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The phenomenon surrounding DeepSeek has reignited discussions about artificial intelligence, with beauty companies now boldly declaring ambitions to replace their customer service teams with AIOne such company has announced its intent to eliminate a staggering 95% of its customer service roles to harness AI productivity.
Recently, a leaked chat screenshot from the CEO of Shangmei Group, Lü Yixiong, surfaced onlineIn this chat, he detailed drastic reductions in departmental personnel: "50% of our legal department will be cut, keeping only 20% who can work with AI; 95% of customer service staff will be let go, retaining merely 5% who can leverage AI; 70% from the new product innovation center will be dismissed, with only 30% remaining who can work with AI and ensure quality control; and for the content innovation team, 80% will be removed, leaving 20% who can utilize AI, performing the work of twenty teams all by themselves."
The revelation sparked widespread debate in the market, leading Lü Yixiong to clarify via his social media that the company is not planning layoffs, stating, "Our overall workforce will grow by 800 this year, with headquarters employees reaching 2,700 by year-endWe are merely adjusting our staff — increasing in some areas while decreasing in othersOur goal is to create a more scientifically managed and efficient operation."
Recent half-year financial reports show that Shangmei Group currently employs around 2,151 individualsIf Lü's strategy is implemented, with suggested changes reducing workforce by up to 95% in certain departments, to ultimately grow to 2,700, it would imply substantial shifts in the company’s staffing structure.
As AI penetrates the beauty industry, how significantly will Shangmei Group transform?
"High-stakes" Marketing Investments
From once being the ‘ad king’ to now dominating Douyin's beauty market, Lü Yixiong has maintained a high-risk, high-reward strategy throughout his career at Shangmei Group.
Back in the television shopping era, Lü invested billions to sponsor the show "If You Are the One", setting an advertising record in Chinese television history
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Currently, Shangmei is heavily investing in online live streaming channels like Douyin, resulting in remarkable growth over recent years.
Over the past two years, Han Shu has seen its online sales skyrocketAccording to a report published by Qingyan Data, Han Shu's GMV on Douyin reached 6.749 billion yuan in 2024, showing an astonishing 102% increase, placing it at the top of the beauty categoryIt has now held the top position on Douyin's beauty chart for two consecutive years, constantly breaking records.
The rapid growth in online sales has correspondingly driven a surge in marketing expendituresReports indicate that Shangmei Group generated 3.502 billion yuan in revenue in the first half of 2024, reflecting an annual growth of 120.7%, with net profits at 412 million yuan and a 308.7% increase year-on-yearThe gross profit reached 2.680 billion yuan, a 144.6% rise, and the gross margin improved to 76.5%, up 7.5 percentage points year-over-year.
However, one must consider that Shangmei's sales and distribution expenses hit 2.017 billion yuan in the first half of 2024, a staggering 137.02% increaseThis growth not only surpasses their revenue growth but is nearing the total sales expenses for 2023.
Within its industry, Shangmei Group consistently posts leading sales expenses ratesIn the first half of 2024, these expenses accounted for 57.6% of the company's revenue, up from 53.6% a year priorSimilarly, sales expenses had increased from 47.0% in 2022 to 53.5% in 2023.
While sales expenses have surged significantly, R&D spending as a percentage of total income has decreased
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In the first half of 2024, R&D expenditures only constituted 2.2% of total revenue, down from 3.4% in the same period the prior year.
In the coming year, the company continues to prioritize online channelsData showed that from January 1 to January 19, 2025, Han Shu recorded a GMV of 216 million yuan on Douyin, marking a 53.24% annual growthBesides Douyin, sales on mainstream e-commerce platforms like Tmall and JD.com experienced sharp increases, with Tmall's GMV up by 97.36% and JD.com seeing a growth of 116.71%. Han Shu's flagship video channel reported nearly 4 million yuan in GMV, an astronomical increase of over 17,300% year-on-year.
A "Single Flower" Brand Matrix
In its mid-year report for 2024, Shangmei Group indicated it has developed a brand matrix characterized by "one strong, many strong brands progressing together". Yet, according to revenue data, it's evident that the company still heavily relies on one major brand to drive earnings: Han Shu.
