[KH Explains] How CJ Olive Young became rare success story in beauty retail

CJ Group's health and beauty drugstore CJ Olive Young is making significant strides in leading the cosmetics market both domestically and internationally.

Just last week, during MLB's World Tour: Seoul series, a photo capturing MLB players' families posing in front of an Olive Young store surfaced online, generating a social media buzz. The image once again showed Olive Young's position as a go-to destination for purchasing Korean beauty products while visiting Korea, cementing its global appeal.

"Cosmetic brands consider showcasing their products on Olive Young's shelves as the best opportunity, regardless of profit margins," a local cosmetics developer said. "Once a lesser-known brand gets selected by an Olive Young merchandise director, it swiftly gains industry recognition, not only within Korea but also globally. Brands experience increased demand for promotional campaigns, with influencers engaging in review videos, mentioning their purchases from Olive Young."

Last year, CJ Olive Young reported 3.86 trillion won ($2.88 billion) in sales, a whopping 40 percent jump from a year prior. Its net profits also more than doubled from 140 billion won to 347.3 billion won over the past year. As of the third quarter of 2023, there were a total of 1,339 Olive Young stores nationwide.

The retailer’s sales even outpaced those of the nation’s top two beauty giants – Amorepacific and LG Healthcare & Beverage -- which posted 3.67 trillion won and 2.81 trillion won, respectively, during the same period.

Rare success story

Despite the growing popularity of “K-beauty” globally, Olive Young remains a rare success story after its overseas-based and local rivals have struggled to survive after years of pandemic disruptions.

Sephora, the cosmetics retailer under France’s LVMH Group, entered the Korean market in 2019 but recently announced its exit citing operational losses. Lohb’s and Lalavla, the drug store chains owned by retail giants Lotte Shopping and GS Retail, also made grand debuts by taking a cue from Olive Young’s success, but both failed to survive.

CJ Olive Young credits its success to the platform's adeptness in "curating products" and "exploring new and emerging brands," which aligns with its omnichannel acceleration strategy combining its powerful offline presence with online shopping malls.

"While we see a consistent increase in foreign visitors, we're also noticing broadening diversity, with guests expanding beyond Japanese and Southeast Asian demographics to include those from North America," a CJ Olive Young official said.

Within Korea, there are presently around 60 stores tailored to tourists, where foreign visitors can receive meticulous guidance, including promotions and price listings in various languages, alongside multilingual staff assistance.

"We take immense pride and responsibility in our platform as a K-beauty ambassador. It is particularly gratifying to witness the growth of local small and medium-sized Korean beauty brands and support their global expansion efforts," the official said, adding the firm is increasingly focusing on expanding its online network, which now connects customers from more than 150 countries.

Delayed IPO

Buoyed by its upbeat sales, CJ Olive Young had sought to make its stock market debut after securing some 400 billion won in funding from Glenwood Private Equity in 2021. But the plan has been suspended so far amid the downturn in the local stock market, hit by high-interest rates and deepening inflation.

More recently, its robust growth in sales is propelling rumors about the imminent resumption of related talks. But industry sources say the firm seems “in no hurry.”

“When a company considers going public, it typically aims to maximize its market value. But for CJ Olive Young, it is still growing, which means the peak time has to come,” said an investment banking analyst.

“From CJ Group’s perspective, it could seek a merger with the holding unit first in order to streamline the succession scheme for the third-generation heir,” he added.

Lee Sun-ho, the eldest son of CJ Group Chairman Lee Jae-hyun and the heir apparent to acquiring his father’s food and entertainment empire, owns 11.04 percent shares in CJ Olive Young. Considering the firm’s market cap is estimated at 4 to 5 trillion won, its constant growth and market debut may be closely linked to Lee’s succession scheme.