Summary
- Korean large-cap cosmetics companies like LG Household & Health Care (051900:KS) and Amorepacific (090430:KS) faced weak stock trends due to declining duty-free sales, especially from Chinese tourists and Daigou shoppers.
- However, a closer examination reveals that there are winners within the sector. Aicel data highlights that shifts in consumer behavior and the rise of new retail channels, such as Olive Young, Daiso, and Coupang, contributed to the market’s reorganization and growth.
- Additionally, Aicel data shows a continued growth trend in cosmetics exports, indicating resilience despite the challenging domestic market.
- Investors can leverage Aicel data to closely monitor these market changes for strategic opportunities and to identify companies that are capitalizing on these opportunities in the Korean cosmetics sector.
Decline in Core Brands’ Performance Due to Decreased Duty-Free Shop Sales and Chinese Consumer Demand
The Korean cosmetics industry has been driven in recent years by overseas expansion through channels like duty-free shops, which are heavily reliant on Chinese tourists and Daigou shoppers. However, following the Covid outbreak, restrictions on international travel and shifts in Chinese consumer behavior appear to have significantly impacted these sales channels, as the data suggests:
Prestigious brands like LG Household & Health Care (051900:KS) and Amorepacific (090430:KS), which have long dominated the Korean cosmetics industry, are grappling with a significant decline in performance. This decline can be directly attributed to a drastic reduction in duty-free shop sales – a channel that these companies have traditionally relied on as a key growth driver According to recent earnings call, these companies reported a sharp decrease in cosmetics segment sales as the number of tourists and Daigou shoppers diminished drastically. As these brands depend on the duty-free channel and chinese sales volumes, the contraction has weighed heavily on their financials, reflected in the continued weak stock trends.
Steady Market Growth Amid Pandemic Challenges and Channel Reorganization
Despite the difficulties faced by some of the prestigious brands in the industry, the overall Korean cosmetics market has still demonstrated a remarkable degree of resilience. A significant factor driving this resilience has been the reorganization of sales channels. While traditional channels like duty-free shops have struggled, emerging platforms such as Olive Young, Daiso, and Coupang have witnessed substantial growth. These platforms have provided fertile ground for indie brands and smaller cosmetics players, contributing to the broader industry's expansion.
Data from Aicel Technologies reveals that while duty-free sales have plunged, exports of Korean cosmetics continue to grow, showcasing a rising global demand for Korean beauty products. This growth in exports offsets some of the challenges faced domestically and suggests that the sector remains attractive for long-term investment, particularly in brands that are agile and adaptable to these shifting dynamics.
Strategic Importance of Monitoring Market Changes
For investors in the Korean cosmetics sector, staying ahead of market changes is critical for optimizing returns. The decline in duty-free sales could have been anticipated by closely analyzing data on tourism flows and consumer behavior, allowing for a strategic shift toward brands thriving in alternative sales channels. Additionally, the growth in online and retail platforms such as Coupang and Olive Young underscores the importance of monitoring shifts in consumer purchasing behavior.
Investors who proactively adjust their strategies to account for these changes could benefit from the rise of indie brands and the expansion of global exports, capitalizing on the evolving trends in the industry.
Conclusion: Adapting to a Shifting Market Environment
The Korean cosmetics sector is undergoing a significant transformation, driven by the decline in duty-free sales and the rise of alternative retail channels. LG Household & Health Care (051900:KS) and Amorepacific (090430:KS) face short-term challenges due to their reliance on traditional sales avenues; however, the broader market remains resilient due to the expansion of indie brands and increasing export trends. All data in this analysis is sourced from Aicel Technologies, providing insights into the shifting dynamics of the Korean cosmetics market and enabling investors to make informed, timely decisions for optimized investment strategies.
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