K-Beauty Big 2 Suffer 60 Billion Won Loss Amid COVID-19 Fear

Amore's Q1 Operating Profit Estimate Drops by 51.3 Billion Won in One Month

LG Household & Health Care Forecasted to Decrease by 11 Billion Won... Due to Lower Proportion of Operating Profit from China and Duty-Free Sales

[Asia Economy Reporter Jo Yujin] Leading K-beauty companies AmorePacific and LG Household & Health Care are estimated to face losses amounting to hundreds of billions of won in the first quarter of this year due to the spread of the novel coronavirus infection (COVID-19). Consumption in their main market, China, has sharply declined, and with more countries banning travel to Korea, duty-free sales are also expected to experience prolonged decreases in revenue.

According to the cosmetics industry and financial information firm FnGuide on the 9th, the consolidated operating profit estimate for AmorePacific in Q1 this year is 160.5 billion won, which is 51.3 billion won (-24.2%) less than the estimate of 211.8 billion won on February 5, before the COVID-19 outbreak escalated. During the same period, LG Household & Health Care's operating profit is estimated to decrease by 11 billion won (-3.3%) to 326.3 billion won.

The operating profit losses for these companies are due to a drop in demand caused by COVID-19. Demand has sharply declined as the cosmetics and duty-free sectors, their main revenue sources, have been directly hit by the pandemic. AmorePacific's five major mega brands operating offline stores in China (Sulwhasoo, Laneige, Mamonde, Etude House) are struggling significantly due to the impact of COVID-19.

AmorePacific has not disclosed the number of stores suspended in China, but it is reported that out of approximately 1,800 stores (including road shops and department stores) in China last month, 1,600 to 1,700 stores were unable to operate normally. Not only the decrease in demand but also the halt in offline restructuring efforts such as store reorganization is expected to negatively affect profit improvement efforts.

An AmorePacific representative stated, "It is difficult to accurately determine the number of stores operating normally in China," adding, "We are currently monitoring the overall situation in China."

LG Household & Health Care is also inevitably facing sales declines as its offline channels in China, duty-free, and domestic markets fall under the influence of COVID-19. Among these, the duty-free channel, which contributes the most to profits, is the most concerning. As of last month, the number of foreign visitors to Korea decreased by around 40% compared to the previous year, causing duty-free sales to continue to slump. AmorePacific generates about 28% of its total sales through duty-free stores. LG Household & Health Care's duty-free sales are estimated to decrease by 60% in Q1 and 40% in Q2.

However, LG Household & Health Care does not operate its own offline stores in China and focuses on online sales channels, so the impact is expected to be less severe compared to AmorePacific. An LG Household & Health Care representative said, "We are diversifying risks through three business structures: cosmetics, daily necessities, and beverage businesses," adding, "This year, we plan to expand business to overseas markets outside China, such as the U.S. and Europe, and diversify our markets."

The cosmetics industry expects sales declines to continue until May due to the reduction of foreign visitors to Korea, including from China. The proportion of sales in the Asia region accounts for about 36% of total sales for AmorePacific and 16% for LG Household & Health Care, with most of the Asian sales coming from China.

According to the Ministry of Foreign Affairs, a total of 102 countries have currently imposed entry restrictions or bans on Koreans. Among them, 43 countries have banned entry for Koreans, 15 countries have imposed quarantine measures, and 44 countries have strengthened quarantine to the extent that visits are practically difficult. In the worst-case scenario, there are concerns that the growth momentum of K-beauty could be halted.

A beauty industry official said, "Until the end of COVID-19 becomes visible, the decrease in foreign visitors to Korea will continue, making sales recovery difficult."

This content was produced with the assistance of AI translation services.