Why are New Brands Hot on the Heels of H.E.A.T?

The beauty brands collection store H.E.A.T, which has been in offline retail for more than a year, connected online and offline channels with new customer experience and retail services. H.E.A.T’s unique style has attracted more and more attention from a new generation of consumers and from new emerging brands.

he landscape of China's competitive offline beauty retail market has undergone earth-shaking changes in the past two years.

In 2020, the offline beauty collection stores had a splendid year. HARMAY, Only Write, NOISY Beauty, and HAYDON became hugely popular all over China. In July of this year, H.E.A.T opened its first store in Guangzhou Zhengjia Plaza. The minimalist and low-key style of the store reflects its trendy quality. The store became a must-visit site for beauty consumers The minimalist and low-key style of the store reflects its trendy quality. 

In 2021, due to the hard hit by the COVID-19 pandemic, traditional beauty chain stores generally went through an extremely difficult period. On the one hand, the customer traffic flow continued to decline; on the other hand, with the increasing purchasing power of young consumers, their beauty needs could hardly be met by traditional stores. The rapid growth of new style beauty stores can be regarded as a significant reform in the offline retail trend.

Qiwei Shi, Founder of H.E.A.T., has worked at Procter & Gamble and Xiaohongshu and accumulated rich experience in online and offline beauty operations. Undoubtedly, Qiwei Shi successfully captured the pain point between offline channels and beauty consumers. In 2022, under the huge wave of reform, how will he run the stores with his user focused mindset? As a fan of history, what industry ecology impact will he create through H.E.A.T?

01

New Emerging Domestic Brands Products Gathering in H.E.A.T. Stores,

Provide the Ultimate “Best Friend” Customer Service Experience

As soon as consumers walk into one of H.E.A.T stores, they would be first impressed by the dazzling array of new domestic brands there. As a domestic trendy beauty store, H.E.A.T store is dominated by domestic new brands, with over 600 cooperative brands and some 2000 SKU. All the popular domestic make-up and skin care brands can be found in the H.E.A.T. store, including well-known leading brands such as Perfect Diary, Little Ondine, Grain Rain, Winona, HBN, etc.

Gathering well-known new brands is a magic weapon for H.E.A.T to become popular. Using makeup products to increase customer traffic flow is a powerful tool to attract H.E.A.T. customers to make return purchases.

H.E.A.T. attracts customer foot traffic with makeup products, builds customer loyalty and stickiness with skin care products, and creates the store ambiance through personal care products such as fragrance products.The CBO reporter noticed that the cooperation between H.E.A.T and new brands was more flexible in brand building. Qiwei Shi described the relationship between H.E.A.T and new brands as "complementing each other and staying in the same boat".

In the post-pandemic era, beauty brands almost unanimously agree that online ecommerce is where current beauty business should be. But in Shi's view, many post-95s young consumers' offline demand is far from being met or even seen. "After young customers enter the store, if they cannot see their favorite brand, will they try a new brand, or will they go online to look for the brand they are used to?” Shi mused.

He believes the content delivered online by live e-commerce is visual and auditory, while in offline physical stores consumers can touch and feel the products and the Beauty Advisor can observe and discover consumers’ needs. For this reason H.E.A.T. trains its BAs not only with the systematic training mechanism, but also with the refined service contents according to H.E.A.T.’s cooperation brands, which varies in form of cooperation and direction. 

Familiar with products, H.E.A.T’s BA can skillfully give advice to consumers on skin care and makeup. At present, the associated coefficient of H.E.A.T. stores is greater than 3. Shi believes that from the association between brands to the association between categories, to the mutual association between brands and categories, if subdivided, each item has room for improvement, which may lead to a higher associated coefficient.

"Customers belong to the stores, even to BA. H.E.A.T has launched the 'best friend' service for consumers. if consumers ask no questions the BA will not disturb them, and only provide services at key nodes. For example, if customers do not know which product to choose after many trials, BA will give suggestions based on experience." Shi said. 

02

Optimistic about Lower Tier Markets

H.E.A.T is Opening up Stores Near to Customers

It is generally believed that the rise of trendy beauty stores should be attributed to the maturity of domestic commercial complexes. The first generation of trendy beauty stores mainly chooses commercial centers in site selection. With the natural customer foot traffic in shopping malls, the stores only need to put some efforts on store environment and atmosphere to make customers to feel novel and interesting, then the customers will be willing to make purchases in the stores.

At present, China domestic consumers’ beauty awareness is continuing to rise. The use of beauty products has become a necessity to Chinese consumers, and consumers purchase radius has reduced. From the perspective of consumption habits, three to five kilometers will become the most comfortable shopping area as consumers rarely travel by car to a shopping mall ten kilometers away to purchase beauty products.

"The locations of beauty stores will be more and more closer to communities." It is this prediction that makes H.E.A.T stores start to choose lower tier markets. That is to say, instead of just focusing on the city center as the main battlefield, H.E.A.T. has begun to explore the commercial complexes in communities.

According to Shi, last year, the sites of the several newly opened H.E.A.T. stores in Guangzhou were selected based on the consumers’ activity radius in some shopping malls and office buildings in Panyu and Tonghe, which are not in the downtown area of Guangzhou.

"The biggest attempt in 2021 was opening our H.E.A.T. stores into communities." Shi said that in 2021 eight of the newly added stores were located in lower tier markets, and they all made healthy profits, which has also enhanced the confidence in opening up more stores next year. In the future, in the choice of store sites, H.E.A.T will consider more the consumption information in lower tier markets.

Comparing the income and expenses of the two types of stores, we can also see that the community stores have great development potential in the future.

