US Stock IPO Outlook | Sofitel: A Difficult Turnaround for the Established Daily Chemical Brand with Cumulative Losses Exceeding $3 Million Over Two and a Half Years

Speaking of the daily chemical brand Softto, everyone is probably familiar with it.

Founded in 1988, Softto developed the "Papaya White Skin" series, which uses natural papaya as the main ingredient, in 1996, quickly capturing the market. In 2002, it developed anti-hair loss shampoo, pioneering functional anti-hair loss shampoo. In 2003, it invited celebrity Zhang Ziyi to endorse its product series, significantly enhancing brand awareness. By 2011, the company's brand value soared to 2.441 billion yuan.

In the secondary market, Softto once held the title of "China's first daily chemical stock." In 2016, Softto completed the acquisition of Hangzhou Tianxia Technology Group Co., Ltd. and was renamed Tianxia Zhihui, seeking to transform into the smart city sector while divesting its daily chemical business.

However, with the company's unsuccessful transformation and declining profitability, Softto was delisted from the Shenzhen Stock Exchange in 2021. Meanwhile, under the dual pressure of international brands and emerging domestic products, the Softto brand has increasingly faded from public view.

On January 25, 2025, Softto publicly disclosed its prospectus with the U.S. Securities and Exchange Commission (SEC), sounding the horn for its return to the secondary market. The company plans to go public on NASDAQ in the United States, aiming to raise approximately $15 million, with the stock code "SFTO."

In terms of the use of raised funds, the company plans to allocate 30% of the funds to maintain daily operations, ensuring stable business development; 30% will be reserved for potential investment and acquisition opportunities to expand business boundaries; 20% will be invested in research and development and data analysis to enhance product competitiveness; the remaining 20% will be used to expand the online sales network to adapt to the trend of digital transformation.

As the saying goes, "It's not easy for an elephant to turn around," and for this nearly 40-year-old established daily chemical enterprise, "turning around" is also not a simple task.

Still trapped in operational difficulties, accumulating losses of over $3 million in two and a half years

According to Zhitong Finance APP, Softto mainly provides a range of personal care and beauty products, including cleansing, skincare, shampoo, and oral care products. Its product brands mainly include Softto, Softto Oriental Herbs, i-softto, Dakeshu, Qingyuan, and Welltop, with brand products distributed across 238 cities nationwide. The company does not produce products itself but entrusts OEM manufacturers to produce them.

Since 2006, under the dual pressure of international brand "invasion" and the rise of emerging domestic products, Softto has entered a downward trajectory. In 2008 and 2009, the company's net profit declined for two consecutive years, and by 2010, Softto began to experience losses. According to Softto's annual report, by 2015, its net profit after deducting non-recurring gains and losses had been in continuous loss for six years.

After years of losses, Softto also began to "try various remedies." In 2011, Softto attempted to sell Guangxi Softto Technology Company to Guangxi Daily Media Group, but the attempt failed due to the government's refusal to issue approval. By 2016, Softto completed the acquisition of 100% equity in Hangzhou Tianxia Technology Group Co., Ltd., transforming into a listed company primarily engaged in smart city construction and operation, and its stock name was changed to "Tianxia Zhihui." Later, due to years of losses, it was forced to delist from the Shenzhen Stock Exchange.

From the latest prospectus of Softer, it seems that Softer has not yet found a good "path to profitability" as of now.

In 2022, 2022, 2023, and the first six months of 2024, the company achieved revenues of 19.5217 million, 14.9524 million, and 5.5110 million USD, respectively, with a year-on-year revenue decline of 23.4% in 2023. During the same period, the corresponding net losses of the company were 449,500, 2.2854 million, and 841,400 USD, accumulating a total loss of 3.5763 million USD over two and a half years.

Considering the development history of Softer, it is still trapped in operational difficulties, and "difficulty in profitability" does not seem unexpected. The company's brand image has aged, there is insufficient research and innovation, and its marketing methods are outdated, unable to adapt to changes in the market environment. Despite a resolute transformation, the company's strategic wavering (such as crossing into smart cities) has exposed this development flaw. Although Softer is still continuing its cosmetics business, the influence of its old daily chemical brands has long been fading.

Weak Competitiveness, "Breaking the Situation" Remains a Top Priority

With the rise of the "beauty economy," individuals are increasingly concerned about their appearance and overall health, leading to a continuous increase in demand for personal care products.

According to relevant data, the market size of China's personal care products industry grew from 375.9 billion yuan in 2017 to 635.6 billion yuan in 2022, with a compound annual growth rate of 11.1%. Throughout the forecast period, the personal care products market is expected to continue growing, mainly driven by key areas such as skincare, hair care, and hand soap. The market size of China's personal care products industry is expected to reach approximately 951.1 billion yuan by 2027, with a compound annual growth rate of about 8.4% from 2022 to 2027.

During this period, with the rise of e-commerce and digital platforms in China, online channel sales of personal care products have shown a rapid development trend— the market size of online channel sales of personal care products in China grew from 133.1 billion yuan in 2017 to 287.9 billion yuan in 2022, with a compound annual growth rate of 16.7%. During the forecast period, driven by the surge in the popularity and preference of e-commerce platforms, social media, and live-streaming e-commerce in product discovery, recommendations, and purchases, the market size of online channel sales of personal care products is expected to reach approximately 535.5 billion yuan by 2027, with a compound annual growth rate of about 13.2% from 2022 to 2027.

(Source: Softer Prospectus)

However, even though the industry shows a growth trend, Softer, with its strategic wavering and resource dispersion, is still being surpassed by many emerging brands in an increasingly competitive market environment On one hand, international brands are penetrating the lower-tier market. Brands like L'Oréal and Procter & Gamble are capturing market share through premium strategies and further infiltrating the mid-to-low-end market, squeezing the survival space of local brands like Softer. On the other hand, emerging domestic brands are rising. Brands such as Perfect Diary and Huaxizi are attracting a large number of consumers with social media marketing, rapid product iteration strategies, and a youthful positioning, diverting Softer's traditional customer base. Additionally, fierce price wars and the normalization of industry promotions (such as low-price competition in live e-commerce) have also compressed the company's profit margins.

In fact, from the perspective of brand image, as consumer demand upgrades, the company's brand strength has not kept pace, and its marketing methods are relatively outdated, which further weakens the competitiveness of the company's products.

Specifically, with the upgrade in consumer demand, consumer preferences are shifting towards "ingredient-focused" and "functional" products (such as hyaluronic acid, niacinamide, etc.), while Softer's product line may not have kept up with this trend in a timely manner, and insufficient investment in technological research and development has led to a decline in product competitiveness. Furthermore, the company's brand marketing still relies on traditional advertising (such as TV commercials) and has not effectively reached Generation Z users, resulting in a weak presence on social media platforms (such as Xiaohongshu and Douyin).

Thus, whether in terms of industry competitiveness or its own brand image, Softer's competitive advantages are not significant, which makes it difficult for Softer to maintain its market share and profitability in the fierce market competition. This time, Softer has once again sounded the horn for its entry into the secondary market, and the funds raised will mainly be used to enhance the company's product competitiveness and adapt to the trend of digital transformation. Therefore, it is not difficult to see the company's "breakthrough" mentality, but whether it can succeed remains an unknown