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Korea’s leading cosmetics companies posted disappointing earnings in the first quarter of this year as sales in China tanked.Amore Pacific’s operating profit halved, while LG Household and Healthcare also suffered a sharp drop in operating profit. Not only did raw material and distribution costs soar, sales in China failed to recover at the anticipated pace after lockdown was lifted. Chinese cosmetics companies grew up considerably in the coronavirus pandemic and fanned a preference for homegrown brands there. Amore Pacific’s first-quarter sales fell 20.1 percent on-year to W1.09 trillion, while operating profit plummeted 52.3 percent to W81.6 billion (US$1=W1,338).Domestic revenues plummet 24.6 percent due to lackluster sales in duty-free shops, while overseas sales fell 16.8 percent. Amore Pacific makes 60 percent of its annual sales from Korea and 40 percent from overseas. Sales did increase in department and high-street stores thanks to the lifting of mask mandates, but duty-free shop sales suffered double-digit declines.Asia sales, which account for 80 percent of total overseas sales, dropped 27 percent to W275.2 billion, with China taking a particularly hard hit with a 40 percent fall. However, sales in North America surged 80 percent and in Europe 90 percent thanks to aggressive brand marketing.
LG H&H’s sales rose 2.4 percent on-year in the first quarter to W1.68 trillion, but operating profit plunged 16.9 percent to W145.9 billion, affected by rising raw material and distribution costs, wages and fixed costs.Overseas sales, which account for 30 percent of revenues, fell 1.7 percent to W500.2 billion. Sales in China, which account for half of overseas sales, fell 14.1 percent and in Japan 18.3 percent.The poor performance extended to online sales. Foreign customers bought W140.7 billion worth of Korean cosmetics online in the January-March period, down 60.6 percent on-year as they went out shopping again.Cosmetics makers do not expect the rising preference for homegrown products among young Chinese consumers to wane and are taking steps to diversify products and boost online sales.Small and mid-sized Korean brands are foraying into new markets such as the Middle East. CJ Olive Young’s brand Wakemake began sales in the Middle East through online channels like Amazon in August last year while expanding into offline channels such as Sephora in January this year.Eye makeup is particularly in demand in the Middle East, where the rest of the face is often veiled.Another mid-sized cosmetics brand, Dear Dahlia, is setting up shops in 36 locations in the UAE, Qatar and Saudi Arabia in the first half of this year and will expand to Egypt, Kuwait and Bahrain in the second half. Kolmar Korea plans to start manufacturing a proprietary cosmetics brand in the UAE later this year.
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