Investment

Shanghai Jahwa pumps new brand after short delay

By Gao Changxin (China Daily)
Updated: 2010-08-24 14:31

SHANGHAI - State-owned manufacturer of cosmetics and personal care products Shanghai Jahwa United Co unveiled its Shanghai VIVE brand on Monday, part of the company's strategy to enter the luxury cosmetics' segment of the market.

Shanghai Jahwa was originally slated to launch its VIVE brand back in July, but market entry was put on hold due to the delayed reopening of the store's location in the Peace Hotel.

"The launch of Shanghai VIVE is in line with the company's strategic plan to go into the more lucrative high-end markets and turn from a manufacturer to a brand operator," said Ge Wenyao, chairman of the company.

The domestic cosmetics market is dominated by foreign companies acting alone or in joint ventures and Jahwa's move is the latest sign that domestic cosmetics' companies are seeking to improve margins after growing traction in the lower priced market.

Ge said VIVE would have at least five outlets in Shanghai by the end of the year, with more than 20 more in the works over the next two to three years

VIVE's product range includes cosmetics, jewelry and accessories, with prices ranging from 300 yuan ($44.11) to more than 1500 yuan, a significant price hike in comparison to the company's other product lines.

However, the company expects the new brand to become profitable within seven years based on the company's market research.

"The cosmetics industry is expecting to see rapid growth in the future as the country vows to boost domestic consumption," said Li Xiangfeng, an analyst at Tebon Securities in Shanghai.

"But building a luxury brand needs a lot of investment and management experience, which Jahwa lacks compared to larger foreign competitors. So whether VIVE will survive is still in doubt," said Li.

The launch of VIVE comes after the company's strong success with its medium-priced brand, Herborist, which was launched in 1995. Herborist enjoyed more than 60 percent growth last year and the company plans to open 250 new Herborist stores in the country this year.

Now, Jahwa's biggest cash cow is its low-end Liushen brand, which accounted for about half of its net income in 2009.

Jahwa realized 1.58 billion yuan in sales revenue in the first half, up 10.7 percent year-over-year. Its net income was 160 million yuan, or 0.38 yuan a share, a 10.1 percent increase compared to the same period last year.

The growth rate in its cosmetics segment dropped to 5.5 percent in the first six months of 2010, compared with a 13.3 percent increase in the previous year.

A-shares of Shanghai Jawha rose by 1.42 percent to close at 37.13 yuan in Shanghai on Monday.

China Daily