[Asia Economy Reporter Yujin Cho] Amorepacific, whose operating profit was halved last year due to the novel coronavirus disease (COVID-19), is aiming for a turnaround through intensive business restructuring. Having significantly cleared the accumulated deficits from last year, the company plans to undertake a drastic transformation comparable to a complete overhaul this year.
According to the securities industry on the 15th, Amorepacific's operating profit last year is estimated to have decreased by more than half to 165.9 billion KRW compared to the previous year (427.8 billion KRW). This result was due to a large amount of one-time costs from restructuring. Amorepacific decided to temporarily reflect restructuring costs such as offline store closures (about 60 billion KRW) and voluntary retirement (about 50 billion KRW) in the fourth quarter.
An Amorepacific official said, "Last year, we accelerated the efficiency improvement of offline stores in domestic markets including China and the Americas by raising the store closure rate beyond the initial target, which led to less favorable growth."
Amorepacific plans to reduce the total number of Innisfree stores in China by closing 141 locations, bringing the year-end total down to 430, and will further close 170 unprofitable stores this year. The losses reflected from these store closures are expected to lead to profit improvement through fixed cost reduction starting this year.
The company is seeking a turnaround opportunity in overseas business and digital transformation. At the end of last year, in a regular personnel reshuffle, they appointed Vice President Seunghwan Kim as the new group CEO, bringing in young talent to key positions. They also separated Sulwhasoo and Laneige, which were previously under the luxury business division, into independent units directly under the president. The plan is to develop the Laneige brand as a second Sulwhasoo, targeting mainly the Chinese market.
To strengthen the China business, which drives performance, they appointed Calvin Wang, a former global cosmetics company executive and head of the China regional headquarters' strategy innovation unit, as head of the China e-commerce division. The company plans to use more than half of its total marketing budget to expand online channels and intends to increase this proportion further.
Additionally, they plan to support Cienu, launched last year. An Amorepacific official said, "Since Cienu, launched early last year targeting 100% China, faced the COVID-19 crisis immediately after its launch and did not show strong growth, we plan to promote the brand more widely this year."
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