Turning Eyes to North America... K-Beauty Faces Challenges in the Second Quarter as Well

China lockdown and duty-free store downturn... US business impact still uncertain
LG Household & Health Care and Amorepacific sales expected to decline by 15% and 11%, respectively

[Asia Economy Reporter Moon Hyewon] Domestic cosmetics companies highly dependent on the Chinese market are expected to face poor performance again in the second quarter of this year. This is analyzed as the combined effect of sluggish duty-free store business due to COVID-19 and city lockdowns caused by China’s ‘Zero COVID’ policy.

According to financial information firm FnGuide on the 8th, LG Household & Health Care’s second-quarter sales are estimated to have decreased by 14.9% year-on-year to KRW 1.7198 trillion, and operating profit is expected to have dropped by 13% to KRW 79.1 billion. During the same period, Amorepacific’s sales are expected to have fallen by 11.2% to KRW 1.0454 trillion, and operating profit is forecasted to have declined by 48.1% to KRW 47.3 billion.

Experts in the securities industry evaluated that the poor performance of Chinese operations will lead to a significant decrease in the second-quarter results of domestic cosmetics companies. Sojeong Cho, a researcher at Kiwoom Securities, predicted, "LG Household & Health Care and Amorepacific are expected to have poor second-quarter results due to the sluggish Chinese cosmetics market." Hyunjin Park, a researcher at Shinhan Investment Corp., analyzed, "Although China’s lockdown has been lifted, personal quarantine measures are still strongly maintained, so offline store performance is not improving quickly. Negative news about China’s top influencers is also a major factor in the poor Chinese performance."

The cosmetics industry, which depends on China by as much as 70%, was hit hard as offline and duty-free channel consumption became virtually impossible due to movement restrictions and successive city lockdown orders during the COVID-19 pandemic.

LG Household & Health Care suffered a setback as it pursued a single-brand strategy relying only on ‘Whoo,’ a premium line, but domestic consumption shrank significantly due to China’s stringent quarantine guidelines. Amorepacific had to close more than 1,000 cosmetics stores in China.

In response, the cosmetics industry quickly turned its attention to the United States and Europe, actively leveraging the rising popularity of K-content such as BTS in North America. However, since the North American business is still in its early stages, it is considered too soon to see tangible effects.

LG Household & Health Care began its U.S. cosmetics business in 2019 by acquiring New Avon, followed by Physiogel and The Cr?me Shop. Its main brand Whoo, with a royal court concept, packaging, and fragrance targeting Chinese consumers, was judged difficult to push in the U.S. market. Clear results have yet to appear. The North American market entry is still in its early phase, and as of last year, sales accounted for only about 8%.

Amorepacific is expanding its business base mainly through multi-brand shops (MBS) channels and e-commerce, focusing on Sulwhasoo and Laneige, which have a high sales proportion in North America.

An industry insider said, "As China relaxes its quarantine policies and resumes economic activities, the cosmetics industry’s situation is expected to improve from the second half of the year," adding, "There is also a possibility that pent-up consumption will burst out due to the normalization of store operations in China."

China has recently shortened the quarantine period for overseas arrivals. Since mid-last month, some cities in China began reducing the quarantine period for overseas arrivals, and the National Health Commission recently announced new quarantine guidelines, shortening the quarantine period from the previous 14 days of facility quarantine plus 7 days of self-isolation to 7 days and 3 days, respectively.

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