Three years ago, Suh Kyung-bae was the second wealthiest individual in South Korea. It’s barely Top 10 today, a sharp reversal of the K-beauty bubble notorious for minting billionaires, not breaking them.
Suh’s $3.6 billion fortune—down from nearly $8 billion in 2017—is mostly made up of investments in his family’s cosmetics conglomerate, the Amorepacific Group, which plunged more than 40% from the mid-January peak. Parents of brands like Innisfree, Laniege and Sulwhasoo, Amorepacific were suffering long before Covid 19. The pandemic has led to several lifestyle changes that have made makeup less critical to women’s everyday routines.
This brought an end to the riches generated by the rapid growth in Korean beauty products’ popularity and the flurry of deal-making that resulted. From 2010 to 2014, international companies invested at least $215 million on the purchase of cosmetics firms there, according to a September study by Samjong KPMG. In the five years that followed, the nation became the world’s fourth-largest exporter of beauty goods, and the deal value rose to $5 billion, not counting deals for undisclosed amounts.
Estee Lauder Cos, guy. Have & Be Co., well known for its Dr Jart+ product, made its first purchase of an Asian beauty brand in November 2019. The $1.1 billion transactions transformed founder ChinWook Lee into a billionaire. Goldman Sachs Group Inc. has purchased a controlling stake in GP Club Co., better known for face masks, making founder Kim Jung-wrong one of the world’s wealthiest people. Unilever Plc, L’Oreal SA and other global corporations also interested in Korean cosmetics companies, creating significant windfalls for their owners.
Yet the pandemic has struck K-beauty twice. Social isolation and remote jobs also decreased demand for makeup and contributed to the closing of shops. According to Mintel market research company, beauty retail sales in the U.S., the No. 3 regions for Korean exports, will plunge by more than 7% in 2020.
In Korea, coronavirus travel prohibitions have cut off the influx of large-scale Chinese visitors and individual traders who purchase and tax-free export goods back home. Meanwhile, Chinese consumers have more access to multinational brands and are particularly interested in locally manufactured products.
Now it’s naive to believe that made-in-Korea cosmetic products will win over Chinese consumers,” said Lina Oh, a Seoul-based analyst at Ebest Investment & Securities Co. Neither Have & Be nor the GP Club published financial details for 2020; the GP Club’s initial public offering proposal for 2019 has not been rescheduled.
For Amorepacific, combined sales for the first nine months of the year declined by 23 per cent to 3.7 trillion won ($3.4 billion) from the same period in 2019, according to the company filing. For the first time in its history, last month, the company revealed a decision to provide early retirement to workers who have served for more than 15 years. The organisation refused to comment on its plans or Suh’s fortune.
Around the same time, the pandemic has driven the change to the online beauty industry. Amorepacific’s sales for the division has seen considerable improvement, which has gone Amorepacific to focus that part of the market. Cosmetics giant L’Oreal, whose revenue declined by 12 per cent in the first half of 2020, launched 300 streaming channels this year, including live makeup tutorials.
Amorepacific aims to decrease the number of Innisfree stores in China but anticipates that total digital revenue will make up half of its market there next year, according to Yuanta Securities Korea. In the domestic market, the company saw a 30 per cent rise in its share of online sales from 20 per cent.
Spending on cosmetics was already down for Covid,” said Hye-mi Kim, an analyst at Cape Investment & Securities Co. in Seoul. “Covid found it all the less necessary. Just must-have things like skincare products or those with facial disorders are all right.