Are Korean cosmetics losing their allure for Chinese consumers? - Warc

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Are Korean cosmetics losing their allure for Chinese consumers? - Warc

Are Korean cosmetics losing their allure for Chinese consumers? - Warc

Posted: 19 Jun 2019 04:05 PM PDT

Chinese consumers may be falling out of love with Korean beauty products, as local brands and Japanese products make in-roads into the sector.

Until recently, South Korea's so-called K-beauty products were the go-to brands for top quality skincare in a market forecast to be worth some $62bn by 2020, the South China Morning Post noted.

But the rate of growth of exports of South Korean cosmetics to China has slowed dramatically, rising just 20% to $1.3bn in the first nine months of 2018 – a far cry from the annual growth of 66% over the previous five years.

Meanwhile, home-grown brands such as Pechoin, with its use of traditional Chinese herbal ingredients, are on the rise, according to analysts. In fact, Pechoin was ranked China's most used skincare and make-up brand last year by research consultancy Kantar.

Data from research firm Gartner L2 indicates that 72% of Chinese beauty brands incorporated the tag "Made in China" into their profiles on online retailer Tmall last year, up 50% from 2017. The reason, says Gartner, is a growing sense of cultural pride among Chinese consumers.

And research carried out by Kantar and Tencent Holdings suggests 2019 could be the breakout year for Chinese beauty products: brands are "climbing the value chain, moving from producing low-cost items to high-end goods. Because of this, they're now seeing their client base increasingly overlap with those of international luxury beauty brands."

That survey, reported by Jing Daily, found that three out of four Chinese consumers had bought Chinese beauty products in the past six months, and for 50% of these consumers this was their first time buying a "C-beauty" product.

It's not just bigger brands, either, that are finding their market share growing. There is increasing appetite from consumers to try smaller, niche brands. According to China Insight Report, The New Face of Beauty in China, produced by Reuter Intelligence, 60% of consumers in Shanghai, Beijing and Guangzhou are "very curious" about trying small, specialised beauty brands, such as Diptyque, Jo Malone, AHAVA and BABOR.

And if none of these products work, there are always more drastic measures. Chinese consumers, like those elsewhere, are increasingly willing to resort to cosmetic surgery: domestic market is valued at $7.1 billion, with the number of new clinics opening in 2018 up by 10% on the previous year.

And, worryingly for many, clients are getting younger. The same report found that of the 22 million Chinese who went under the knife last year, those under the age of 28 made up 54% of the total. The reason for the trend, experts say, is the pressure of social media selfies.

Sourced from South China Morning Post, Jing Daily, Quartz; additional content by WARC staff

Lotte’s China woes a harbinger of South Korean exodus - Financial Times

Posted: 20 Jun 2019 02:49 AM PDT

Last year Lee Hak-jae, a Lotte executive, locked himself inside an office in China for two days as local staff gathered outside, demanding answers over compensation. Today, surrounded by confectionery and maps of south-east Asia in his Seoul office, he and his company look to a future outside China.

Lotte's experience is an increasingly common reality for South Korean businesses.

"I'm relieved I can now forget about the bitter experiences in China and move on to focus on new markets," Mr Lee, vice-president in charge of overseas business development at Lotte Mart, told the Financial Times.

Lotte's forced retreat from China is a warning of the dangers faced by foreign companies that draw Beijing's wrath. The retail giant — now targeting growth in Indonesia and Vietnam — is also a harbinger of a wave of Korean conglomerates quitting or reducing their reliance on one of the world's biggest markets.

"A lot of the companies that were massively optimistic about China three or four years ago, now more than half of them are talking about reducing their exposure, both as a market and a manufacturing base," said Peter Kim, an investment strategist with Mirae Asset Daewoo in Seoul.

Several large South Korean cosmetics and other retail groups have trimmed their Chinese operations or left the market over the past two years.

$1.7bn

Lotte Mart's losses in China in the 18 months from January 2017

Samsung Electronics this month confirmed production cuts at its last smartphone factory in China, having shut sites in Tianjin and Shenzhen in 2018. Last week, carmaker Kia said it would rent out one of its three Chinese plants, while its parent Hyundai was considering cutbacks.

Major manufacturing groups are trying to retain some production in China to meet local demand, but increasingly they are looking to build new capacity elsewhere.

Display maker LG Display and industrial giant Posco are among those to announce billions of dollars in new investments in Vietnam over the past year. South Korea is the country's largest foreign investor with registered capital of $62.5bn at the end of 2018, according to the Vietnamese government.

Companies, including Lotte's chemical division, are also building new facilities in the US, as a hedge against Washington's trade war with Beijing.

Analysts expect the trend to accelerate as the trade dispute drags further on Chinese growth. But the change also reflected the rise of Chinese competitiveness and Beijing's drive for domestic-led growth.

Lotte Mart was hit by boycotts in 2017 after China lashed out at South Korea for deploying a new US missile defence system. The company's retail operations ground to a standstill and later that year it announced its exit from the market.

The company reported losses from China of $1.7bn in the 18 months from January 2017.

However, while the 2017 boycotts were the final catalyst, Lotte, like many South Korean groups, had for years struggled to build a profitable business.

"Although sales in China were much bigger, we were actually suffering losses in 2016," Mr Lee said. "But our businesses in Vietnam and Indonesia are much more profitable and have higher growth potential."

South Korean companies attributed their challenges in China to rising labour costs, price competition and the burden of government regulation, but many also underestimated their local rivals, analysts said.

"The speed of Chinese companies catching up to global peers is the part that has surprised Korean companies the most," Mr Kim said.

Seok Gil Park, South Korea chief economist at JPMorgan, said a shift in policy from Beijing targeting inward-oriented growth could see Korea's role in the market further reduced.

"There will be less integrated foreign influence on that front," Mr Park said. "If China's fiscal stimulus is through domestic credit and real estate sectors, then Korea's role in that market will be smaller than before," Mr Park said.

China still accounts for more than a quarter of South Korea's exports and companies with products that cannot be easily substituted would continue to fare better. "For example, Korea's memory chips are now a key part of many industrial goods and have a competitive edge against the others," Mr Park said.

The moves raised questions over whether south-east Asia can match China's cheap and massive labour force and giant consumer class which have fuelled global growth for decades.

Mr Lee, the Lotte executive, said while the company encountered less "cultural resistance" in Indonesia and Vietnam, it was now pursuing a less aggressive, profit-focused strategy.

"We had in-depth discussions about which markets can replace China," he said. "But we learnt a lesson in China that growth in scale does not necessarily guarantee sustainable growth."

Growing demand fuels South Korea health care and cosmetics exports by 19.4 percent - GlobalCosmeticsNews

Posted: 20 Jun 2019 10:00 PM PDT

The South Korean Ministry of Health has announced a 19.4 percent growth in health care and cosmetics exports in 2018, amounting to USD $14.6 billion.

The growth was fuelled by rising demand for make-up products as well as drugs and medical equipment. According to the ministry, of this figure cosmetics accounted for $6.3 billion, with drugs standing at $4.7 billion and medical tools at $3.5 billion.

Cosmetics were said to have witnessed the biggest leap in percentage rise, jumping 26.5 percent, highlight the ongoing draw of K-beauty products worldwide.

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