The era of GEO has arrived. The wave of Generative AI is gradually reshaping the logic of information distribution. Shifts in search paradigms, user decision-making logic, and brand focus points may drive a new round of industry restructuring. Enhanced tax compliance and stricter regulations are pushing the industry towards greater concentration, with leading players poised to benefit. Comprehensive operational capabilities have become the key to success, and large, diversified enterprise groups are expected to benefit overall. Overall, changes in the traffic environment point towards market structure solidification and accelerated concentration at the top. E-commerce is becoming more compliant, driving a回流 of consumption back to offline channels, benefiting brands with a high proportion of offline sales. In the GEO era, companies with significant R&D investments and leading brand and content strategies are likely to be the first to benefit. An "Outperform" rating is maintained on the cosmetics and commercial sector. The era of GEO has arrived, and channel transformations may lead to a restructuring of the brand and service provider landscape. Changes in traffic entry points impact the competitive dynamics of consumer goods, as the generative AI wave gradually reshapes information distribution logic. Current AI advancements are driving the iterative upgrade from SEO (Search Engine Optimization) to GEO (Generative Engine Optimization). The integration of Qianwen into the Alibaba ecosystem is facilitating the implementation of GEO, potentially altering search paradigms, user decision-making logic, and brand focus areas. The cosmetics industry, characterized by abundant structured data and high marketing expense ratios, may be significantly affected by the GEO transition. Looking across the industry chain participants: 1) Service Providers: As specialized third parties, they are expected to explore new business growth opportunities alongside the rise of GEO, but their medium-to-long-term competitive moats still need validation; 2) Brand Owners: Authoritative, structured, and data-driven information is favored by AI recommendations. International brands currently hold a relative advantage in terms of AI recognition. Efficacy-focused skincare companies and those with strong R&D capabilities, due to their structured data on ingredient analysis, efficacy verification, and professional knowledge, are positioned to benefit early from AI-driven channel changes. Enhanced tax compliance and stricter regulations are driving industry consolidation, with leading players expected to benefit. Multiple regulatory policies targeting internet e-commerce are set to take effect in 2025, strengthening oversight across tax payment and auditing, tax deductions for advertising expenses, and various aspects of e-commerce operations. Compliant leading brand merchants are likely to benefit from an improved operating environment. Specifically: ① E-commerce Platforms: Platform obligations and responsibilities are being reinforced, with regulations establishing a full-process system covering "formulation-modification-implementation-supervision"; ② Merchants: Affected by increased platform transaction transparency, tax compliance costs may rise. Tactics used by small and medium-sized merchants, such as splitting income for tax avoidance, are being prohibited, and unreasonably low prices may lead to removal. Compliant leading merchants are expected to benefit; ③ Key Opinion Leaders (KOLs): Their identities and transaction flows face reporting requirements, with intensified supervision; ④ MCNs (Multi-Channel Networks): Platform reporting of transaction flows increases operational transparency. Tax declaration processes and deduction amounts have not been optimized, and oversight of potential commission payments not settled through platforms may gradually tighten. Strict enforcement of a potential "advertising tax" could also impose additional financial pressure on small and medium-sized merchants with high advertising spending, potentially even squeezing some out of the market. Against this backdrop, the industry's consolidation trend is already becoming evident, with sales of emerging "dark horse" skincare brands contracting significantly, and platforms like Douyin increasingly becoming a battleground for major brands. Development Trends: 1) Offline channels receive policy support, benefiting brands with high offline exposure. The growth rate of online penetration is slowing, while tax/advertising/operational regulations for online channels are intensifying. Conversely, supportive policies for offline channels have been consistently strengthened in recent years, favoring offline physical retail and promoting balanced online-offline development. Brands with a high proportion of offline sales stand to benefit. 2) Third-party operators have the potential to expand their boundaries in the short term, creating opportunities for those with excellent comprehensive capabilities. GEO presents new marketing business opportunities, likely bringing short-term incremental business to operators. Those excelling in data analysis, marketing, and operations are poised to benefit; however, medium-to-long-term competition may intensify, and the validity of scale effects and operational barriers remains to be seen. 3) Brands with precise niche positioning and strong efficacy communication are positioned to benefit early from AI model recommendations; 4) Enhanced tax compliance, stricter regulations, and a traffic environment favoring comprehensive capabilities collectively drive industry consolidation, benefiting leading players. Investment Strategy: The GEO era has arrived. The GenAI wave is gradually reshaping information distribution logic. Shifts in search paradigms, user decision-making logic, and brand focus may drive a new round of industry restructuring. Enhanced tax compliance and stricter regulations are pushing industry concentration higher. Comprehensive operational capability is the key to success, and leading conglomerates benefit overall. In summary, changes in the traffic environment point towards structure solidification and accelerated concentration at the top. Increased e-commerce compliance is driving consumption back to offline channels, relatively benefiting brands with high offline exposure. In the GEO era, companies whose R&D investments are becoming more apparent and which lead in brand and content strategy are likely to be the first beneficiaries. The investment thesis is analyzed along brand and operator dimensions. For brands: Against the backdrop of overall industry concentration and leading brand groups benefiting, the focus is on recommending companies possessing strong "product power" and "content power," which are poised to benefit directly from Douyin's traffic changes. Continuous attention is paid to GEO's impact on traffic inlets and recommendation logic within the cosmetics industry, with a focus on recommending companies possessing significant brand influence, clear efficacy positioning, and solid R&D support. Regarding operators, those with excellent comprehensive capabilities in data analysis, marketing, and operations are expected to benefit, but scale effects and operational barriers require validation. An "Outperform" rating is maintained on the cosmetics and commercial sector. Risk提示: Discretionary consumption is significantly influenced by household purchasing power; Potential for local brands' product and brand power improvements falling short of expectations; Risk associated with sales concentration on specific e-commerce platforms; Risk of major transformations in marketing channels; Risk of intensifying industry competition; Potential bias in conclusions due to limited representativeness of major promotion data; Potential bias in conclusions due to limitations in the referenced database samples.
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