LG H&H and Amorepacific: How Korea‘s two largest beauty giants swapped places during pandemic

For several decades, South Korea’s cosmetics industry has been dominated by two major players -- Amorepacific and LG Household & Health Care, together accounting for over 60 percent of the market as of end-2019.

As the LG affiliate possessed a more diverse portfolio, also covering daily necessities such as toothpaste and detergent, beauty-dedicated powerhouse Amorepacific had an upper hand over its rival in the cosmetics sector.

But this is no longer the case, as runner-up LG has at last overtaken its rival on the back of its sales strategy in the expanding Chinese market, especially during the COVID-19 pandemic.

Last year, LG H&H posted over 7.8 trillion won in sales and 1.2 trillion won in operating profit, enjoying 2.1 percent and 3.8 percent on-year growth, respectively.

Of the total, which marked the highest annual results to date, it also achieved the No. 1 position in the domestic beauty industry, where it posted 5.6 trillion won in sales and 965 billion won in operating profit.

The figures, which were announced in a tentative earnings report late last month, showed the consumer goods giant managed to defy the coronavirus doom and gloom while others suffered a heavy blow.

Able C&C, the company behind high street cosmetics brand Missha, saw its sales drop by 29 percent compared to a year ago in the third quarter last year.

Aekyung Industry also suffered a similar blow from the pandemic, with its operating profit down 45 percent during the same period.

Last year was challenging even for longtime champion Amorepacific, as sales dropped by 21 percent to 4.3 trillion won and operating profit further plunged by 67 percent to 143 billion won, its annual earnings report revealed last week.

Its domestic business suffered a 23 percent year-on-year drop in sales while its overseas business was down 16 percent, the company said.

The key distinguishing factors between Amorepacific and LG H&H, according to industry watchers, were their business portfolio diversity and dependence on physical stores.

For LG H&H, its wide product spread -- which once seemed to be a weakness in its beauty market efforts -- served as a risk-hedging factor during times of crisis.

Amorepacific, on the other hand, suffered more from the reduced number of foreign tourists here amid travel bans, though online sales jumped by more than 50 percent on-year..

A total of 661 Amorepacific brand stores closed between late 2018 and August last year, according to data from the Fair Trade Commission.

In China, however, both companies saw their higher-end skin care brands such as Whoo and Sulwhasoo fare well.

“Continuous investment in digital channels in China has led to growth, yielding a great result despite the situation surrounding COVID-19,” an official at LG H&H told The Korea Herald.

“Sales from six of our luxury brands during Singles’ Day, which is the largest shopping event in China, saw a 174 percent year-on-year increase, racking up biggest sales to date. Whoo in particular saw a 181 percent on-year increase, finishing third following global brands Estee Lauder and Lancome,” the official added.

Amorepacific also prolonged growth in the Chinese market, thanks to its luxury skin care-focused brand Sulwhasoo sold through e-commerce channels.

The synergy of the premium brand and expanded e-sale channels was what partly offset the dip in lower-end brands such as Innisfree, Yuanta Securities analyst Park Eun-jung said in a recent report.

Placing emphasis on such strengths, stock market observers raised their stock target price for Amorepacific by double digits. According to financial industry tracker FN Guide on Wednesday, the 18 major brokerages here set the target price at an average of 264,000 won, up 19.58 percent from the previous figure and up 17.33 percent from the previous day’s closing.

Park Eun-kyung, a Samsung Securities analyst, suggested that Amorepacific’s digitalization efforts could lead to a recovery in global market share. But she also added that the COVID-19 uncertainties and the growing competition in China could act as downside risks along the way.

Meanwhile, Amorepacific has recently vowed to raise the proportion of e-commerce sales by over 30 percent, as part of its move to boost its annual sales to 5.6 trillion won or more this year and thus to reclaim its market lead.

By Yim Hyun-su (hyunsu@heraldcorp.com)