Q2 K-Beauty Performance 'Cloudy'... Will It Improve in the Second Half?

LG Household & Health Care Sees 27% Drop in Operating Profit
Amorepacific Faces Similar Challenges
Sales Slump Amid China's Economic Slowdown
Accelerating Export Market Diversification to North America, Japan, and Others

Amorepacific and LG Household & Health Care, the two giants of K-beauty, both received disappointing results for the second quarter of this year.

On the 27th, LG Household & Health Care announced that its operating profit for the second quarter of this year was 157.8 billion KRW, a 27.1% decrease compared to the same period last year. During the same period, sales dropped 3.0% to 1.8077 trillion KRW, and net profit fell 23.5% to 96.4 billion KRW.

In particular, sales in the beauty business division decreased by 8.5% to 780.5 billion KRW, and operating profit declined by 24.9% to 70 billion KRW.

The company explained that despite strong performance in domestic retail channels, sales declined due to delayed recovery in Chinese consumer demand. Sales in purely domestic retail channels such as department stores and H&B (Health & Beauty) stores increased, but duty-free sales dropped by double digits, resulting in a single-digit decline in Chinese sales. Operating profit decreased due to the slowdown in key channel performance and costs related to business efficiency improvements.

The situation was similar for Amorepacific, which announced its second-quarter results the day before. Amorepacific’s consolidated operating profit for Q2 this year was 5.9 billion KRW, turning to a profit compared to the same period last year, but the scale was far below market expectations of around 50 billion KRW.

The poor performance in duty-free channels and China had a significant impact. Although there were expectations that performance would improve with China’s reopening of economic activities, the return of Chinese daigou (informal cross-border shoppers) has not yet resumed, and consumer sentiment remains weak due to the economic downturn in China, making the outlook for the second half of the year bleak.

Amorepacific and LG Household & Health Care have historically shown high dependence on Chinese cosmetics sales, which accounted for around 70% of their total overseas sales.

However, during the COVID-19 period, they faced a series of adverse factors including a sharp decline in consumption within China, closures and suspensions of offline stores, and intensified competition in the Chinese cosmetics market, and they still seem unable to fully recover from these aftereffects. An industry insider said, “The recovery in the Chinese market in the first half of this year was slower than expected. Due to the economic downturn in China, consumer sentiment has weakened, and cosmetics inventory is not being depleted quickly.”

As a result, LG Household & Health Care implemented its first-ever voluntary retirement program last month and has effectively withdrawn from roadshop franchise businesses such as The Face Shop and Nature Collection. Amorepacific has virtually completed the withdrawal of Innisfree offline stores in China during the first half of this year.

Those turning away from China are focusing on diversifying markets such as North America, Japan, and Southeast Asia. Amorepacific recently concluded the ‘Amorepacific Festival,’ a large-scale promotional event targeting Japanese customers, while LG Household & Health Care opened a brand store within the US marketplace this year and has actively expanded its touchpoints with Amazon customers in North America by utilizing Amazon PPC (Pay Per Click) advertising and POST functions to increase exposure.

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