This Ok-Magnificence Model Is Larger Than Chanel. However It’s In Bother.


SEOUL, South Korea — Girls of their teenagers and 20s fill a not too long ago opened retailer by Amorepacific-owned magnificence model Etude Home, the place snail slime, bee venom and white jelly mushroom extract — substances typically heralded in South Korea for his or her skin-enhancing qualities — function in merchandise that line the cabinets. The retailer’s bestselling cushion compact basis will be discovered amongst 1,000 different skincare merchandise like serums and sheet masks.

You’d be forgiven for pondering that is simply one other retailer within the magnificence large’s home market of South Korea. However it isn’t. The boutique is positioned contained in the Dubai Mall — the world’s largest procuring centre, drawing 80 million guests a 12 months — marking Amorepacific’s first gateway into the Center Jap market. The transfer is a part of chief govt Suh Kyung-Bae’s ambitions for it to change into a worldwide elite magnificence model.

Amorepacific has come a good distance since its humble beginnings in 1945, when Suh’s grandmother, Yun Dok-Jeong, found the potential of the camellia plant. Based mostly within the metropolis of Gaesong — now part of North Korea — that prospered as a commerce centre producing ginseng after Korea was liberated from Japan, Yun would spend hours pulverising the flower’s delicate seeds, turning it right into a prized oil that trendy Korean ladies would use of their hair. Eight many years later, Suh, now chairman and chief govt of Amorepacific, has turned the sweetness firm into one in every of Asia’s strongest cosmetics empires.

Amorepacific’s new $470 million headquarters, designed by British architect David Chipperfield, opened in 2018 in Yongsan — a strategic location sandwiched between Seoul’s two main cultural and financial centres, Gangnam and Jongno. Based on a spokesperson, the constructing, which has been in growth and building for eight years, was a part of Suh’s need to create one thing grander than an atypical workplace house.

One may simply liken the sprawling cube-shaped campus, which boasts inexperienced terraces and a courtyard populated by bushes and water basins, together with a museum, tea room, restaurant and retail house, to an leisure venue. Above the general public amenities are 25 flooring of workplace house, echoing Suh’s aspirations to make Amorepacific a contemporary organisation that mediates between native and world; non-public and public; collective and particular person. He has definitely succeeded.

From Grandma’s Kitchen to the World

With gross sales of $5.6 billion, Amorepacific is just not solely Korea’s largest magnificence agency, but in addition the seventh-largest cosmetics maker on the planet, surpassing magnificence gross sales of Chanel and LVMH in 2017.

It operates throughout 20 markets and counts over 30 manufacturers as a part of its portfolio, together with champion traces Sulwhasoo, a luxurious vary primarily based on ginseng and different herbs; Laneige, a premium model with a whitening line that promotes translucent pores and skin; Mamonde, flower-based merchandise for the mass market; green-tea primarily based Innisfree; and bubblegum-pink Etude Home, an affordable make-up line for youngsters.

Whereas Amorepacific’s roots stay a key supply of inspiration — there’s a duplicate of Yun’s authentic kitchen contained in the model’s museum in Osan, a metropolis south of Seoul, the place the aromas of camellia, ginseng and different Asian crops fill the room — it has grown far past what one might need anticipated. Amongst Asian magnificence companies, solely Japanese firm Shiseido generates larger numbers in Asia.

Geopolitical tendencies have helped to drive its success: price an estimated $13 billion, South Korea’s magnificence business is among the many world’s high ten, after the US and Japan. However Ok-beauty additionally holds sway amongst its neighbours. Based on the Korea Customs Service, Ok-beauty exports have greater than doubled from $1 billion in 2012 to $2.64 billion in 2017. Jung Kuho, govt director of Seoul Trend Week, instructed BoF that gross sales of Korean cosmetics have overtaken style.

The surge has gone hand-in-hand with hallyu, a South Korean cultural wave that has swept the globe, particularly in China, which is about to change into the world’s largest marketplace for magnificence merchandise, in keeping with Morgan Stanley. It’s been a boon for South Korea, which grew to become China’s high supply of cosmetics imports by worth for the primary time, dethroning France, the place L’Oréal had lengthy led the sweetness merchandise market.

Amorepacific has been one of many largest beneficiaries of this coup. The corporate’s gross sales in China have grown at a fee of 40 to 50 % yearly since 2002. “If you consider the growing population and their consumption power, China is a market where we definitely want to succeed,” Jennifer Rho, Amorepacific Group’s enterprise technique advisor, instructed BoF.

