In the traditional agency model, distributors’ profits are heavily constrained by brand owners and channel costs. Take Watsons as an example: its private label Collagen series boasts a 50% gross margin, far exceeding the 20%-30% margin of (third-party brands). Private labels allow distributors to control pricing directly by shortening supply chains (e.g., partnering directly with ODM factories) and eliminating intermediate markups. For instance, Yaoshibang, a Chinese pharmaceutical distributor, achieved over 30% gross margin for its "Leyaoshi" private label series by acquiring "Yi Kuai Pharmaceutical" to integrate the supply chain.
Relying on third-party brands exposes distributors to market fluctuations and brand policies. In contrast, private labels help build independent brand equity. Watsons, for example, established a "high-cost-performance" image through differentiated product lines like the Bird’s Nest and Collagen series, solidifying long-term customer loyalty. Private labels also enable agile responses to trends—launching "cruelty-free" or "vegan" products for Gen Z consumers to capture niche markets swiftly.
The beauty market suffers from severe (homogenization), making private labels a key tool for distributors to stand out. Sichuan Jinjiachong, a regional distributor, maintained store profitability amid declining premium brand margins by (launching) private labels like "Goryeo Valley" and "Fountain of Youth," adopting a "factory-direct + $13.50 price band" strategy. Industry data projects the global private label cosmetics market to reach $44.16 billion by 2025, with personalized customization (e.g., AI skin analysis recommending products) and sustainable packaging (e.g., biodegradable materials) as primary growth drivers.
Distributors leverage terminal sales data to understand consumer needs and guide product development. Watsons improved the repurchase rate of its "Hydra-Gel Mask" to 80% by optimizing formulas based on in-store consumption data. Private labels also enable rapid iteration: Sephora reduced R&D cycles by 50% for its new cushion foundation by incorporating KOL feedback and social media insights, launching the product in just six months.
While private labels offer huge potential, distributors must address three key challenges:
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R&D and Supply Chain Investment: Adopt a "light-asset model" by partnering with ODM giants like Cosmax to reduce initial costs.
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Brand Trust Barriers: Build credibility through "ingredient transparency" (e.g., disclosing raw material sources) and dermatological certifications.
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Intensifying Competition: Focus on niche segments like men’s grooming or halal-certified products to avoid direct competition with international giants.
For cosmetics distributors, transitioning to private labels represents a strategic upgrade from "channel operators" to "brand managers." By reconstructing profits, securing autonomy, differentiating offerings, and leveraging data, distributors can not only withstand industry volatility but also carve out a share in the $44.16 billion global private label market by 2025.
