Through chat groups, video streams and low prices, China’s Perfect Diary emerged from nowhere four years ago to become a cosmetics giant for the digital age. It trails only L’Oreal and LVMH in the world’s No. 2 market for make-up. The Guangzhou-based beauty unicorn – the term for start-ups valued at more than US$1 billion – has now set its sights on a Hong Kong initial public offering (IPO). Before that, it’s driving into Southeast Asia, targeting millennial social media users like Wen Shan, a 21-year-old student from Guangdong in southern China. Wen has ditched Western brands like Nars and Revlon and devotes her annual budget of 3,000 yuan (US$434) to Perfect Diary cosmetics such as eye shadow. Most cost less than 100 yuan and are made by the same contract manufacturers that supply Western brands. She converted to Perfect Diary after a roommate’s tip. “The foreign brands have a large variety of foundations that often confuses me and I can’t tell which one is best on me … the Chinese brand knows what is good for local consumers.” Though still a global minnow compared with powerhouse L’Oreal , Perfect Diary now has 4 per cent of the Chinese market for colour cosmetics, according to 2019 data from market research provider Euromonitor. That ranks it joint third with Estée Lauder’s MAC, beaten only by luxury giant LVMH’s Christian Dior and three L’Oreal brands that have a market share of more than 20 per cent. The research firm estimates the overall market more than doubled to nearly US$8 billion from 2015 to 2019 – and that it will grow to almost US$15 billion in 2024 as China’s middle class expands. The C Beauty craze – digital-native brands for China’s Gen Z Perfect Diary’s rise has been fuelled by blending low prices with a strong presence on social media platforms such as Douyin – the TikTok for China – and WeChat , and collecting customer data it can use to design and roll out new products rapidly with the help of charismatic influencers with huge online followings, such as “Lipstick King” Li Jiaqi. Yelling his catchphrase “All girls, buy it!”, Li has given Perfect Diary products rave reviews in popular live-streams on giant e-commerce retailer Alibaba’s Taobao platform. Alibaba owns the South China Morning Post . Analysts said Perfect Diary’s rise has been boosted by the willingness of younger, Generation Z consumers to embrace home-grown products. “Gen Z is growing up in a prosperous China,” said Mei Xin, analyst at Huatai Securities. “Unlike the older generation, they don’t believe the moon in the West is rounder than in China.” A spokesman for L’Oreal in China didn’t immediately respond to a request for comment on the growth of home-grown brands, but said L’Oreal typically welcomes healthy competition. Founded by entrepreneur Huang Jinfeng’s Yatsen E-Commerce firm in 2017 as an online, China-focused operation, the company now has more than 150 stores in China – with a target of 200 this year – as well as international aspirations. “Yatsen E-Commerce has always had a vision of creating a domestic beauty brand with true international influence,” Huang said. In recent months, it has opened its own online store for Southeast Asian countries including the Philippines, Singapore and Malaysia. It also has an official store on Lazada, Alibaba’s Southeast Asia arm. “We listen to users and we immediately carry out research on products they want,” said Huang, citing the example of data gathered during the coronavirus pandemic that resulted in a new pressed face powder. “Consumers need to fix their make-up more often, as the face mask takes off make-up.” Perfect Diary currently uses contract manufacturers including Italy-headquartered Intercos, which has a factory in China that supplies L’Oreal and others. Since March, it been building its own plant in Guangdong, due on line by the end of 2021. Perfect Diary doesn’t disclose financial performance or liabilities, nor say whether it’s profitable. Yatsen is currently raising a pre-IPO round of financing that values it at around US$4 billion, according to two people with direct knowledge of the matter. It has also appointed investment banks Goldman Sachs and Morgan Stanley to lead a Hong Kong IPO that aims to raise up to US$500 million by the end of 2020, according to two separate sources. One person said the IPO valuation could likely reach US$5 billion – big, yet dwarfed by L’Oreal’s more-than-US$180 billion market value. The people declined to be named because the information was not public. Perfect Diary declined to comment on IPO plans. Meanwhile, student Wen continues to add lipsticks and foundations to her Perfect Diary make-up kit. “I don’t care much about the originality of a brand,” she said. “I didn’t know Perfect Diary was a Chinese brand the first time I bought it. But now I know, I have a natural good feeling about using a domestic brand.”