Currently the monthly sales of H.E.A.T stores in lower tier markets hit RMB350,000 or so. The community based stores do not need to be as big as the downtown stores, and this helps to lower the cost input. In Shi’s view, compared with traditional Cosmetics (CS) stores, H.E.A.T is like "new wine in new bottles", providing new customer experiences and services while connecting online and offline channels to complete the delivery for consumers.

03

The Selection Logic of “Offline Version of Xiaohongshu”

Focus on Quality, Reputation and Sales Channels

Since being named as "the offline version of Xiaohongshu" by consumers, H.E.A.T has been receiving praises from the industry for its choice of products. Then, what are H.E.A.T.’s selection criteria?

The answer from Shi is: pay attention to quality, reputation and sales channels.

Firstly, the online word-of-mouth of the product must be authentic. H.E.A.T comprehensively considers the sales of the brands in various channels. The brands with lots of user searches and the brands that sell well on multi-platforms and cross-platforms can likely operate well offline. After all, this is true consumption data.It is believed that it can operate well online. After all, these are down-to-earth consumption data.

Some brands sell well in the leading anchors’ live streaming studios, but not that well in other channels. In fact, these brands rely too much on a single channel, resulting in low recognition among offline users who will be unlikely to purchase . For such products it is possible that the sales of the brands depend primarily on the leading live streaming anchors. In Shi’s view, such brands are not suitable for H.E.A.T stores.

Strict control over its products is the fundamental reason why H.E.A.T has become hugely popular among consumers, which also matches with the brands' desire to choose H.E.A.T platform. H.E.A.T. and domestic new brands are in a two-way selection relationship.

Shi believes that to achieve the greatest win-win opportunity with cooperation with brands, H.E.A.T. must have in-depth understanding of the brands and accurately grasp every step of the brands, such as product structure, future product layout and development direction.In the communication with the brand, H.E.A.T will focus on the suitable brands based on H.E.A.T.’s own style to realize long-term brand sharing.

"Some first generation domestic brands still have some consumer base in the market, but their products do not match our store products selection, their products will look out of the place if we put them on our shelves among other trendy products." Shi said, operating the domestic new emerging brands is not our goal. H.E.A.T.’s real goal is to operate the brands that users are fond of, to create pleasant surprises for consumers and to enhance their understanding of the brands. In fact, H.E.A.T is willing to grow with those brands that are operating in a healthy and profitable model although they are currently little-known in the market.

Since it is mutual selection, it is necessary for the brands to meet some conditions such as having sales volume online and having a fixed customer base before moving into H.E.A.T. Secondly, the selected products must go through internal trial, and only the products with approved quality are selected. Thirdly, the brand concept can help lead to in depth cooperation with H.E.A.T. stores, and the "operating modes" of both parties match nicely with each other.

In particular, Shi mentioned that H.E.A.T did not complete the function of "goods" by simply selecting the products for the stores. H.E.A.T. took an active part in brand building and future development. Through the communications and exchanges, the brand started to know that H.E.A.T is different from other channels because it pays more attention to the product itself, rather than marketing and other aspects. The ideas generated between the two sides during the communication have laid a foundation for the future resonance between the brand and the H.E.A.T. platform.

04

Build a New Ecology of Beauty Retail

Along with Domestic New Emerging Brands

According to the data released by the National Bureau of Statistics, since the second half of 2021, the growth of beauty retail sales has slowed down substantially, and there even appeared zero growth in August. The phenomenon of "Golden September and Silver October" in the previous years has gradually disappeared. Both online brands going offline and traditional brands going online have resorted to the live-show model, which reflects the sluggish market and is forcing them to make more choices.

The customer traffic flow was king in the beauty market of the past two years, and brands could customer traffic flow profit as long as they seized the opportunity. Many new emerging brands found themselves in RMB billion level in just one or two years, surpassing the volume that would take more than ten years for traditional brands to reach. Rising relying on the customer traffic flow dividend and falling as the traffic flow dried up, the beauty market has changed dramatically in the past two years. when the traffic flow dividend disappears, when the capital loses its heat, and when the new consumption is left out in the cold, many brands will face the risk of falling off the cliff.

From the Traffic flow era to the Non traffic flow era, the ecology of the beauty industry is being rebuilt. Many industry insiders believe that the industry needs a healthy retail model to promote the communal development of the domestic new emerging brands that have already started to rise in the market. 

According to Shi, he has been reflecting on H.E.A.T.’s significance and value since its establishment. His thinking is the key to what direction H.E.A.T is going.

With the rise of new beauty species, offline beauty stores have started to move in two different directions. In the face of the continuous customer traffic flow decline, traditional CS stores have built service experience areas in the stores to increase customer unit price and retain profits. New emerging brands find it difficult to enter the traditional CS channel, and many traditional CS stores, which mainly sell domestic brands, do not match the new emerging brands.

Shi believes that the mission of new beauty retail species is to strengthen consumers' awareness of domestic new brands, from single hit products to brand experience. Therefore, H.E.A.T, as a new-generation beauty store, needs to grow together with the brands, and one of its core missions is to help the brands cross the gap from "hit products" to "brands".

"A year and a half ago the majority of brands' understanding of offline was distribution - just sending the products out and distributing them. Now, however, the online brands have reached a limitation in growth and entered a bottleneck, and brands have to look for the incremental market growth, which forces them to see a broader offline market. At this stage, it is a process of co-creation for both stores and brands. H.E.A.T expects to use channels to reflect the brands’ value and become an indispensable and unique element in the beauty ecology," said Shi.