AVCJ Awards 2019: Deal of the Year - Mid Cap: Hangzhou UCO Cosmetics

In the most recent iteration of China’s November 11 Single’s Day shopping festival, US skincare brand Estée Lauder achieved a record in RMB1 billion ($143 million) presales during the three weeks running up to the event. Hangzhou UCO Cosmetics, a local digital marketing and e-commerce services provider specializing in beauty and personal care, was hard at work behind the scenes.

Established in 2012, UCO helps brands build and manage online stores across e-commerce platforms such as Alibaba Group’s Tmall and JD.com. The company – which has more than 40 clients, including Estée Lauder, MAC, Clinique, Clarins, L’Occitane and Kose – was acquired by CITIC Capital last April for RMB1.4 billion ($208 million) through a carve-out from  Shenzhen-listed Qingdao KingKing Applied Chemistry.

Hanxi Zhao, a senior managing director at CITIC, tells AVCJ that a dozen Estée Lauder executives stayed up until midnight in UCO’s office on the eve of Single’s Day, monitoring the latest data. Single’s Day has long been a key date in the Chinese company’s calendar, helping drive gross merchandise value (GMV) to RMB6.5 billion in 2018, up from RMB4 billion the previous year. A 50-60% increase is expected in 2019.

There are two main growth drivers. First, traditional brands are generating more sales through e-commerce. Estée Lauder, for example, now relies on online channels for 30% of its business. Second, China’s beauty industry is on a roll. Tmall posted overall sales growth of 25% on Single’s Day 2019, but the beauty segment rose 83%. Zhao describes the industry’s consumption upgrade as the “lipstick effect.”

“You may not be able to afford a Chanel handbag, but you can buy a Chanel lipstick instead. Because of the global social media frenzy, especially in China, people started to show off more and care more and more about their image, that creates strong demand for cosmetics in general,” she says.

Consequently, more luxury beauty brands are building up their online presence in China. UCO studies consumer behavior data to try and improve conversion rates - attracting buyers to online stores, securing that first purchase, and turning them into repeat purchasers of multiple products. “For example, what sample should we offer to a particular consumer so that he or she is more likely to convert into a loyal consumer of the brand?” Zhao explains.

Demand for UCO’s services is expected to remain robust, especially as more niche overseas brands – which might not have dedicated China marketing teams – arrive in the country. The company is considering M&A in the online marketing space and wants to improve coverage of lower-tier cities and emerging local brands.

More broadly, CITIC is creating an international beauty industry value chain that also includes Trilogy International, a producer of skincare products and fragrances, and Axilone, a Europe-headquartered packaging supplier to the cosmetics industry. UCO can play an important role in this ecosystem as a provider of insights into consumption trends.

Pictured: Vicki Hui of CITIC Capital accepts the Deal of the Year - Mid Cap award

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• Topics
• Greater China
• Consumer
• Buyouts
• Technology
• China
• CITIC Capital
• AVCJ Awards