The Book on Perfect Diary

Put it in the books! Perfect Diary, the four-year-old Chinese online makeup brand, is in talks to raise between $100 million and $200 million. The brand is riding a wave of rebounding internet shopping and rising nationalism among young Chinese consumers. If successful, the investment would double the startup’s valuation to $4 billion from $2 billion when it last raised capital in March in a round of financing led by Tiger Global Management, people familiar with the talks said.

With a business plan that mirrors Glossier in the US, Perfect Diary is part of a trend of China’s homegrown consumer brands looking to displace traditional retailers and foreign brands. As Glossier promotes its products on Instagram, the Guangzhou-based startup is leveraging Chinese social networks such as WeChat and ByteDance’s Douyin video app, as well as e-commerce platforms such as Alibaba’s Tmall, to mount a challenge against more established foreign rivals such as Chanel or Estée Lauder. 
 

Perfect Diary has been discussing the new fundraising with potential investors including Warburg Pincus, TPG Capital and Blackstone Group, as well as existing investors such as Chinese private equity firms Hopu Management Investments and Boyu Capital. The talks are ongoing and have not been finalized and details may still change, the people said. The company declined to comment.
 

Competition is getting fierce in China’s cosmetics market. With China emerging as one of the largest economies to begin recovering from the coronavirus pandemic, global brands rely even more on Chinese consumers to prop up sales. 
 

Research consultancy Gartner said in a June report that Chinese consumers have become more nationalistic and health concious since the outbreak of COVID-19. Domestic brands such as Perfect Diary “flourished during the pandemic, releasing low cost, high value, viral products driven by social media in the middle of the lockdown,” the report said.
 

China’s cosmetics sales fell 80% in February at the height of lockdown, but by March the year-on-year decline was only 20%, according to McKinsey. Online sales actually grew between 20% to 30%, the consultancy said, especially for eye makeup.

Meanwhile, richer and younger Chinese consumers are shifting their spending away from foreign brands in several categories including cosmetics, according to a report by online retailer JD.com. The boom in online shopping could get blown away by broader economic headwinds. Overall, Chinese shoppers remain cautious, and retail sales in July fell for the seventh straight month.  

Perfect Diary executives told investors early this year that the company aims to increase the total value of sales on its platform this year to at least 6 billion yuan ($865 million) from 3.8 billion yuan last year.  

The volume of sales in the first half of this year was 2 billion yuan, an increase of 70% compared to the first half of 2019. Investors say they expect the company’s sales to have a big bump later this year. Online cosmetic sales in China are usually much bigger in the second half of the year thanks to the Nov. 11 online shopping festival and other events.

Perfect Diary, which is part of Guangzhou Yatsen Global, was founded in 2016 by Huang Jinfeng, a Harvard Business School graduate and former McKinsey consultant who previously worked at Procter & Gamble.

Yatsen has been trying to launch more brands to target different consumers. For instance, the company has launched a skin care brand called Abby’s Choice, which was developed with customer feedback, and acquired an edgier cosmetic brand called Little Ondine, which are both available on Alibaba’s Tmall.