SHANGHAI: After years of studying abroad, Spring Su must face the hard reality that confronts many second-generation business owners. She has been handed control of the biggest, and most-promising, chunk of her mother's beauty salon empire, Natural Beauty, on the Chinese mainland.

Founded by Tsai Yen-ping in Taiwan in 1972, with less than US$400 borrowed from a bank, Natural Beauty has grown into a sizeable business, with US$46 million in turnover last year. That was up 12 per cent from 2003.

The company, listed on Hong Kong's stock exchange, attributed its rapid growth in the past decade or so to the expansion of its franchised spa and beauty salons in the Chinese mainland. It had 1,522 franchised stores and outlets in the market at the end of 2004.

Su with a master degree in personnel management from the London School of Economics, and a Ph.D. in education from Columbia University was given responsibility, by her mother, for the company's mainland business last year.

Su had little idea at the time about the huge challenges awaiting her. "I thought my mother had built up a solid foundation for the company, and that managing it would simply be a job of maximizing its potential," Su says. But she found out soon enough that impressive growth was not necessarily a reflection of strength.

In fact, Natural Beauty's mainland business is not only facing stiff competition from many local and foreign franchisers, but also numerous internal problems arising from an outdated management system and a rapidly aging customer base. Most of the firm's customers are in their 40s and 50s.

"Within the next five years, we could see a sharp fall in our customer base, if we fail to attract young consumers," says Su.

Su, who believes in statistics and information technology is pushing a series of initiatives to revamp the company's image, enhance operational efficiency and increase revenue sources.

As part of her plan, the company is refurbishing its 1,522 franchised outlets on the mainland. The new stores carry the company's new logo, which, characterized by colourful lacy frills with NB in the middle, stands in sharp contrast with the conservative old logo with Natural Beauty's name in Chinese characters.

The company has set up flagship stores and counters in premier locations in major cities, such as Shanghai and Shenzhen. It has also reduced the types of its product bottles from 200 to 24, with a consistent new company logo, to strengthen brand recognition.

Furthermore, the company has hired an international advertising firm to produce its two TV commercials about its new image. Before, Natural Beauty rarely advertised, rather it relied on a TV programme about make-up and beauty hosted by Tsai, the company's founder.

"I hope the company can set up a lively image and appeal to young customers aged 25-39 through brand revamping," Su says.

What is more, Su is taking a series of steps to improve operational efficiency and supply chain management.

Su says Natural Beauty used to distribute its products to the franchised stores and cosmetics outlets nationwide through its 30 logistics subsidiaries.

The operation used to run well, however, as Natural Beauty's business thrived, the subsidiaries could not cater to the rising demand for the company's self-made products, and failed to co-ordinate the company's marketing activities.

"The biggest problem was they could not respond and deliver products quickly to the franchised stores as needed. More often than not, when the new products arrived at the stores, the promotion period had already ended," Su says.

"In addition, the logistics subsidiaries didn't convey the information of the company's marketing activities to the franchised stores or provide feedback on the needs of consumers to the company." she adds.

To solve the problem, Su is trying to set up a direct call centre. The centre would be responsible for disseminating the latest information about the company's promotional events to the outlets so they can place orders in advance.

Instead of going through the logistics subsidiaries, Natural Beauty now co-operates with China Post to speed up the delivery of products. Su plans to set up five logistics centres in Shanghai, Xi'an, Beijing, Shenzhen and Chongqing.

The centres, which will be open by the end of this month, are under direct control of the company to enhance operational efficiency and better understand consumers' buying habitats and the sales in local markets.

The company also purchased the PRM (partner relationship module) system and CRM (customer relation management) system from Oracle to further enhance operation efficiency.

Installed and properly managed, all of the measures could sharply reduce product delivery time from the previous 2-3 weeks to 2-3 days, says Su. "The sales of our products are projected to grow from 300 million yuan (US$36 million) to 1.2 billion yuan (US$144.9 million) in two years," says Su.

There are other benefits of the changes, she adds. For instance, the company can improve cash flow, by growing orders, and strengthen its communications with the franchised stores and the outlets.

In addition to revamping the firm's image and broadening distribution channels, Su has decided to raise the franchise fee to increase revenue sources.

Natural Beauty set the franchise fee low and offered skin-care training courses as incentives for franchise holders when the company entered the mainland in 1992.

For the past 10 years, the company charged only a few thousand US dollars as the franchise fee, and it provided free training and marketing promotions.

Su decided to raise the franchise fee up to 100,000 yuan (US$12,085) this year, and to start charging, beginning next year, 1,800 yuan (US$217) per month for training and promotion. The move could bring in at least 30 million yuan (US$3.6 million) in extra revenues per year.

"With the three-pronged business strategy, I am confident the company will achieve higher profitability this year," Su says. Su also aims to set up 350 new spa stores in the mainland, and to expand the network to Viet Nam, Russia and Inner Mongolia this year.

"I am lucky that I am the daughter of the company's founder, so I can push forward the revamp campaign in a faster manner than if I were just an employee," she says.

(China Daily 06/20/2005 page2)