(Yicai) Sept. 23 -- China’s viral cosmetics brands are being squeezed out as online traffic fades, with affordable makeup brand Uhue the latest to exit while larger beauty companies hold their ground thanks to stronger supply chains, sustained product development, and broader brand portfolios.

Uhue announced that it will cease all operations tomorrow. The brand rose rapidly after entering the Chinese cosmetics market in 2019 with inexpensive lip glosses, eyebrow products, and eye shadows, according to corporate information provider Tianyancha.

Uhue grew quickly through influencer recommendations on RedNote and livestreaming sales on Douyin, combining an asset-light operating model with highly competitive prices. But its heavy reliance on marketing and online traffic also left the business vulnerable.

The brand became embroiled in controversy in January over content criticized for objectifying women, after which its online visibility remained subdued.

An industry insider told Yicai that the controversy was only the trigger for Uhue’s difficulties. A deeper problem facing viral cosmetics brands that have emerged in recent years is their lack of technological barriers and heavy reliance on individual hit products, the person said.

Their product formulas and packaging tend to be highly similar, leaving their core competitiveness closely tied to traffic from online platforms. When that traffic fluctuates, they have little room to absorb the impact, the insider added.

Uhue is not alone. Several once-popular Chinese cosmetics brands have halted operations or encountered financial difficulties this year.

Cute Rumor, known for its youthful makeup and collectible-style packaging, halted operations in July and closed its stores on major online platforms after traffic dried up and revenue came under pressure. In June, a supplier petitioned for the bankruptcy liquidation of the parent company of Blank Me, once considered a rising Chinese foundation brand.

Big Players Show Greater Resilience

In sharp contrast, listed Chinese beauty companies are holding onto market share through stronger supply chains, continued research and development investment, and broader brand portfolios.

One example is Mao Geping Cosmetics, a premium Chinese beauty brand known for foundation and contouring products. The Hong Kong-listed company reported CNY3.3 billion (USD487 million) of revenue in the first half, up 26 percent from a year earlier. Net profit attributable to shareholders rose 20 percent to CNY805 million (USD120 million).

Proya Cosmetics, one of China’s largest homegrown beauty groups and best known for its skincare products, reported CNY5.4 billion of first-half revenue, up 0.2 percent from a year earlier, while net profit attributable to shareholders jumped 46 percent to CNY1.2 billion. Revenue from its beauty makeup business rose 7 percent to CNY897 million.

Market Shakeout Set to Continue

China’s beauty market has become so finely segmented that most of the biggest opportunities have already been taken, Proya General Manager Hou Yameng said in a recent media interview.

Future competition will increasingly test companies’ ability to identify narrower product categories and capture them through their organizational, R&D, and operating capabilities, Hou added.

The aforementioned insider said that the shakeout in China’s cosmetics industry is likely to continue, with weaker brands being eliminated and the market becoming more concentrated.

Overall consumer demand has not contracted, but shoppers are becoming more rational, the same source said. Rather than blindly chasing viral products, consumers are placing greater emphasis on product quality and value for money, the insider concluded.

Editor: Emmi Laine