Despite H&B Market Challenges... Olive Young Overcomes 'Corona Hardship' with O2O Strategy

H&B Shows Solo Growth
14 New Stores Added Since Early Year
Focus on Strengthening Online Marketing
Cosmetics Delivery Service 'Oneul Dream'
Gift Launch Sees 1.5x Order Increase in 1 Month

[Asia Economy Reporter Cha Min-young] Amidst a fierce competition in the domestic health and beauty (H&B) market, the leading company 'CJ Olive Young' is showing solo growth. Despite the major setback caused by the novel coronavirus disease (COVID-19), it has overcome offline sluggishness through differentiated online marketing and has even increased the number of its stores.

According to industry sources on the 8th, the number of Olive Young stores operated by CJ Olive Young currently stands at approximately 1,260 as of this date, up about 14 stores from the end of last year (1,246 stores). Although the pace has slowed compared to the aggressive expansion centered on directly managed stores from 2015 to 2017, the net increase trend continues. In this process, the gap with the 2nd and 3rd place competitors is also widening. GS Retail's 'Lalavla', ranked second, currently has about 140 stores, having closed 24 stores last year, and Lotte Shopping, which plans to close 30% of its underperforming stores this year, is planning to reduce some of its approximately 130 'LOHBs' stores.

Olive Young holds a dominant first place position in the market. According to market research firm Euromonitor, as of 2019, Olive Young's market share in the domestic H&B market was 86.1%, an increase of 3.0 percentage points compared to the same period the previous year. Lalavla accounted for 7.1%, LOHBs 5.9%, and Boots 0.3%, all of which decreased by 1.9, 0.2, and 0.4 percentage points respectively compared to the previous year. Performance is also on the rise. For CJ Olive Young, a non-listed company, the securities industry estimates that annual sales last year were about 1.96 trillion KRW, an increase of about 300 billion KRW from 1.66 trillion KRW in 2018. Operating profit during the same period nearly doubled from 49 billion KRW to 88 billion KRW.

In particular, it is positive that while offline store sales continue to decline due to the recent COVID-19 issue, the growth rate of online sales is steep. According to KTB Investment & Securities, Olive Young's online sales were 128 billion KRW in 2018, accounting for 7.7% of total sales, but rose to 208 billion KRW, or 10.6%, in 2019. Especially, sales jumped from 50 billion KRW in the third quarter of last year to 65 billion KRW in the fourth quarter.

Olive Young strengthened its online-to-offline (O2O) strategy by segmenting the delivery option of 'Oneul Dream,' Korea's first cosmetics instant delivery service, into three categories. As a result, in the first quarter, the number of orders and sales of 'Oneul Dream' surged by 205% and 183% respectively compared to the same period last year. By shifting the sales focus from offline stores to online and mobile platforms and offering a new service that delivers products within three hours after ordering, the synergy effect between online and offline channels was enhanced. In February, the company introduced a 'Gift' function on its official online mall and established a gift-curating service called 'Gift Hall.' The Gift Hall increased scalability by setting up themed halls for occasions such as White Day and other anniversaries. The online mall's gift service saw order volume increase by 1.5 times on a daily average within about a month of its launch. Demand for color makeup gifts such as lip products and eyeshadows was high.

Kim Han-i, a researcher at KTB Investment & Securities, said, "The increase in demand during the year-end gift season and the company's expanded marketing efforts led to a significant increase in sales in the fourth quarter, and it is estimated that the company recorded good results in the first quarter of this year as well, thanks to active marketing to offset the decline in offline sales."

An Olive Young official said, "Rather than an aggressive store expansion policy, we are focusing on strengthening internal capabilities such as marketing efficiency. We are enhancing marketing on the online side and are considering what strategies to adopt to appeal to customers amid the common challenge of COVID-19 in the distribution industry."