profits has become the most criticized aspect of foreign brands in CS channels. "They generally offer discounts of up to 30% off for cosmetics specialty stores, while local brands usually offer 60% off, so there is still a gap in profit rebates. Foreign brands and local brands play different roles in stores; the former bring in foot traffic due to high brand awareness, while the latter, with lower recognition, bring in profits," Lin Feng said. Bain & Company's "2018 China Shopper Report" mentioned that in skincare and makeup categories, foreign FMCG brands continue to lose market share to local brands: foreign brands' value share declined by 4.5% and 0.5%, respectively. At the same time, it is worth noting that the competitive space for traditional foreign brands is becoming more crowded and intense. "We still sell international brands as the mainstay, accounting for about 60%, but the composition is changing. Previously, it was more L'Oréal, Unilever, and P&G brands; now there are more small brands. We usually pay attention to what's popular on Little Red Book to decide what to stock," Lin Feng said. In mid-to-late October, he had already changed his profile picture to his chain store's "Double 11" promotional advertisement, which includes a QR code that can be scanned to shop on an online store built to complement the physical store. He told reporters, "Among the small brands, Bioderma makeup remover and La Bellise masks are selling well right now." -END-