Suppliers don't like it, consumers don't like it, what happened to Watsons, a "century-old" brand
2024-08-18
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Li Ka-shing's dream of returning to being the richest man in Asia is once again pinned on Watsons.
Recently, the market received big news that Watsons, a century-old international retail and food manufacturing brand, has rarely revealed its IPO plan. The news came from the Wall Street Journal's report on Temasek's Deputy CEO Chia Song Hui. He said, "Watsons' IPO plan exists and the goal remains unchanged." This means that Watsons, which has shelved its IPO for 10 years, has rekindled its IPO ambition in 2024.
However, Watsons' performance in the Chinese market has not been good in recent years. Even though it has occupied the C position in shopping malls for many years, it has frequently closed stores. The salesmen who once easily earned over 10,000 yuan a month are no longer so prosperous, and their income has almost been cut in half. Performance decline, brand aging, dislike from suppliers and consumers, what exactly happened to Watsons, the former originator of offline beauty retail stores?
The gross profit margin of self-operated products is as high as 60%, while the monthly salary of employees is only 3,000 yuan
The reporter learned from Watsons' official website that there are currently 31 stores in Qingdao, of which the Watsons located in Qingdao Sunshine Department Store has closed. In terms of regional distribution, Pingdu has not yet set up a store, while Qingdao West Coast New District has the most stores, with a total of nine. In recent days, the reporter visited Watsons stores in many large commercial districts in West Coast New District and found that not only is the offline store deserted, which is the norm for almost every store, but the aging of the brands in the store is also an important reason why young people are reluctant to go to Watsons.
Watsons (City Media Store) offline stores are deserted
"There are indeed fewer consumers buying offline now than before. Most of them come to buy toiletries and daily necessities. There are many channels for consumer information now, and few customers are willing to listen to our recommendations and introductions. The most difficult products to sell are Watsons' own-brand products." Ms. Li, a sales staff member at Watsons on Xiangjiang Road, West Coast New District, told reporters.
According to Ms. Li, self-operated brand products are the focus of Watsons' external marketing. They are set as "super value items" in the store or sold in packages with other orders. If the sales target is not met, it will be directly linked to the employee's performance for the month, and even no commission will be received. "Around 2017, we could easily make more than 10,000 yuan a month, but now we can only make about 3,000 yuan a month, which is completely different from before. Self-operated products are the main sales force mainly because the profit is higher than other brands, generally reaching about 60%."
In comparison, Watsons' online sales are better than offline sales. "First, Qingdao is in the tourist season recently, and many tourists buy travel toiletries or cosmetics on food delivery apps. Second, the company is also upgrading its online sales channels, and the online discounts are even greater. But even with the online and offline efforts, the monthly sales of the store are not satisfactory," said Ms. Li.
The reporter noted that Watsons' performance in the Chinese market had been sluggish since 2015, and the real watershed came in 2016. At that time, Watsons added 446 new stores, bringing the total number of stores to 2,929, but its performance growth rate was negative for the first time, with store sales falling 10.1% year-on-year. From 2013 to 2016, Watsons' performance growth in the Chinese market fell from 23%, 14%, 9% to -3.82%.
Suppliers and consumers dislike it
"If it's a Watsons on the first floor of a shopping mall, I will usually go in to buy drinks. After all, Watsons is much more convenient than queuing up to pay at a supermarket. But I haven't been to Watsons to buy beauty products for a long time. The prices are expensive and the sales are 'sticky'. I don't even want to go in and shop when I pass by." Song Qing, a college student born in the 2000s, told reporters.
In addition, the reporter found that when customers pay for products purchased offline at Watsons, sales staff always enthusiastically recommend customers to apply for membership cards. Even if the consumer does not ask about membership-related matters, the clerk will take the initiative to introduce and ask the consumer whether to purchase a paid membership card, and emphasize that the price will be more favorable after upgrading to membership, downplaying the free membership card.
When the reporter was purchasing merchandise at Watsons as a consumer, the clerk took the initiative to introduce paid membership cards, saying, "There are two types of Watsons membership cards, 35 yuan and 99 yuan." The existence of the previous free membership cards was not mentioned.
