K-Beauty's 10-year golden age is fading away. C-Beauty (Chinese beauty products) is taking over international markets.
The real economy of Seoul, South Korea has been battered by the coronavirus pandemic which has caused a huge loss of tourists, according to a recent CCTV Finance report. The South Korean beauty industry has witnessed an unprecedented level of Damage with numerous single-brand beauty stores the target of the mass shut down. In the well-known business area of Ewha Womans University in Seoul nearly 10 beauty stores of various sizes along the 300-meter-long street have closed. Even the unclosed stores have "discount" signs on the doors and windows.
The latest data reveals that the number of beauty stores of small and midsized brands in South Korea has fallen sharply since last year. The beauty stores under Amore Pacific, South Korea's largest cosmetics group, have been cut by more than 30 percent from a year earlier. Shu Uemura, a subsidiary of the L'Oréal Group, announced recently a withdrawal from the Korean market at the end of this year, and its products will be only available at Korean duty-free shops. A K-Beauty distributor told Cosmetic Business Online (CBO) that K-Beauty is also not faring well in South Korea, which is mainly due to the absence of Chinese tourists. In the Chinese market, however, in response to the decline of K-Beauty some Korean cosmetic distributors have changed their business approach and have begun to seize the momentum of "Chinese Products Going Overseas" to selling Chinese beauty products to Koreans.
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Depression in the streets of Seoul, South Korea
The epidemic hastens the closure of beauty storesThe "road shops" in South Korea are primarily oriented at young people. Those road shops specializing in beauty products are concentrated in business centers of Seoul, like Myeong-dong where young people and foreign tourists gather. Compared with the high prices of department stores, road shops attract the masses by offering young and lively products at affordable prices. Since the Korean Wave swept Asia Korean beauty brands have continued to capture the markets overseas thanks to the effect of K-Pop Stars, while the influence of such "Oppas" and "Unnies" has also benefited road shops in Myeong-dong and Inha. As an important pillar of South Korea's beauty brand business, the road shops have also witnessed the golden decade of K-Beauty. However, it is undeniable that as K-Beauty is suffering a setback in the Chinese market, these road shops are also experiencing a cold winter.Since 2017 single-brand stores of many well-known Korean beauty brands, such as Skin Food and The Face Shop, have withdrawn from China. Even Innisfree under Amore Pacific, which had the most single-brand stores in China, has closed 264 stores since 2019. ETUDE HOUSE, owner of 275 stores in China in 2019, currently has only 164 stores according to its website. In South Korea, on the one hand, the epidemic leads to a plummet in both the number of tourists to South Korea and also the number of local pedestrians; on the other hand, in order to offset the sharp decline in face-to-face sales, most businesses have begun to shift their business focus to online platforms. Both of these factors have caused the situation for the Korean road shops to worsen. During the epidemic in 2020 the number of physical stores of Korean cosmetics brands, such as Nature Republic, Skin Food, Tony Moly and Innisfree decreased significantly, according to an earlier report by The Korea Herald. The data released by the Korea Fair Trade Commission shows that Missha, a popular brand, shut down 164 street shops last year and closed 30 additional suppliers from January to March of this year. An official of Nature Republic said "Due to the decrease in foreign tourists since March of last year we have closed almost all other stores in Myeong-dong." It is reported that the sales of Nature Republic in the first three quarters of last year totaled 109 billion Korean won (approximately 635 million Chinese yuan), down nearly 24 percent from a year earlier. Other brands with a large number of road shops, such as Skin Food and Tony Moly, are facing a similar fate."Demand for cosmetics has fallen sharply as wearing masks has become increasingly common, which has also hit companies such as Clio and AK Industries that rely heavily on duty-free and bricks-and-mortar stores," said Park Jong-dae, an analyst of Hana Financial Investment. An employee of Amore Pacific said: "In response to the dilemma facing the entire industry and the challenges for our company in the context of COVID-19, the number of stores has kept declining.".
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K-Beauty ends the Golden Decade in the Chinese market
Are China's cutting-edge brands ushering in new opportunities to go overseas?An East China distributor said in an interview with Cosmetic Business Online that in the past K-Beauty products usually went viral with the hit of Korean dramas, but after the release of Korea Limitation Order the influence of Korean dramas and Korean variety shows has declined. "Moreover, the popular K-Beauty brands are mainly characterized as 'fast fashion', under which popular products can be eliminated quickly." As early as 2017 Reuters reported that K-Beauty research and development cycle of Korean beauty products was shortened to 4 months in 2016, while the beauty brands in the rest of the world usually spent more than 1 year on the research and development. Innisfree at one time launched more than 400 new beauty products, about half of which were removed from the shelf after a year. The Face Shop under LG H&H also announced the launch of 600 new products within a year. Like most brands in the fast fashion industry, these Korean popular brands are ebbing and flowing in the market as they continue to launch new and hot products. They save time on R&D and they splurge on marketing. Due to many factors, K-Beauty's golden age is coming to a close with the rapid ebb of the Korean Wave in China. By contrast, the cultural self-confidence has become popular in China in recent years, with young consumers increasingly recognizing superior domestic products and national trends. With this Chinese national trend C-Beauty is starting an overseas journey for fortune. "Chinese beauty products have been gradually favored by consumers in Japan and South Korea because of market demand," said an distributor to Cosmetic Business Online (CBO). The channel-based price control of Korean cosmetics is very poor; the price of the same product and the name of the product on the shelves can vary with the channels. More importantly, with the rise of the quality and appearance of Chinese domestic products many Chinese distributors have given up being a distributor of Korean cosmetics and turned to export of domestic products. Earlier this year four cutting-edge domestic cosmetics brands, led by Focallure and Girlcult, made their debut in Japan. It is reported that Lifestyle Company, a Japanese cosmetics retailer, has signed a general distribution contract with the aforementioned brands. According to Lifestyle Company, the epidemic has forced consumers to wear masks for a long period of time, causing the Japanese cosmetics market to fall into a downturn. The demand for eye makeup remains high; Chinese cosmetics brands feature rich colors with obvious differentiated positioning, exquisite product design, and high performance-cost ratio. Just recently Reverse Daigou (reverse personal shopping) has emerged on many social platforms, and some Chinese domestic beauty products have become the products sought after by overseas consumers.A distributor in Northwest China said that domestic cosmetics have severely squeezed the living space of K-Beauty as a whole. In terms of skin care only Whoo and Sulwhasoo are performing well. There are also distributors of Korean cosmetics who believe that as Korean brands emphasize natural skin care concepts and are affordable and innovative, they can still cater to and lead the market trend. The unique ingredients used in Korean beauty products include snail mucus, bee venom, starfish extract and pig collagen, etc. This may be a reminder for Chinese domestic brands that intend to go overseas. The core competitiveness of products and brands will eventually be stripped of the cultural coat layer by layer. Only with strong R&D and creative capabilities can a Chinese brand go abroad genuinely.
