Jack Chen is a person who understands market analysis. Along with his understanding of the complexities in adapting methods to attain profitable abroad expansions whereas delivering dynamic e-commerce platforms which are essential in fascinating customers, Chen brings an unparalleled worth to world of high-value investments. In 2021, LUXUO interviewed Kuei “Jack” Chen, Managing Accomplice and Founder at SKS Capital to debate his choice course of when investing in new manufacturers. Now two years on, LUXUO catches up with Jack to debate SKS Capital’s entry into the wonder sector and additional plans of enlargement in Singapore alongside localising the model to fulfill native shopper behaviours and desires.

Good to fulfill you once more within the Lion Metropolis! You will have spent loads of time these days in Singapore. Why is that this capital metropolis changing into strategically essential within the development of SKS Capital? 

Singapore has certainly grow to be an more and more strategic location for the expansion of Capital for a number of causes. First, as SKS strategically focuses on cross-border enlargement, Singapore’s worldwide nature makes it a micro-market the place manufacturers can take a look at their means to develop. Its various shopper base and excessive focus of various nationalities present a comparatively low-risk atmosphere to gauge how effectively a services or products can be obtained on a bigger scale.

Second, Singapore additionally acts as an entry level for corporations and establishments from outdoors of Asia trying to penetrate Asian markets. Its well-established authorized framework and business-friendly atmosphere make it simpler for international corporations to arrange operations, offering a strong stepping stone into different regional markets. It’s price mentioning that Western Funds of Funds (FoF) typically utilise Singapore as a gateway to put money into the Asian market, particularly aiming to seize alternatives within the East Asia and Southeast Asian (SEA) area. We’re actively participating with potential buyers from everywhere in the world in Singapore to debate alternatives in Asian markets.

We all know SKS has been specializing in the wonder sector. Are you able to inform us why this sector is so fascinating and the way it has modified over time. Any main distinction pre and publish Covid? 

The wonder sector has all the time been an interesting subject for SKS Capital, and its evolution over time has solely heightened our curiosity. Earlier than diving into the adjustments, it’s important to acknowledge the challenges the sector has been dealing with. One key situation is the dominance of huge world manufacturers that have a tendency to supply customary merchandise for a world viewers. Whereas these merchandise have broad enchantment, they typically lack the nuanced choices that at this time’s customers are more and more in search of.

This leads me to the alternatives which have arisen, significantly within the wake of recent Hollywood influences and shopper tendencies. Persons are not simply on the lookout for primary skincare or make-up merchandise; they’re on the lookout for one thing distinctive, one thing that resonates with their individuality. This quest for distinctiveness creates an enormous opening for manufacturers that may supply a wide range of merchandise tailor-made to totally different calls for. That’s the place SKS comes into play. We purpose to fill this hole by investing in corporations that present extra selections for the discerning buyer.

One other change is affected by the COVID-19 pandemic, notably in how customers have interaction with manufacturers. Direct-to-Client (DTC) fashions have seen a big uptick as e-commerce proliferated throughout the lockdowns. This shift to on-line purchasing hasn’t simply been a survival tactic; it’s become a long-term technique that aligns with shopper comfort and choice.

To sum up, the wonder sector is present process an interesting transformation. From a market saturated with world manufacturers to a panorama that cherishes uniqueness and private preferences, the adjustments are each difficult and exhilarating. Add to this the pivot to e-commerce accelerated by the pandemic, and it’s simple to see why this sector stays a compelling focus for us. 

Learn Extra: Kuei Chen, SKS Capital: It’s All About Forging Human Connections

Asia is such a various area. Are you able to inform us what frequent tendencies you see throughout the area and level out any particular regional variations? 

The wonder trade in Asia Pacific stands out as a serious participant within the world market, with nations like Japan, South Korea, and rising hotspots like India enjoying pivotal roles. Southeast Asia, with its mix of conventional and fashionable influences, has seen a surge in digital adoption, with over 100 million new web shoppers for the reason that pandemic. This digital transformation has been accompanied by improvements in retail, corresponding to livestreaming, augmented actuality (AR), and a shift in the direction of cashless funds. The area’s complexity is additional highlighted by its speedy e-commerce development, which skyrocketed from USD 5.5 billion in 2015 to USD 100 billion in 2021.

The Asia Pacific area has witnessed strong development in shopper spending within the magnificence sector, pushed by components such because the rise of the center class and rising digital penetration. Particularly, India’s magnificence market is a testomony to this development, with projections indicating an enlargement from $14 billion to $21 billion by 2027, fueled by an increasing center class and a youthful demographic the place half of its 1.4 billion inhabitants is beneath the age of 30 (as per the Magnificence in Asia Pacific report). Moreover, Southeast Asia’s digital financial system’s speedy ascent, approaching a gross merchandise worth (GMV) of USD 200 billion in 2022—three years sooner than anticipated—underscores the surge in shopper spending within the digital realm. Nonetheless, this development has not come with out challenges. The market panorama is rife with intense competitors, with each world and native manufacturers vying for a slice of the market share.

