The Harsh Winds of the Chinese Market... LG Household & Health Care Drives US Expansion

Overly Trusting China... Q4 Cosmetics Deficit
'China to Global, Premium to Functional' Shift
New Year's Address Mentions 'The History of Whoo' Entry into US Market
Short-Term Earnings Rebound Difficult... Positive Changes

LG Household & Health Care is targeting the U.S. market by promoting its luxury royal court cosmetics brand, ‘The History of Whoo.’ Although the company launched the ‘Cheongidan’ line of The History of Whoo in the Chinese market six months ago, the results fell short of expectations. As a new breakthrough, LG Household & Health Care has decided to focus on the U.S. market to expand its presence.

According to the cosmetics and securities industries on the 9th, LG Household & Health Care’s operating profit for the fourth quarter of last year is expected to be around 43 billion KRW. This figure is estimated based on securities reports submitted over the past month and is predicted to drop by 67% compared to the operating profit in the fourth quarter of 2022.

The cosmetics sector was the main factor dragging down operating profit. Industry insiders diagnose that the cosmetics division is likely to record an operating loss. This is because the company’s focus last year on the keywords ‘luxury’ and ‘China’ did not pay off. The company held a large-scale brand promotion event in the Chinese market in August last year, the first in over four years since 2019. It was an occasion to introduce the renewed The History of Whoo Cheongidan after 13 years, and China was chosen as the first country to regain consumer interest that had been gained in the Chinese market before COVID-19. 80-90% of sales in the Chinese market come from The History of Whoo.

However, as recession-type consumption spread in the Chinese market, the results did not meet expectations. Chinese consumers reduced their demand for expensive cosmetics and increasingly sought mid-priced domestic products, causing sales to China (including Chinese subsidiaries and duty-free) ? which accounted for more than 50% of cosmetics sales ? to shrink significantly. It is estimated that sales of the Chinese subsidiary in the fourth quarter of last year fell by more than 35% year-on-year. With a decline in sales from daigou (overseas purchasing agents), duty-free stores are also expected to see double-digit sales decreases. Additionally, when factoring in the costs of withdrawing Chinese stores of ‘Su:m37’ and ‘O Hui,’ luxury brands being developed to succeed The History of Whoo, profits are expected to worsen further. A beauty industry insider hinted, “It clearly shows that LG Household & Health Care had placed too much trust in China.”

In response, LG Household & Health Care is expected to focus more on the U.S. market. While it has expanded its footprint in the U.S. market mainly with functional products, this year it plans to compete with major global brands by introducing a luxury line that has never been launched before. Currently, LG Household & Health Care has introduced non-luxury lines such as ‘belif’ and ‘The Face Shop’ in the U.S. market. Recently, to reduce fixed costs, the U.S. subsidiary is in the process of selling the Puerto Rico business unit (8 billion KRW) of its direct sales subsidiary ‘The Avon’ and restructuring its workforce. This is a preparatory step to improve performance.

LG Household & Health Care's large-scale brand promotion event for The History of Whoo's 'Cheongidan' line last year featured Chinese celebrity Fan Chengcheng.

This direction is also confirmed in CEO Lee Jeong-ae’s New Year’s address. While last year’s address mentioned both the Chinese and U.S. markets and expressed plans to target both, this year was different. There was no mention of China at all, and the plan to introduce a luxury lineup in the U.S. market was specified by referring to a specific product, The History of Whoo. An LG Household & Health Care official explained, “We are not artificially lowering or reducing sales related to China, but as we focus on the U.S. and other markets, the sales proportion will naturally decrease. The History of Whoo targets major luxury global brands, while The Face Shop, which is currently selling well in the U.S., targets younger generations.” Regarding the luxury brands O Hui and Su:m37, which follow The History of Whoo, it is understood that rebranding work is still needed and they are not currently considered as materials for entering the U.S. market.

However, some point out that more patience is needed before LG Household & Health Care can bear fruit. This is because domestic, U.S., and Japanese sales are insufficient to compensate for the sluggishness in China. Eunjeong Park, a researcher at Hana Securities, noted, “As Chinese consumers continue to consider product functionality and price rationality, demand for China is expected to rebound only slightly,” adding, “Due to investments such as product rebranding, U.S. restructuring, and strengthening Japanese operations, overall profitability will decline.”

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