There are countless complaints about "Watsons deceiving consumers into applying for membership cards" on the Black Cat complaint platform. Many consumers said they were unaware that they had to pay membership fees to apply for membership cards, and after becoming members, they found that the prices of the goods they purchased were not favorable, and were even higher than those on the brand's own online platform.
Taking 440 ml of L'Oreal Paris Hyaluronic Acid Water-Light Shampoo as an example, the Watsons member price is 85 yuan. Although it is 34 yuan lower than the non-member price of 119 yuan, it is still 20 yuan more expensive than the price of 65 yuan in the L'Oreal Hair Official Flagship Store on Taobao.
Today, Watsons is not only unpopular with consumers, but also unpopular with suppliers. "Some current trendy brands are unwilling to cooperate with Watsons, but are willing to go to Sephora. The main reason is that Watsons's style cannot attract young consumers. If sales are not good, it will take 3-5 months to collect payments, which prolongs the collection period and is not cost-effective," said Ms. Li.
When talking about why Watsons has fallen from an offline retail giant to a situation where it is "disliked by both sides", Jiang Han, a senior researcher at Pangu Think Tank, analyzed that changes in the market environment are one of the main reasons for Watsons' weak growth. He believes that the rise of e-commerce, changes in consumer shopping habits, and competition from online e-commerce platforms have had a huge impact on Watsons, which mainly operates offline stores. Modern consumers pay more attention to personalized and high-quality consumer experiences, and Watsons' product lines and store layout have failed to keep up with this trend in a timely manner, resulting in a decline in its appeal among young consumer groups. In terms of offline, many emerging beauty and cosmetics stores and specialty stores have emerged, attracting consumers with more flexible business models and more competitive pricing strategies, further compressing Watsons' market share.
EBITDA shrank by nearly 90%
Recently, Watsons' parent company Cheung Kong Hutchison Holdings released its first half results for 2024. Watsons Group recorded revenue of HK$91.469 billion during the period, a year-on-year increase of 3%. In terms of health and beauty retail, Watsons China achieved revenue of HK$6.879 billion (approximately RMB 6.322 billion) and EBITDA (earnings before interest, taxes, depreciation and amortization) of HK$250 million (approximately RMB 230 million). Although it achieved profitability in the first half of the year, compared with the glorious years of the past, Watsons' EBITDA has shrunk by nearly 90% compared to HK$3.736 billion in 2019. It seems that it will be a long way to return to its peak.
In fact, weak growth is not a new story for Watsons. After experiencing the golden age of rapid development from 2004 to 2015, Watsons also ushered in its development bottleneck, which is mainly reflected in its operations in the Chinese market. For example, after aggressive expansion, stores were closed in batches and the performance of the Chinese region declined.
Source: Watsons Financial Report
Looking back at the period from 2014 to 2019, Watsons maintained an annual number of stores above 300, and the number of offline stores grew at a relatively fast pace. However, starting from 2020, the growth rate of Watsons' offline stores slowed down significantly, and even a large-scale store closure occurred in 2022. It is worth noting that in 2022, Watsons closed a store almost every day in mainland China. From 2020 to 2023, the net increase in the number of Watsons stores was 168, 64, -343, and 4 respectively. By the first half of 2023, the number of stores in mainland China was further reduced to 3,780.
"Strengthening digital transformation is an issue that Watsons urgently needs to address. Watsons needs to build a more complete online shopping platform, improve the integration of online and offline, and achieve omni-channel marketing to meet consumers' shopping needs anytime and anywhere. In addition, it is necessary to optimize product structure and supply chain, enhance store experience and strengthen brand building. For example, Watsons can increase its brand promotion efforts and enhance brand awareness and reputation through various means such as KOL cooperation, online and offline activities. At the same time, carry out precision marketing and launch personalized marketing strategies for different consumer groups." Jiang Han said.
In the context that new brands favored by young people have not yet entered Watsons and existing brands have withdrawn one after another, Watsons, which has long ceased to be the only choice for consumers, needs to be reborn from the ashes if it wants to return to the top of retail.
(Dazhong News·Fengkou Financial Reporter Guan Yanan)
(The views in this article are for reference only and do not constitute investment advice. Investment is risky and you should be cautious when entering the market!)