Native gamers in SEA have showcased each innovation, and a deep understanding of their shopper base. They’ve harnessed know-how to have interaction and captivate customers. Improvements like livestreaming and “Shoppertainment” have grow to be prevalent, indicating how native gamers are on the forefront of the retail evolution. Moreover, the rise of e-payment options and various fee strategies, from cash-on-demand to Purchase Now, Pay Later (BNPL) providers, has revolutionised the retail panorama. This has not solely offered comfort to customers but additionally opened up alternatives for thousands and thousands who had been beforehand unbanked or underbanked within the area.

SKS has its origin in Taiwan, which isn’t a historically massive magnificence market. How did you identify your connection throughout the area? 

Our manufacturing heritage, which extends over three generations and spans 60 years, has allowed us to construct an unlimited community each in Asia and globally. Our presence, with places of work and factories in numerous nations, considerably bolsters our attain. Due to our specialisation in main packaging, we’ve not solely established robust relationships with main manufacturers like Estée Lauder, L’Oréal, and Shiseido however have additionally constructed strong connections all through the provision chain—from packaging and success to formulation and in-house design.

Apart from, we strategically collaborate with the most effective gamers within the area, which boosts our experience and permits us to supply complete options within the magnificence sector. This contains forging deep connections with market leaders in logistics and gross sales channels, whether or not it’s e-commerce platforms or conventional retail. Thus, even Taiwan itself will not be a big magnificence market, our in depth community and deep relationships have positioned us as a key participant within the regional magnificence trade.

What’s your key providing when speaking to native manufacturers?

When participating with native manufacturers, our key choices are multi-dimensional, geared toward making a win-win partnership for all stakeholders concerned. The cornerstone of our interplay with native manufacturers is their enlargement abroad. It’s a important side of our funding theme to introduce manufacturers to new markets, thereby including substantial worth to their enterprise. We consider in not simply rising, however rising properly and effectively. Conversely, we additionally concentrate on introducing international manufacturers to native markets once we determine a great match. We often supply a complete technique for abroad development that features market analysis, a concrete entry plan, and identification of native companions. This will likely span throughout numerous channels, together with e-commerce enablers, retailers, and distributors. We offer the know-how and the community to make sure a clean and profitable abroad entry

What are the challenges when taking native magnificence manufacturers abroad? 

Increasing native magnificence manufacturers to worldwide markets comes with its personal set of distinctive challenges. The regulatory necessities, for instance, can fluctuate extensively from one nation to a different. Whether or not it’s assembly the FDA requirements within the U.S. or conforming to EU laws, understanding and adhering to those guidelines are essential steps for any model trying to set up itself in a brand new market.

Logistical complexities additionally current challenges. Past simply transport and distribution, there are particulars like customizing the provision chain to fulfill native demand, management value and managing inventory ranges successfully.

Localisation is one other very important side. This goes past merely translating textual content on packaging—it entails cultural adaptation. For example, what appeals to customers in a single nation by way of branding, packaging design, and even the product itself might not resonate with customers in one other market. Due to this fact, localising the model just isn’t merely about translation however a few complete understanding of cultural norms, shopper behaviors and preferences, and even native competitors. It’s an intricate course of that requires a deep understanding of the brand new market to efficiently introduce a model to a unique shopper base.

Apart from, digital platforms differ between areas too. It contains understanding the subtleties of rating algorithms and the popular promoting codecs on totally different e-commerce platforms. This requires a deep understanding of the platform dynamics, together with successfully talk with native customers.

A notable instance illustrating the pitfalls of not adapting to native demand/preferences is Sephora’s preliminary entry into Japan. The corporate maintained its warehouse fashion and self-service method, which was at odds with the native choice for personalised service and in-depth consultations. Sephora needed to redesign its method to align with Japanese shopper expectations, a expensive lesson within the significance of understanding native market circumstances.

Lastly, it’s essential to concentrate on the “unwritten guidelines” in every market. For example, the fee buildings for Key Opinion Leaders (KOLs) differ considerably between East and West. In China, many stay streamers cost a set quantity along with a fee from gross sales. In distinction, influencers within the U.S. or Europe typically work for a set quantity solely. Additionally, whereas YouTubers within the West have better artistic freedom in how they current sponsored content material, Chinese language KOLs have a tendency to stick intently to detailed pointers offered by the model.

Understanding these complexities and adapting methods accordingly are key to profitable abroad enlargement. It’s not merely a “copy-paste” of what works within the dwelling market however requires nuanced understanding and tailor-made approaches.

How essential is it to offer provide chain and advertising helps to your portfolio corporations? How is SKS able to such help? 

With over three generations and by being the second largest provide chain for magnificence and cosmetics on the earth, it’s embedded in our DNA to assist our portfolio corporations. 

We’ve a deep understanding of your complete magnificence worth chain, from sourcing and packaging to logistics. Our in depth community throughout Asia permits us to supply turnkey provide chain options, accelerating market entry for our portfolio corporations.

