LG Household & Health Care and AmorePacific Struggle in 1Q Due to China Lockdown... "All-Out Effort for Market Diversification"

On the 4th of last month, a quarantine worker wearing protective clothing stood in the middle of an empty street in the locked-down area of Jing'an District, west of Shanghai, China. Shanghai, a mega-city with a population of 25 million known as China's "economic capital," has been under lockdown since March 28 to prevent the spread of COVID-19. Photo by Yonhap News

[Asia Economy Reporter Moon Hyewon] LG Household & Health Care and Amorepacific, the two giants of K-beauty, posted sluggish results in the first quarter of this year due to the resurgence of COVID-19 in China.

According to the industry on the 12th, LG Household & Health Care recorded sales of 1.645 trillion KRW in the first quarter. This is a 19% decrease compared to the same period last year (2.0367 trillion KRW). Operating profit plunged 53% to 175.6 billion KRW from 370.6 billion KRW in the same period last year. The decline in LG Household & Health Care’s performance was influenced by the contraction of the Chinese market due to the resurgence of COVID-19 and sluggish duty-free store sales, which heavily rely on ‘ttaigong’ (Korean term for Chinese traders who purchase Korean products at domestic duty-free shops and sell them in China).

The cosmetics business segment posted sales of 699.6 billion KRW, down 40% from 1.1585 trillion KRW in the same period last year, and operating profit dropped 73% to 69 billion KRW from 254.2 billion KRW.

A representative from LG Household & Health Care explained, "China’s implementation of controls for the Beijing Olympics preparations and the ‘Zero COVID’ policy caused the Chinese real economy to experience the worst situation in recent memory. Due to this situation, local business and duty-free channels in China were affected, leading to a significant decline in luxury cosmetics sales and profits."

Amorepacific Group also could not avoid poor performance. In the first quarter, Amorepacific Group’s sales amounted to 1.2628 trillion KRW, down 9% from 1.3875 trillion KRW in the same period last year. Operating profit was 171.2 billion KRW, a 13% decrease from 197.7 billion KRW in the first quarter last year.

In particular, overseas business sales and operating profit decreased by 6.1% and 19.5%, respectively, to 419.9 billion KRW and 42.1 billion KRW. Amorepacific’s dependence on the Chinese market reaches 70%, with Chinese sales dropping by about 10%.

These companies are closely monitoring local logistics paralysis caused by China’s lockdown orders and the contraction of the Chinese domestic market, while seeking breakthroughs in the North American market.

LG Household & Health Care plans to strengthen local marketing and sales capabilities by leveraging ‘The Cr?me Shop,’ a U.S. cosmetics company with which it recently signed a share acquisition agreement.

Amorepacific plans to focus on continuing growth in the North American market centered on Laneige and Sulwhasoo. Amorepacific’s North American sales in the first quarter reached 34.8 billion KRW, a 63% increase from 21.4 billion KRW in the same period last year. Amorepacific attributes this to the diversification of Laneige’s online sales channels and increased on- and offline sales of Sulwhasoo. Amorepacific has been putting effort into expanding its North American business, including launching the ‘Lip Sleeping Mask’ in collaboration with BTS (Bangtan Sonyeondan) in November last year.

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