[The Decline of Road Shops] Losing Ground to Online and Select Shops... "Need for Export and Channel Diversification"

China's THAAD Retaliation and COVID-19 Impact
Competition Weakened by Rise of Online H&B Stores and Select Shops
Seeking Recovery by Exploring Emerging Markets like Japan
Experts Say "Strengthening Online Presence and Brand Diversification Are Essential"

[Asia Economy Reporter Jeon Jinyoung] Where have the cosmetic road shops, the main players of ‘K-Beauty’ in the 2010s, gone? Road shops lost their footing as they were pushed out by China’s THAAD (Terminal High Altitude Area Defense) retaliation, the impact of COVID-19, and competition with health and beauty (H&B) stores in the form of multi-brand shops. Recently, the industry has been seeking new opportunities by targeting emerging markets to rebound their performance. Experts diagnose that diversification of distribution channels and brands is necessary.

◆China Market Blocked and COVID-19 Impact

The industry views China’s THAAD retaliation measures in 2017 as the first blow to road shops. China imposed a blanket import ban on Korean cosmetics, and with the Chinese market?accounting for 35-40% of cosmetic exports at the time?being closed off, the industry crisis began. On top of that, the reduction of inbound tourists due to COVID-19 dealt a second blow. The commercial areas of Seodaemun-gu Ewha Womans University and Myeongdong, where road shops targeting tourists were concentrated, experienced a downturn during COVID-19, leading to a string of store closures.

While road shops struggled, H&B stores and multi-brand shops grew rapidly. They expanded the market by allowing consumers to compare multiple brands in one store. Especially by strengthening online shopping, they adapted to the non-face-to-face consumption era brought on by COVID-19. Olive Young is a representative example, offering home delivery services for online orders. Despite the recession, Olive Young opened 18 more stores in the first half of this year compared to the previous year.

An industry insider said, "At that time, road shops grew mainly offline by targeting tourists with mid-to-low priced ‘cost-effective’ products rather than online sales," adding, "It was difficult to keep up with the rapidly changing market conditions."

Myeongdong Street, Jung-gu, Seoul. Cosmetic road shops are disappearing./Photo by Jinhyung Kang aymsdream@

◆"Only Upward from Here" Finding a Way Forward

Road shop brands see an opportunity for rebound as COVID-19 shifts to an endemic phase. In fact, Tony Moly and Nature Republic succeeded in turning a profit in the third quarter this year, and Able C&C posted profits for three consecutive quarters. The industry is attempting structural improvements in various ways. Tony Moly has actively diversified distribution channels by entering H&B stores and improved profitability by reducing offline stores.

Expansion into the Japanese market, where the K-Beauty wave began, has also increased. Amorepacific launched Laneige’s ‘Neo Cushion’ newly in Japan last September, entering the Japanese color cosmetics market. Nature Republic boosted performance by entering Japanese online shopping malls ‘Qoo10’ and ‘Rakuten’ and established a local corporation in Japan.

Experts diagnose that alongside seeking export opportunities, strengthening online distribution channels and brand diversification must be achieved simultaneously.

Professor Kim Judeok of the Department of Beauty Industry at Sungshin Women’s University emphasized, "Road shops will find it difficult to compete with current multi-brand shops unless they diversify their distribution channels. I believe that pioneering new markets such as Japan and simultaneously strengthening online distribution channels are the most necessary at present."

Professor Lee Eunhee of the Department of Consumer Studies at Inha University pointed out, "Consumers feel that shopping at multi-brand shops, where they can compare various products in-store, is more rational. Road shops, which competed with a single brand, need to expand their business through brand diversification to stimulate consumer psychology."