Fast beauty: Korean cosmetics shine in China, draw investors

AmorePacific Holdings

04/08/2016 24:00

* South Korea is now No.2 cosmetics exporter to China 
    * Non-brand manufacturers reduce product development time 
    * Recent foreign investment in companies, others plan IPOs 
    * Investing in Korean firms convenient way into China 
 
    By Joyce Lee 
    SEOUL, Aug 4 (Reuters) - At an Innisfree cosmetics store in 
Seoul's popular Myeongdong shopping district, a saleswoman helps 
21-year-old Chinese tourist Yang Hui carry her shopping baskets 
to the pay desk in front of a large display showing K-Pop star 
Yoona. 
    "There's a lot to choose from," said Yang, confessing to 
having bought more than she'd planned from the store's range of 
around 900 products. 
    South Korea's top cosmetics company Amorepacific Group 
 002790.KS  launches some 400 new Innisfree branded products a 
year, about half of which are no longer available a year later. 
    It's one of dozens of Korean mass cosmetics brands with a 
short product development cycle - a "fast beauty" approach that 
is increasingly popular among Chinese and other Asian 
millennials, gaining exposure in the United States and Europe, 
and attracting high-profile foreign investment. 
    South Korea has become a hot-bed for applying to cosmetics 
the "fast fashion" principles of shifting designs quickly from 
catwalk to Main Street to capitalise on new trends. 
    Thousands of small cosmetics firms compete to get their new 
products to market, with third-party manufacturers cutting the 
time on testing and recipe alignment and providing the capacity 
for swift market launch.  
    Korean brands have cut product development cycles to as 
little as four months, compared to over a year for global 
brands, industry experts say. 
    "When we received an eyeshadow order from a major global 
client in 2004, it took us two years to begin production. Now it 
takes us one year from the word go," said Lim Dae-gyu, a 
director at Cosmax Inc  192820.KS , a cosmetics manufacturer 
with annual sales of close to $500 million. 
    "For South Korean mass brands, it takes less - just 4-6 
months from planning to market launch is average," Lim added. 
             
    WINNING FORMULA 
    South Korea last year overtook the United States and Japan 
to become the No. 2 cosmetics exporter to China after France. It 
shipped $1.1 billion worth of skincare creams, facial masks, 
compacts and other cosmetic products to the world's 
second-largest economy, according to the Ministry of Food and 
Drug Safety. 
    South Korea's total cosmetics exports were worth $2.59 
billion, up 44 percent from 2014, with Hong Kong and the United 
States its second- and third-biggest markets, a long way behind 
China. 
    Sales are boosted by South Korea's duty-free market - the 
world's biggest - which caters especially to big-spending 
Chinese tourists. Cosmetics accounted for nearly half of the 
country's record duty-free revenue of 5.8 trillion won ($5.1 
billion) in the first half of this year, customs data showed. 
    The trade is not without its downside. To counter unofficial 
re-sales, Korea's Customs Service is considering setting a 50 
product limit for duty-free buyers, a customs official said. 
Analysts say this could dent sales by smaller firms, but note 
that bigger companies already limit duty-free purchases to 
control store inventory.  
    "New ingredients, new packaging, new formulas come on the 
market continuously, and when something does well Korean brands 
respond quickly," said Jang Jun-kee, managing director of the 
Korea Cosmetics Foundation, an industry group. 
    Amorepacific's 2008 hit product, the cushion compact - a 
multifunctional sponge applicator for anything from liquid 
facial cover and sun protection to make-up base and moisturiser 
- inspired follow-up products from global brands such as 
L'Oreal's  OREP.PA  Lancome and Estee Lauder's  EL.N  Clinique. 
    Innovative, often cute, packaging also helps. 
    The Face Shop, a mass brand from South Korea's second-ranked 
cosmetics firm LG Household & Health Care  051900.KS , said last 
month it sold out of its initial 130,000 cushion compacts 
featuring Disney characters - costing 20,000 won ($17.82) - in 
just two days. It said it expects to launch about 600 new 
products this year. 
    Beyond popularising beauty trends such as facial cosmetic 
products "BB cream" and "CC cream", South Korea has a reputation 
for innovation and for using natural and Oriental medicine 
ingredients from flowers and tea leaves to donkey milk, snail 
and seahorse to differentiate its so-called K-beauty products. 
    "Korean consumers are very sophisticated. Their interest in 
beauty and expectations of cosmetics are high and they are 
willing to try new concepts," L'Oreal Korea said in emailed 
comments to Reuters. "It's a market where new trends emerge 
before potentially going global." 
     
    CHINA FOUNDATION 
    For foreign investors, buying into the Korean success story 
is a convenient way also into China, where locals can't get 
enough of Korean TV dramas and K-Pop music. 
    "We find beauty and media-entertainment sectors to be the 
most exciting (in Korea)," said Ravi Thakran, the chairman and 
managing partner at L Capital Asia, a unit of LVMH  LVMH.PA , 
which last month became a major shareholder in South Korean 
colour cosmetics brand CLIO.  urn:newsml:reuters.com:*:nL4N1A819W 
    "The popularity of Korean culture such as K-Pop, dramas and 
celebrities boosted significant demand for Korean beauty 
products in China and other Southeast Asian countries," he 
added. 
    Beyond China, Korean cosmetics have also moved into chains 
including LVMH's Sephora, Target  TGT.N  and Urban Outfitters 
 URBN.O , according to Korea's state-run trade agency KOTRA. 
    The LVMH unit's investment in CLIO came just weeks after 
Goldman Sachs  GS.N  and Bain Capital Private Equity said they 
were buying a majority stake in unlisted cosmetics maker Carver 
Korea Co Ltd.  urn:newsml:reuters.com:*:nL4N1A4069 
    ($1 = 1,107.9000 won) 
 
 (Reporting by Joyce Lee, with additional reporting by Nataly 
Pak; Editing by Ian Geoghegan) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA COSMETICS/