Combatting a China Slowdown

But, over the previous few quarters, Amorepacific has struggled. For the third quarter ending September 2018, the cosmetics large reported a 24.three % drop in working revenue, to 76.5 billion Korean received ($67 million), from the identical interval a 12 months earlier. Gross sales gained 5.7 % to 12.eight trillion received over the identical interval however the outcomes have been far under analyst expectations of 131 billion received for working revenue and 13.four trillion received for gross sales.

The cosmetics agency’s gross sales have been hit over the previous 12 months by lingering diplomatic tensions with China that lowered Chinese language vacationers to South Korea, after the nation angered Beijing by deploying a US Terminal Excessive Altitude Space Defence (THAAD) system, which Chinese language officers view as one other American effort to comprise China.

Relations are actually on the mend and it has had a noticeable impact: gross sales for labels like Sulwhasoo and Hera — the latter having sponsored make-up at Seoul Trend Week since 2016 — jumped 11.6 % within the third quarter, due to a restoration in Chinese language prospects.

Amorepacific is scheduled to launch earnings outcomes for the fourth quarter, in addition to for the entire of 2018, later this month. But when there’s one factor the conglomerate discovered final 12 months, it’s simply how a lot the corporate was leaning on a turbulent nation like China, which mixed with South Korea generated 90 % of its income in 2017.

“We realise that it makes [us] vulnerable if we are too dependent on a single market. That’s why we are trying to diversify our global portfolio,” stated Rho, noting that the corporate was aiming to triple gross sales in Southeast Asia by 2020. Whereas Southeast Asia introduced in lower than three % of Amorepacific’s income in 2017, “it has been growing at the same rate, which is 30 to 40 percent,” she continued. “There’s a younger inhabitants with rising revenue and we see enormous potential.”

For Rho, which means taking account of the area’s cultural and ethnic variations, together with catering to Muslim ladies in nations resembling Indonesia, Malaysia and Thailand. “[It’s] not a single market. There are different cultures, histories, languages, religions… there are more needs, so we need to locally target our products,” she stated.

This consists of growing halal merchandise, the place substances like pork and alcohol aren’t used within the manufacturing course of. By 2020, Amorepacific is planning to open a brand new manufacturing facility in Malaysia and add 150 shops to the 250 it already has within the area. It is also partnering with Muslim influencers, resembling Nisa Kay, who has over 74,000 followers on Instagram.

However conquering worldwide markets is less complicated stated than executed. The corporate has thus far struggled to crack the European market, which noticed shrinking gross sales of 11.eight % within the third quarter, to six.four billion received. However, gross sales within the US grew 35.9 % to 18.6 billion received. In 2018 the agency launched Laneige at Sephora US and likewise hosted its first pop-up in New York. Based on a spokesperson, the shop was so in style that it remained open for an extra week.

Rho stated that Amorepacific plans to deliver one in every of its luxurious manufacturers to the UK and Germany this 12 months, following its launch in France in 2017, when it began promoting Sulwhasoo in Paris on the Galeries Lafayette division retailer. “The biggest challenge for us right now is coping with this fast pace of globalisation,” she stated.

A Fierce Battle to the End

Amorepacific additionally faces competitors at house, the place rising rivals like Stylenanda and enormous conglomerates like LG Family & Well being Care have been using excessive on Ok-beauty’s success and supply cosmetics and skincare merchandise at aggressive costs.

The most important blow to the cosmetics large, nevertheless, was final summer time, when it misplaced a patent for one in every of its most profitable improvements, the cushion compact. (In June, the Supreme Courtroom dominated in favour of a gaggle of six Korean magnificence producers, together with Nature Republic, Cosmax and Tonymoly.)

Launched in 2008, the cushion compact is a trifecta of skincare, sunscreen and liquid basis mixed in a single components. It rapidly modified the make-up habits of South Korean ladies, due to its portability and ease of utility.

“The idea came from observing our customers’ needs,” stated Rho. “A lot of women are very busy and don’t have much time for makeup, but there’s huge demand to have flawless, healthy, glowing skin. So we developed this all-in-one product [which] has been very successful [and] has contributed to Amorepacific’s growth.”