The interim performance announcement showed that Han Shu, as the flagship brand, generated revenues of 2.927 billion yuan in the first half of the year, up 184.7%, which constituted 83.6% of the firm's total revenuesMeanwhile, New Page registered revenue of 161 million yuan, a growth of 173.2% and just 4.6% of total revenueThe Red Little Elephant brand earned 174 million yuan, down 7.9% and making up 5% of total revenueYiyezi saw revenues drop to 125 million yuan, down 38.6%, equaling 3.5% of overall earningsOther minor brands, including Anmiyou and Jifang, brought in a combined total of 116 million yuan, making up 3.3% of total revenues.
Over the years, Shangmei Group has strived to nurture a second growth curve
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Previously, Red Little Elephant and Yiyezi were key secondary brands, with Yiyezi's revenue surpassing 1 billion yuan and Red Little Elephant exceeding 800 millionHowever, in recent years, the focus has shifted towards Han Shu, resulting in dwindling revenues for the former two brandsFinancial reports indicate that Yiyezi's revenue plunged from 1.051 billion yuan in 2019 to just 357 million yuan in 2023, while Red Little Elephant's revenue fell from 871 million yuan in 2021 to around 376 million yuan by 2023.
In 2022, Shangmei Group collaborated with famed actress Zhang Ziyi, parenting expert Cui Yutao, and scientist Huang Hu to establish a children's functional skincare brand named New PageWithin only two and a half years since its launch, New Page has emerged as a significant growth contributor, achieving a GMV of 440 million yuan and registering an increase of 154%, thereby securing a leadership position in China's high-end children's functional skincare market.
Yet Lü Yixiong's ambitions stretch beyond mere profitsThrough an official communiqué, he revealed plans to target a revenue of 10 billion yuan and contribute 1.5 billion yuan in taxes by 2025, with a long-term goal of achieving 30 billion yuan in revenue by 2030. The group reported a revenue of 4.19 billion yuan in 2023, with a net profit of 461 million yuanThe first half of 2024 saw a revenue of 3.502 billion yuan.
Lü Yixiong's aspirations indicate that Shangmei Group must nearly double its earnings year-on-year for the next six years to realize these goals.
The "Future" of AI in Beauty
Notably, the beauty industry seems to be entering a new 'low valley' phase
As 2025 commenced, various skincare and beauty brands reported mass layoffsEstee Lauder is set to cut between 5,800 to 7,000 jobs worldwide; meanwhile, L’Oreal announced modest growth in global revenue and net profit of 5.1% and 3.6%, respectively, but pointed to a 3.2% decrease in its Chinese market, marking its first decline in 13 years.
In an era when industries are eagerly adopting AI, the beauty and skincare sector is also embracing this technologyNumerous international brands have begun to integrate AI tools steadily over recent yearsL’Oreal proposed a generative AI-driven personal beauty assistant dubbed "Beauty Genius" in 2024; Estee Lauder partnered with Microsoft to create an AI Innovation Lab, aiming to accelerate product launches and enhance team responsiveness to consumer trends.
Domestic brands like Perfect Diary and Huaxizi have also incorporated AI technology into their product development and personnel structureAt the end of 2023, Betony, the parent company of Vino has introduced a blemish treatment brand, utilizing AI to classify acne conditions, thereby enabling customized skincare solutions.
As early as 2023, Shangmei Group had incorporated AI within its annual reports, announcing plans to adopt cutting-edge AI management tools to boost its operational efficiency, innovation capacity, and competitive edgeBy December 2024, Shangmei's Senior Vice President, Song Yang, indicated that the company has established a 1+N open innovation platform, grounded in chemistry, materials science, and dermatology, integrating modern life sciences and pharmacology, anchoring AI technology as its core.
Moreover, Lü Yixiong reiterated in a public letter released on January 29, 2025, that being at the forefront of AI is one of the company's six competitive aspects they aim to cultivate
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