Growing up in the 80s and even the 90s, many can recall how Watsons and Mannings were once bustling hotspots for shopping, irrespective of the needStrolling through shopping districts often led to casual visits at these stores, where one could explore various beauty products and wellness itemsYet, the retail landscape has dramatically changed over the years, primarily due to the emergence of online shopping platforms and the booming live-stream e-commerce, presenting unforeseen challenges to traditional retail.

Watsons, a globally recognized name in the beauty and health care retail sector, has made several commitments to revitalizing its offline stores in recent yearsDespite these declarations, the outlook for brick-and-mortar retail remains grim amidst fierce competition from e-commerce giantsNotably, Watsons has seen its market valuation plummet, far below the heights it once achieved during its peak.

The downturn in Watsons' performance can be attributed to a couple of critical factors

Firstly, while the beauty market in China is expanding annually, Watsons has seen a consistent decline in its performance, with clear signs of deteriorationSecondly, despite undergoing multiple transformations over the years, the brand has yet to discover robust solutions that address its positioning in the beauty retail market, which has grown increasingly awkward and outdatedA new breakthrough is sorely needed.

As of June this year, Watsons China reported a revenue of approximately HKD 6.88 billion, with a mere HKD 250 million in gross profitThis reflects a steep decline of 23% in revenue and a staggering 67% drop in gross profit compared to the first half of 2023. The downward trajectory of Watsons' performance is not a new occurrence; the trend began in 2020 when the retailer recorded its largest decline to dateAttributed internally by the brand to unfavorable market conditions and declining consumer willingness to spend, this perspective becomes questionable when considering that beauty market growth has remained strong during the same period.

The evidence points towards internal issues primarily driving the weak performance of Watsons

Earlier this year, rumors emerged regarding the brand's potential plans for an initial public offering (IPO), suggesting its commitment to regain market confidenceIn a rather surprising turn of events, Watsons changed five members of its management team within a span of three months as a move to strengthen its management structure and stabilize its courseIt's somewhat shocking that, after 35 years in the Chinese market, a retail giant like Watsons remains unlisted.

Watsons' first attempt to go public dates back to 2014. However, due to shifts in share ownership and changes in investor interest, the company's IPO ambitions had been put on hold for nearly a decadeNow, with the delayed IPO plans, the company faces skepticism rather than anticipation from the publicFinancial forecasts remain bleak, with declining revenues and net profits raising further doubts about future profitability.

In the wake of these challenges, opponents are readily available as Watsons' competitors advance into areas beyond the traditional beauty sector

While Watsons has established a substantial presence with over 16,500 stores globally, its responsiveness to market trends appears sluggish and hesitantThe rise of e-commerce platforms has drawn away a considerable number of customers who favor lower prices and diverse brand selections.

Moreover, emerging beauty retailers such as HARMAY and THE COLORIST have quickly attracted young consumers through innovative store designs and marketing strategiesThe hefty charges and strict policies that Watsons imposes have turned into barriers for many new and nascent brands, inadvertently hampering its overall appeal within competitive retail dynamics.

The situation worsens when we examine Watsons’ own membership and sales strategiesFrequently, the overly enthusiastic sales personnel can deter customers who might otherwise browse or consider purchasesThe pushy nature of sales tactics has resulted in frustration and a lack of customer satisfaction, evidenced by complaints on platforms like Black Cat Complaint

alefox

Customers have expressed their disdain over ambiguous explanations of membership benefits, leading them to feel misled.

Additionally, the sluggish progress in introducing new brands has further weakened Watsons' market positionIn a rapidly evolving beauty market where young consumers demand unique and trendy products, Watsons' reliance on its private label brands—many of which lack diversity and innovation—grows increasingly precariousConsequently, the older brands offered, predominantly in the mid-range category, appear stale, making it difficult for the brand to captivate a new generation of cosmetics enthusiasts.

While Watsons made strides to adapt to new retail dynamics—launching discount coupons and online store features in its app—these measures cannot effectively combat the pressures of live-stream marketing, where energetic influencers drive significant consumer interest

The gap in user experience and customer engagement between Watsons and leading e-commerce platforms remains broad, hampering the brand’s ability to draw customers back to physical locations.

Furthermore, even as the beauty retail landscape becomes increasingly competitive, the emergence of domestic brands has complicated Watsons’ effortsThe fast rise of Chinese beauty brands, which not only challenge Watsons on price but also product quality and marketing creativity, presents a formidable competitor, particularly for younger consumers who prioritize brands that resonate with their values and aesthetics.

The rise of live-stream e-commerce has delivered a staggering blow to Watsons; prominent influencers with substantial followings can sell out popular beauty products in mere minutes, further entrenching Watsons’ difficulties in gaining traction among consumers

Indeed, despite attempting several strategies, including enhancing their online offerings and innovating their product mix, these efforts haven’t translated into significant progress or restored past performance benchmarks.

Beginning in 2020, Watsons has recorded a continuous decline in revenue and net profits, signifying a potentially critical downturn not solely linked to the pandemic but reflective of a concerning, long-term deterioration in operational efficacyPrior to the pandemic, waning demand and shifting market conditions had already posed mounting pressures on Watsons’ traditional brick-and-mortar strategies, and these hardships only intensified with the pandemic’s onset.

Watsons stands as a leader in China's beauty retail sector, holding a significant market share through extensive store networks and loyal brand recognitionYet, in a rapidly evolving landscape defined by competition and innovation, it's evident that Watsons finds itself losing ground