[Exclusive] The Harsh Reality of K-Beauty Hit by COVID-19 'Restructuring Storm'... TonyMoly Cuts Workforce by 20%

TONYMOLY Begins Workforce Restructuring... All Probationary Employees Laid Off
Amorepacific and Others Accelerate Store Closures... Focus on Online
K-Beauty Status Declines... Exports Turn Down After 10 Months

[Asia Economy Reporter Lee Seon-ae] K-Beauty (Korean cosmetics wave), which had been thriving and gaining attention in the global market, is now faltering due to the COVID-19 pandemic. The road shop industry, which led the K-Beauty boom, is undergoing intense restructuring, including workforce reductions and store closures, due to management difficulties. With overlapping internal and external adversities, K-Beauty exports have also turned downward after 10 months of growth.

According to industry sources on the 12th, Tony Moly is currently planning to reduce its workforce by 20% and is conducting personnel restructuring. The company is notifying employees of the 20% reduction plan through individual consultations, mainly within certain business divisions, and proceeding with restructuring.

Currently, the marketing manager is on standby, and several team leaders responsible for business operations have resigned. Tony Moly sets probation periods for employees by business division, and it has decided not to convert any employees whose probation periods have ended into regular positions, effectively letting them go. An internal Tony Moly source cautiously revealed, "The company has not officially announced the personnel restructuring and is careful about information leaking," adding, "But it is true that restructuring is underway with a goal of a 20% workforce reduction." The source also shared the internal atmosphere, saying, "While reducing headquarters staff to control costs, there is dissatisfaction that these savings might be invested in subsidiaries."

Tony Moly plans to establish a subsidiary, Tony Investment, and enter the new technology finance business. The goal is to obtain approval from financial authorities within the first half of the year. Tony Investment's initial capital is 200 million KRW, and Tony Moly plans to increase this capital soon. According to the Specialized Credit Finance Business Act, a new technology finance company must have a capital of at least 10 billion KRW to register. Tony Moly's entry into the new technology finance sector is part of its business diversification, with the main investment targets being venture companies in the health and beauty fields.

Tony Moly officially denied the workforce reduction, stating, "There are personnel transfers related to the new business division," but another internal source emphasized, "Several team leaders are planning to leave, but the company officially denies layoffs because not all employees are subject to restructuring."

Industry insiders report that many small and medium-sized brands, besides Tony Moly, are quietly conducting workforce reductions. An industry official said, "Although it is not attracting attention because it is not targeting all employees, many are reducing staff," adding, "Compared to last year, the reduction in road shop personnel will be clearly evident."

Store closures are also actively taking place. AmorePacific Group is accelerating the closure of Innisfree stores, planning to close about 90 stores both domestically and in China. Aritaum will close 10 directly operated stores this year and focus on online sales. Aritaum has reduced over 370 stores in the past four years. Etude also closed stores and shifted its sales strategy to focus on health and beauty (H&B) stores like competitor Olive Young. Earlier this year, AmorePacific Group faced controversy for effectively conducting voluntary retirements targeting low performers and senior employees. However, the group denied that these were voluntary retirements, stating that no voluntary retirement was accepted and that retirement bonuses were paid following performance interviews. Recently, the HR team has been conducting interviews. A large-scale personnel reshuffle is expected as the company plans to eliminate product managers (PM) and operate solely under brand managers (BM).

It's Hanbul also conducted voluntary retirements. Able C&C is closing inefficient stores and focusing on the curated shop 'Nunk,' while Clio is steadily promoting the transition from offline to online.

A view of Myeongdong street, where cosmetic road shops are concentrated.

The domestic cosmetics road shop market peaked at 2.81 trillion KRW in 2016 but has been declining, shrinking to 1.7 trillion KRW last year. The market size is expected to shrink further this year. Consequently, the status of K-Beauty is no longer what it used to be. In fact, K-Beauty exports have also declined due to the impact of COVID-19. According to the Korea Trade Statistics Promotion Institute, the provisional export value of cosmetics last month was 440 million USD (about 537.2 billion KRW), down 3% compared to the same month last year. This marks the end of a 10-month growth streak in cosmetics exports.

Considering that March saw the highest-ever cosmetics export volume, this is a disappointing result. The decline was largely influenced by a downturn in cosmetics exports to China. Cosmetics exports to China were 210 million USD (about 256 billion KRW), down slightly by 2%, and exports to Hong Kong dropped by 30%. Exports to the United States also decreased by 5.9%.

On the 12th, the Myeongdong street in Jung-gu, Seoul, where cosmetic stores are concentrated, is seen looking quiet. Photo by Jinhyung Kang aymsdream@

An industry insider said, "Due to the COVID-19 situation, first-quarter sales dropped by up to 50%, putting the road shop industry in a survival crisis, and recovery in the second quarter seems unlikely," emphasizing, "This year will be a major turning point for the road shop industry, and by the end of the year, the size of road shops will have significantly shrunk."

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