Due to the sluggish Chinese market and losses exceeding expectations, South Korean cosmetics manufacturers are shifting their export focus to the United States. Leveraging high-performance products and advertisements featuring K-pop idols such as BTS, they have successfully captured the attention of North American consumers.
Amorepacific, a South Korean beauty giant, has been facing a downturn in the Chinese market in recent years, which has been a significant drag on the company. This has prompted the group to diversify its international business and reduce reliance on China.
During the COVID-19 pandemic, demand in the Chinese market sharply declined. Subsequently, high unemployment rates and a downturn in the real estate market have eroded consumer confidence, further impacting sales performance. With the slowing Chinese economy, Chinese consumers have also turned to lower-priced domestic products.
In 2023, Amorepacific’s revenue in China dropped by about 20%, total revenue decreased by 11%, and profits declined by approximately 50%.
This marks the second consecutive year of declining revenue and profits. In 2022, impacted by the pandemic, revenue in the Chinese market fell by 30%, total revenue decreased by 15.6%, and profits plummeted by 48.9%.
In August this year, Amorepacific released its financial report for the second quarter of 2024, showing continued sluggish sales in the Chinese market.
The report indicates a dramatic 44% drop in sales in China compared to the same period last year. In contrast, performance in other regions in Asia (excluding China), the Americas, and the EMEA region (Europe, the Middle East, Africa) showed significant growth.
Especially in the United States, sales increased by 65%, reaching 121.8 billion Korean won (approximately 91 million USD), surpassing China as the previous top export destination for the first time.
An executive at Amorepacific told Nikkei Asia, “Our investments in the United States are finally paying off. The company’s overseas division accounts for 40% of sales, and after a loss of 32.7 billion Korean won in the same period last year, we achieved a profit of 5.1 billion Korean won (about 3.81 million USD) from April to June this year.”
Another South Korean beauty giant, LG Household & Health, has also faced a challenging situation in the Chinese market in recent years. Due to the sluggish sales in China in 2023, total profits decreased by 31.5% year-on-year, and revenue declined by 5.3%. Although sales slightly recovered in the first half of this year, the overall situation has yet to improve significantly.
LG Household & Health is also shifting its growth focus from China to North America and Japan. The brand is currently opening stores in Tokyo, Osaka, and Nagoya to enhance its brand image and expand its reach to consumers. In North America, it is collaborating with retailers such as Amazon, Walmart, and Sephora.
In fact, small and medium-sized cosmetics companies in Korea have already been accelerating their market diversification.
According to a report released by the Ministry of SMEs and Startups in February on last year’s export trends, cosmetics are the top export product for Korean SMEs. Last year, small and medium-sized cosmetics companies exported cosmetics worth 5.4 billion USD overseas, setting a record high.
An official from the Ministry of SMEs and Startups told the Korean daily Chosun Ilbo, “We have been trying to diversify our export destinations, making efforts to break into markets like the United States, Europe, and Japan, and this has already shown some positive results.”
Currently, many international cosmetics manufacturers are facing challenges in China, including American brand Estee Lauder, Japanese Shiseido, and French Sephora.
In July, Shiseido’s high-end skincare brand BAUM announced its withdrawal from the Chinese market.
In August, Estee Lauder released its performance for the 2024 fiscal year (ending June 2024), with a 2% decline in net sales for the year and a 61% decline in net profit. This marks the second consecutive year of sales decline and the third consecutive year of declining profits for Estee Lauder. Estee Lauder stated that weak demand for high-end cosmetics in the Chinese market remains a major factor in its poor performance.
Luxury goods group LVMH’s beauty retailer Sephora also announced last week that it is reducing its workforce in China as Chinese consumers restrict their spending on beauty products.
Earlier this year, CEO Nicolas Hieronimus of French cosmetics giant L’Oreal Group told the Financial Times, “In the world, the only region where consumer confidence is still very low is China.”
He mentioned, “The employment market in China is not healthy, and many Chinese people have put their savings into real estate, but the value of real estate has plummeted significantly.”