On the advertising entrance, our staff’s digital-native background positions us effectively to totally perceive the market wants, buyer behaviours and craft localized advertising plans that includes the best merchandise for the best markets. We additionally deal with an omnichannel technique that seamlessly combine each on-line and offline distribution channels, optimizing engagement in any respect buyer touchpoints.

SKS units itself aside with distinctive strengths which are tough to duplicate. Our data-driven insights, backed by a mature ecosystem, allow us to determine the subsequent trade leaders with a depth of perception. We elevate this method by actively involving our skilled distributors and retailers within the analysis course of, counting on their wealthy expertise and real-world information to gauge the potential and market match of potential manufacturers. Apart from, we provide end-to-end options that transcend mere monetary help, offering a full suite of providers—from provide chain optimization to strategic advertising—that can be very exhausting to duplicate. Lastly, our strategic benefit is additional amplified by our regional know-how, underpinned by a various staff and robust partnerships with native trade leaders. This distinctive mix of capabilities not solely differentiates us but additionally ensures that we add substantial worth to our portfolio corporations.

How secret’s the idea of “sustainability” when deciding on corporations your fund invests into? 

Delivering sustainable options is on the core of our funding philosophy. With our deep familiarity with sustainability requirements and L’Oréal provider ESG audit, we possess a singular benefit in guiding and training our portfolio corporations towards environmentally accountable practices.

We prioritize ESG compliance and actively promote sustainable approaches in each side of our investments. From packaging supplies to the manufacturing course of, we offer professional steerage to our portfolio corporations, guaranteeing they undertake eco-friendly practices that align with worldwide requirements. Our dedication to sustainability not solely displays our moral values but additionally strengthens the long-term viability and success of the manufacturers we help.

Who nowadays are most desirous about investing within the magnificence sector? 

Numerous sorts of buyers are interested in the wonder sector for various causes. Personal fairness corporations worth its regular development and recession-proof traits, whereas household places of work see it as a long-term, secure funding for diversification. Angel buyers usually have backgrounds in magnificence, wellness, or shopper tech and are looking out for high-potential startups. Company buyers are aiming for strategic integrations of progressive merchandise, and retail giants need to combine these manufacturers into their platforms. Now, investing via SKS Capital presents 4 key benefits. First, we offer danger mitigation by diversifying portfolio, in contrast to particular person buyers who might put all their eggs in a single basket. Second, our data-driven insights and expansive ecosystem allow us to not solely determine but additionally nurture high-potential corporations. Third, our deep trade connections throughout Asia supply distinctive entry to partnerships and offers. Lastly, for these unfamiliar with the sector’s operational intricacies, we provide experience in provide chain administration, market entry, and regulatory compliance. General, we provide a extra complete, lower-risk various to direct funding.

The place do you see your fund in 5 years?

In 5 years, SKS Capital goals to be a pacesetter in enterprise capital in Asia’s magnificence and shopper trade. We’re not simply trying to scale for the sake of income; we’re dedicated to enriching the patron expertise by introducing them to a various array of high quality manufacturers. This additionally permits us to foster cross-market collaborations, enhancing worth for each our buyers and portfolio corporations.

We’re on observe to develop a extra mature ecosystem within the SEA area, concentrating on an bold 50 p.c annual improve within the quantity of products bought. We additionally plan to diversify our investor base to incorporate a better variety of institutional and household workplace buyers, aligning with our “For Us, By Us” philosophy. 

Ethically, we’re dedicated to advancing mature ESG options that improve your complete worth chain. 

Income-wise, we’re exploring new enterprise fashions, together with franchising and distribution, to enhance our core enterprise capital actions. We purpose to be often called the “Gatekeeper of Client Pursuits in SEA,” analogous to the position TPG or ABG performs in America.

Our funding focus is designed to be agile, permitting us to grab rising alternatives in areas like AI advertising, cost-efficient operations, and progressive retail methods. This method goals to optimize key efficiency metrics corresponding to Return on Promoting Spend (ROAS) and Buyer Acquisition Price to Lifetime Worth Ratio (CIR). By doing so, we’re positioned to ship unparalleled worth not simply to our buyers and portfolio corporations, but additionally to finish customers who profit from the cutting-edge manufacturers and merchandise we carry to market.

You can be organising a one-day seminar in Singapore on October 25 2023. What would be the key highlights? What would you like present buyers and potential new ones to recollect when heading dwelling after the seminar? 

We purpose to supply groundbreaking insights into the position of enterprise capital within the magnificence sector, significantly specializing in cross-border alternatives and improvements, which will probably be additional mentioned in a panel session. As well as, attendees will even get a better have a look at the manufacturers we’re at the moment supporting via a portfolio showcase, understanding magnificence market in Korea, China and SEA. We additionally invited a famend beauty-focused YouTuber Tina Yong to supply her distinctive insights on digital magnificence tradition. The occasion will even present ample alternatives to community and join with trade leaders. 

As for key takeaways, attendees will depart with a greater understanding of SKS Ventures’ distinctive worth proposition. They will even get a present snapshot of the trade panorama in Asia, empowering them to make extra knowledgeable choices. It’s a complete expertise designed so as to add worth to present and buyers, manufacturers, distributors and retailers.

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