Despite Outdoor Mask Mandate Lift, Bleak Outlook for Amorepacific and LG Household & Health Care in Second Half

Dependence on China Sales at 50-70%, Local Consumer Sentiment Weakens
Duty-Free Store Sales Recovery from China Uncertain... Weak Yuan Also a Factor
Expansion and Diversification into North American and Other Overseas Markets... Effects Still Limited

[Asia Economy Reporter Moon Hyewon] As the outdoor mask mandate has been fully lifted, the cosmetics market is warming up, but the industry is still struggling to emerge from a prolonged recession. This is due to the continued sluggishness in the Chinese market and duty-free business.

According to financial information firm FnGuide on the 8th, Amorepacific's sales for the third quarter of this year are estimated at 1.0318 trillion KRW, and operating profit at 39.8 billion KRW, down 12.3% and 56.4% respectively compared to the same period last year.

During the same period, LG Household & Health Care is also expected to record sales of 1.9352 trillion KRW, a 3.7% decrease, and operating profit of 251.1 billion KRW, down 26.6%.

The gloomy performance outlook for these two major players in the domestic cosmetics industry is analyzed to be due to the continued 'zero-COVID' policy in China, where sales dependency remains high, which has dampened local consumer sentiment.

The Chinese government is currently maintaining its zero-COVID stance, implementing strong quarantine measures such as lockdowns in major cities. Additionally, global inflation caused by the Russia-Ukraine war and other factors has deepened the domestic economic downturn in China, significantly shrinking cosmetics consumption. According to the industry, the Chinese cosmetics market grew by 0.7% year-on-year in July but declined by 6.4% in August.

Moreover, the weakening yuan has reduced the purchasing power of Chinese daigou (personal shoppers). When the yuan depreciates, duty-free prices, which are based on the dollar, become more expensive, greatly reducing price competitiveness. On top of this, the ban on group tours to China due to the Korean Wave ban has hit duty-free sales hard, making the situation even worse.

Amorepacific and LG Household & Health Care enjoyed a boom in overseas business in the early 2010s when Chinese group tourists flooded in. According to the industry, the share of Chinese cosmetics sales accounts for about 70% and 50% of their total overseas sales, respectively. However, after the THAAD (Terminal High Altitude Area Defense) incident and the COVID-19 pandemic, their overseas business plummeted. Operating profit, which was 596.4 billion KRW in 2017, sharply dropped to 343.4 billion KRW last year.

To reduce their heavy reliance on China, which still accounts for a large portion of total sales, both companies are focusing on diversifying their overseas businesses in North America, Europe, Japan, and Southeast Asia. Their strategy is to compensate for the lost sales in China with revenue from other countries overseas. Especially in the U.S., which holds a significant share of the global beauty market, the two companies are expected to compete fiercely in the 'K-Beauty battle.'

Amorepacific, which established its U.S. subsidiary in 1986 and first entered the American market, is accelerating its North American market penetration after last year's hit of Laneige's 'Lip Sleeping Mask' in collaboration with BTS. Following the launch of its premium brand Sulwhasoo in high-end department stores in the U.S. and Canada, it is expanding stores mainly in Sephora locations in New York, LA, and San Francisco. Recently, it acquired the U.S. clean beauty brand Tata Harper to strengthen its position in the North American luxury skincare market.

LG Household & Health Care has also been seeking to expand its North American market since 2019 by acquiring The Avon Company, Physiogel, Boyinka, and The Cramsheep. LG Household & Health Care Vice Chairman Cha Seok-yong stated in this year's New Year's address, "To leap forward as a true global luxury beauty company, we must continue to expand our business in North America, the world's largest market and a trendsetter."

The full lifting of the outdoor mask mandate in Korea, which is restoring overall consumer sentiment in the domestic cosmetics market, is also seen as a positive factor. According to CJ Olive Young, as of the end of last month, domestic color cosmetics sales increased by more than 60% compared to the same period last year.

However, despite these efforts, industry insiders predict that it will take considerable time for the cosmetics industry's performance to rebound. An industry official said, "The North American market is still in its early stages, so it will take a significant amount of time before sales effects comparable to those in China appear," adding, "We can only hope that quarantine measures due to COVID-19 will be completely lifted not only in Korea but also in China, allowing the domestic market to reactivate as before."

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