According to Reuters ^[1], more than ten parties, including Blackstone and Chinese online retailer JD.com, bid for CMC Holdings, the sole distributor of FANCL’s skincare products in Asia outside Japan recently. In early November, Bloomberg also reported that Hillhouse Capital and Dosun were also considering acquiring the FANCL business. Hillhouse was preparing to make a joint quotation with Yatsen Global, the parent company of Perfect Diary. ^[2]

What makes FANCL special?

Why does this skincare brand attract so much attention from investors?

-          What Fancl represents?

First, FANCL is the representative of no-added skincare brands. In the 1970s, with the Japanese booming economy, more and more Japanese women paid attention to make-up and beauty products and used many cosmetics in their daily life, so many women suffered allergies and other skin problems for overusing beauty products. The founder of FANCL determined to create a skincare brand to solve this problem. In 1982, FANCL was founded. Since then, this brand has been the representative of no-added skincare brands globally.

This brand was introduced to Hong Kong (China) in 1996 and mainland China in 2004 by CMC Holdings. At that time, the concept “no-added” was fresh to Chinese consumers, and thus this brand quickly spread through the market. In 2013, FANCL accounted for about 51% of the no-added skincare market. ^[3] When people search “no-added skincare” on Little Red Book and Tmall, FANCL is still the first brand that consumers can see.

-          The potential nutritional supplements business

Its nutritional supplements business is also thriving. FANCL’s nutritional supplements business started in 1994 and quickly became another main contributor to the brand’s sales growth. Its financial report shows that its nutritional business on cross-over e-commerce (CBEC) increased by 3.8 times from June 2019 to June 2020. ^[4]

This business is facing a market with great potential. According to Zhiyan Consulting, China’s oral beauty/nutricosmetics market is expected to exceed 23.8 billion yuan in 2022. Moreover, because the oral beauty market’s boundaries are gradually merging with the 100 billion value meal replacement and 300 billion value health care products market, the future oral beauty market capacity will far exceed this figure. ^[5]

Compared to domestic players that can only provide basic products, such as bird nests, probiotics, etc, FANCL is undoubtedly one of the most competitive players in this market due to its advanced R&D technologies.

-          The potential of FANCL’S e-business in China

Although FANCL is a strong brand in the no-added skincare and nutritional supplement market, its e-business in China has fallen behind, meaning that it still has great potential in China’s market. At present, the major FANCL sales in China are from offline channels. It has 240 offline stores in Asia outside Japan, among which over 190 stores are in China. ^[6] Its mainland business cooperating company just started to involve E-commerce in October 2019. On leading e-commerce platforms, FANCL only opened two stores on Tmall Global and JD, mainly selling nutritional supplements, which means that its skincare business still doesn’t have its own e-commerce store. The absence in China’s e-commerce market led to the weakness of its overseas business. According to its 2020 fiscal year financial report, FANCL’s overseas sales only accounted for 8% of the total sales. ^[4]

Therefore, FANCL has excellent products covering the skincare category and nutritional supplements category, but its online distribution isn’t strong enough, and online distribution plays an essential role in a skincare brand’s development in China. Therefore, we can imagine the great sales this brand will achieve after addressing its online difficulties.

FANCL's online stores

Why is JD.com a possible winner in this bid?

JD.com is undoubtedly the most suitable potential partner for FANCL since e-commerce is FANCL’s shortcoming in China.

JD.com, which focused on 3C business at first, has expanded its business to all categories in 2015. In 2018, the JD Beauty business was upgraded to a first-level department. At that time, its volume had reached tens of billions of RMB. Since then, JD Beauty has maintained a growth rate of more than 50%, and the growth rate of daily active users is nearly 60%. As of June 2020, JD Beauty has nearly 10,000 stores and 340 million fans. ^[2]

Besides, Chinese consumers' demand for FANCL products is also great. In the FANCL JD self-operated store, several best-selling products have more than 120,000 comments (Important to note that consumers can only comment after they buy the products).

JD.com needs this excellent Japanese skincare brand. FANCL has more than 200 stores in China and other parts of Asia, which can serve as an important supplement to JD.com's offline channels.

Everything seems to show that it will be a lucrative cooperation, but we will need to wait to see this bid’s final result and how FANCL will develop from here on out in China.