South Korea is one of the top three cosmetics importers to the United States after France and Canada, according to the Korea Trade and Investment Promotion Agency. — Bloomberg
SEOUL: Amid dwindling sales in China, South Korean beauty companies are pivoting away from the lucrative market and decamping for greener pastures in the United States.
Industry watchers said the strategic shift in K-beauty companies comes due to a slew of reasons – the rising demand for K-beauty products in the United States, growth in China’s own cosmetics industry, and increasingly nationalist consumers in China. But they also agree that China is still “too big to ditch”.
South Korea is one of the top three cosmetics importers to the United States after France and Canada, according to the Korea Trade and Investment Promotion Agency.
Since 2020, it has maintained a two-digit market share in the United States. In 2021, its exports to the United States soared more than 30% to US$712.15mil (RM3.3bil) from a year earlier.
K-beauty’s brisk growth in the United States comes as the increased popularity of K-pop and K-content is driving up demand for South Korean commodities overall. The products’ creative, fun packaging and cheaper pricing are also cited as reasons for their surge in demand.
“The United States has long been a key market for us. But after years of slowing sales in China, US expansion has become a must for survival,” said an official of a South Korean cosmetics producer for top beauty companies.
“Fortunately, ‘Made in Korea’ is no longer a discount factor for K-beauty. Now it is well received by local consumers,” he said, adding the company plans to boost production in the United States to meet growing demand from corporate clients.
Taking advantage of the recent momentum, South Korea’s top two beauty giants are investing heavily to expand their presence in the United States market.
Amorepacific, the nation’s No. 1 beauty company, last year made a marketing pivot by refurbishing its flagship brand, Sulwhasoo, in the United States.
For decades, Sulwhasoo, whose products are based on South Korean herbal medicinal ingredients, had been the beauty conglomerate’s bestselling brand in China.
The company modernised the packaging with an English logo and invited Rose, of K-pop Blackpink, to be its brand ambassador.
Laneige, another popular Amorepacific brand, started selling at almost all Sephora stores across the United States this year.
In September last year, the company acquired US luxury skincare firm Tata Harper for 168.1 billion won (US$130mil or RM609mil) in its second-largest purchase deal to augment its brand power there.
Its crosstown rival, LG Household and Health Care, is no exception. It has expanded its United States business through a string of mergers and acquisitions (M&As).
In recent years, the company invested a total of about 606.1 billion won (RM2.2bil) in four M&As in North America alone. In 2019, the company acquired United States beauty firm Avon Co for 145 billion won (RM525.7mil), as well as the Asian and North American business rights for United States skincare brand Physiogel for 191 billion won (RM692mil) in 2020.
In 2021, it acquired a 56% stake in the United States hair care brand Boinca for 116 billion won (RM420.6mil), along with a 65% stake in the United States cosmetics brand Creme Shop a year later for 152 billion won (RM551mil).
Such a rapid expansion in the United States led to their success there.
Amorepacific made 181.4 billion won (RM657.7mil) in its North American sales last year, an 83% growth from a year earlier.
LG H&H, which also produces consumer goods, posted robust growth in sales from 513.6 billion won (RM1.86bil) in 2021 to 577.5 billion won (RM2.1bil) in 2022.
K-beauty’s US push is also part of their risk hedging for their sagging sales in China. Like many other South Korean retailers, beauty companies fell victim to geopolitical tensions amid the escalating United States-China rivalry.
Last year alone, Amorepacific and LG H&H each suffered more than 30% falls in their Chinese sales.
Many experts predict no immediate breakthrough for South Korean firms in the Chinese market and add that the “golden age of K-beauty” has ended in China.
South Korean beauty companies had their heyday in China until 2018.
According to the Korea Trade and Investment Promotion Agency, China’s imports of South Korean cosmetics skyrocketed by 6,223% between 2009 and 2018. South Korean firms topped beauty sales there in 2017 and 2018.
However, starting in 2018, South Korea slid to being the third-largest importer in the Chinese market.
“Starting in 2010, China’s state-run cosmetics research institutions scouted many South Korean cosmetics engineers to nurture their own industry,” said Kim Joo-jeok, a professor of the beauty industry department at Sungshin Women’s University.
“With the rise in quality, coupled with a lot cheaper pricing, China’s beauty industry soared, while South Korean products started losing their competitive edge.”
And nationalist consumption also gained traction among China’s young consumers in the aftermath of “han han ryeong” – a Chinese ban on South Korean goods.
The move was an apparent retaliatory action against the South Korean government’s decision to install a United States-made missile defence system, which China considered an action to counter its growing influence in the region.
“The anti-South Korean consumer sentiment is heightened by the belief that South Korea sided with the United States over the conflict involving Taiwan,” the professor added.
Experts said South Korean beauty companies should pivot away from mainly selling low to mid-priced goods in overseas markets in order for their businesses to grow.
“South Korean beauty companies need to change their tactics to mainly sell high-end cosmetics or products with creative, high-quality health functions in the overseas market,” he said.
“In the past, K-beauty itself was very popular, but now, rather than focusing on the title ‘K-beauty,’ South Korean beauty firms need to increase the function and effectiveness of the products.”
South Korean beauty companies have begun implementing new tactics to boost sales in markets outside China while emphasising that they are “not dropping the Chinese market”.
“We are preparing for the launch of the sixth-generation Sulwhasoo products in China. Laneige and Innisfree are also scheduled to release brand new products later in the year,” said Amorepacific.
Another industry official said China’s growth potential is still too big to ignore.
“South Korean beauty companies call for lessening dependence on China, but no matter how they scale down their business, China will always play a crucial role in the K-beauty business because of the sheer amount of sales they make,” the official said on condition of anonymity.
Despite buoyant expectations about the effect of China’s reopening later in the year, the official expressed concerns about the soured relationship between South Korea and China in recent years. — The Korea Herald/ANN