Cumulative gross sales of the cushion compact — now accessible in over 19 totally different kinds throughout greater than a dozen Amorepacific manufacturers — reached 100 million models in 2016, when one was offered each 1.2 seconds.

Unsurprisingly, formidable opponents need in. L’Oréal’s Lancôme was the primary Western model to comply with go well with, launching its personal model a 12 months later. Manufacturers resembling Shiseido’s Nars have additionally launched a model of the product. In the meantime, the cosmetics large has needed to battle in opposition to counterfeit variations of its in style cosmetics, a lot of that are offered on Chinese language on-line procuring websites.

Each market observers and native media have questioned how a lot the lack of the patent would damage its place as a pacesetter within the world cushion compact market. The Korea Instances’ Park Jae-Hyuk wrote that Amoreapacfic’s “supremacy” was “at stake,” as a rising variety of shoppers have complained about poor-quality merchandise, a lot of which may very well be imitations.

“In recent years we have seen many other brands introduce their own version of the cushion foundation. That means increased competition for Amorepacific, but it’s recognition that we are not just a brand that produces what’s already on the market. We are the ones who look for innovative ideas and [act as] a benchmark for others,” commented Rho. As for its patent, she stated: “The lawsuit is not finished. It’s an ongoing battle.”

The Subsequent Large Cushion-Compact Concept

But, as competitors intensifies, some consultants imagine there are many alternatives for the South Korean firm. “One of Amorepacific’s key success factors has been its continuous focus on innovation, with the cushion being a great example. Within a few years, it expanded from a foundation to new formats, triggering a true global ‘cushion craze,’” stated Jun Lee, senior magnificence and private care analyst at Mintel, additionally citing its sleeping masks and boosting essences.

Whereas Ok-beauty has usually been celebrated for its skincare providing, Lee stated that the expansion fee for color cosmetics “is much higher” and “there’s plenty of space for colour cosmetics to lead [Amorepacific’s] growth in the future.” She suggested that the agency would do properly to develop its make-up vary for the reason that Korean cosmetics market is rising steadily. “We expect the facial care market to grow 3.5 percent in 2019, but sales of colour cosmetics are expected to grow 7.4 percent.”

In the end, Rho believes that it’ll come all the way down to growing the proper merchandise on the proper time, as a result of “trends in Korea change fast,” she stated. “It’s a very dynamic market [but] one consistent trend we’ve observed is the demand for personalisation and customisation.”

Along with the launch of a brand new customised face masks — Amorepacific has developed a first-of-its-kind masks answer that options serums and substances personalised for each buyer — the conglomerate additionally has new cosmetics merchandise within the pipeline, resembling an improved two-tone lipstick.

Since its launch, some three.7 million models of two-tone lipsticks have been offered worldwide. Following this success, Amorepacific is rolling out a two-tone lip bar, which it first launched by way of its model Laneige at one in every of its flagship shops in Seoul late final 12 months. Prospects are in a position to create personalised dual-shade lipsticks in retailer by mixing and matching two colors out of 700 color combos with the steering of magnificence specialists.

“R&D and innovation is what Amorepacific has always been good at,” stated Lisa Hong, senior analysis analyst at Euromonitor. Nonetheless, she warned that extra innovation may also come from different Korean producers. “Yuhan Corp recently signed [a deal] with New Zealand deer milk provider Pamu to develop deer milk skincare in 2019,” she stated, including that world competitors from retailers like Sephora, which is able to launch in Seoul within the fourth quarter of 2019, stays fierce.

In the meantime, e-commerce, which accounts for under 7 % of Amorepacific’s gross sales, is one other key alternative for progress. In spite of everything, the Korean market is likely one of the world’s most digitally savvy, with an unimaginable 99.2 % web penetration fee and the quickest web velocity on the planet. Rho acknowledged that “the internet and new technology is transforming the beauty industry,” however “successfully navigating this digital transformation is a challenge.”

Regardless of the sweetness large’s varied challenges, Liz Flora, editor of APAC analysis at Gartner L2, has religion in its capability to stave off the competitors. “In terms of digital competence, Amorepacific brands are [already] the [leaders] in the Korean market among both major K-beauty and international brands,” she stated, noting Amorepacific’s personal direct-to-consumer e-commerce platform Apmall.

“[Among its competitors] more than half of non-Korean brands rely on external online retailers that are less effective [than Amorepacific’s].”

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