China Consumer

Wave goodbye

Korea’s Innisfree scales down China operation


Jun: had hallyu moment in China

Six years ago when eagle-eyed fans in China spotted that actress Jun Ji-hyun’s character in the popular Korean drama My Love Who Came From The Star was wearing a hot pink lipstick made by the Korean cosmetics brand IOPE, the item quickly sold out online (IOPE did not have any physical stores in the country when the show aired in 2014).

“I waited for more than a week for it to come,” one diehard fan who bought the lipstick told the Global Times. “I paid Rmb150 ($24.3) for it. Now it is much more expensive on Taobao, since so many people are going after it.”

For Korean beauty giant AmorePacific, owner of IOPE, there’s a need for a lot more product placements to boost its business in China. Thanks to the regular introduction of new products and increased investment in online marketing, some of its brands like Sulwhasoo and Laneige have achieved strong growth. However, its biggest brand in China – Innisfree – has struggled to compete.

AmorePacific first started selling in China in 1993 but it only launched Innisfree in 2012. At the time hallyu, or ‘the Korea wave’, was riding high thanks to popular TV shows from Seoul. With its affordable price-point, the natural beauty brand quickly gained popularity as well. AmorePacific started opening stores at a rapid clip and business thrived: Innisfree’s sales rose from $123 million in 2011 to $672 million in 2016.

But by 2019, sales of the brand had fallen 8% compared with a year earlier to $483 million. Total operating profit also plunged 22% to less than $55 million. The beauty firm attributed the decline to the drop in sales both from Innisfree’s physical stores and duty free outlets.

“The Chinese market is important for us. Our revenue coming from China accounts for about 20% in total sales and this does not include money earned from the duty free sector. When we factor in sales from duty free shops, where our main customers are Chinese, our revenue coming from China could rise to as high as 40%,” AmorePacific told the Korea Times.

Innisfree’s weaker performance was partly linked to geopolitical tensions between China and South Korea following Seoul’s deployment of the US-built THAAD missile shield back in 2018. With various bans on Korean cultural imports including movie and TV series, “the Korea wave” began to subside. It also gave Chinese beauty brands in the midrange price segment an opportunity to grab market share.

Moreover, local rivals like Chando, Pechoin and Unifon have become increasingly savvy at courting consumers. Many poached Korean executives. Chando, for instance, was the bestselling skincare brand on Tmall’s Singles’ Day for three consecutive years. In make-up, domestic cosmetics brand Perfect Diary, too, has also been on the rise (see WiC476).

Mass-market ‘K-beauty’ brands like Innisfree were some of the biggest casualties. SKINFOOD, another budget Korean skincare and cosmetics brand, has shuttered most of its points of sales in the country (see WiC407). AmorePacific’s other lower-end cosmetics label Etude also saw its operating income sink to a 10-year low. The Face Shop, owned by LG, retreated from the China market in 2018.

Innisfree had over 600 retail stores in China at the beginning of 2019. In light of disappointing sales, it closed down 40 last year and plans to close at least 90 more this year, mostly in large cities. The total number of stores in China is expected to fall below 500.

But AmorePacific is not giving up. According to Jiemian, a news portal, it plans to increase its investment in online marketing for Innisfree and refocus on more localised product launches to cater to Chinese consumers.

The Korean firm has been looking for new growth drivers. To that end, since last September, AmorePacific has introduced three new brands, including the cosmetic label eSpoir, all-natural skincare brand Primera and its first men’s make-up brand Be Ready. It also launched the beauty retail chain Aritaum.

More recently, it inked a deal with e-commerce giant Alibaba. It will use the group’s product-development unit, Tmall Innovation Centre, to tailor its products and marketing strategies specifically to Chinese buyers, using Alibaba’s consumer data. It is also doubling down on the China market by building a new manufacturing plant in Shanghai.

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