[Expert Says - Industry Outlook] "The Key to Cosmetics Stock Investment in the Second Half is 'Export'"

Interview with Park Eun-jung, Senior Research Fellow at Hana Securities
The Power of K-Beauty, Result of Years of Skill Development
Concerns about Export Slowdown Premature... "Growth Trend Still Strong"

Eunjeong Park, Senior Research Fellow at Hana Securities, is being interviewed by Asia Economy at the Hana Securities headquarters. [Photo by Hana Securities]

"The most important thing is the expansion and growth of exports."

Park Eun-jung, Senior Research Fellow at Hana Securities, emphasized that the most important factor to watch when investing in the cosmetics sector in the second half of the year is 'export performance.'

Korean cosmetics, which enjoyed popularity in China in the mid-2010s, have entered a second boom period. They are now expanding their territory to the United States, Japan, Europe, and Southeast Asia. Researcher Park said, "After the previous boom in China, the cosmetics industry went through several difficult years," adding, "Within the industry, there is an assessment that Korean cosmetics have accumulated strength to expand into various countries during those tough times." She continued, "Lately, it feels like we are experiencing a strong cycle for the first time in a long while. We are busy and enjoying our work."

K-Content, Diverse Lineups, Cost-effectiveness... "Korean Cosmetics Have Built Up Competitiveness"

Researcher Park noted that the cosmetics industry has undergone many changes since the COVID-19 pandemic. She said, "During the global COVID-19 outbreak, people worldwide spent more time at home. During this time, they became familiar with Korean products, including cosmetics, through K-pop, K-dramas, and other content," adding, "The platforms where people encountered this content were likely digital platforms like YouTube, where algorithms probably kept exposing users to Korea-related content."

She also said, "After COVID-19, the demand for managing skin troubles caused by frequent and prolonged mask-wearing increased significantly," adding, "This seems to have led consumers to seek out Korean cosmetics, which offer a wide range of functional skincare products." She continued, "In fact, Korean consumers set the most multi-layered routines for skin care and trouble management compared to any other country. Naturally, this has enhanced the competitiveness of Korean cosmetics," explaining, "Recently, various Korean products such as cleansers, moisturizers, and patches have occupied the top ranks on Amazon, which proves this point."

Researcher Park also said that the trend of value-for-money consumption becoming mainstream in the U.S. played a decisive role in the popularity of K-beauty. She said, "Since last year, 'dupe consumption,' where consumers buy products that look similar to high-end ones but are relatively cheaper, has spread in the U.S. Among consumers, the culture that buying cost-effective products is not embarrassing but rather rational consumption has taken root," adding, "I think the cosmetics market will eventually solidify this low-price consumption trend." She added, "If the quality is good and the price is attractive, there is no reason for consumers to refuse. Korean cosmetics are like that now."

Amazon's K-Beauty Love Call, Competitor TikTok... Dynamic Changes in Sales Channels 'Worth Watching'

Eunjeong Park, Senior Research Fellow at Hana Securities, is being interviewed by Asia Economy at the Hana Securities headquarters.
[Photo by Hana Securities]

Amazon Korea held the 'Amazon K-Beauty Conference' at the InterContinental COEX Hotel in Samseong-dong, Gangnam-gu, Seoul, on the 27th of last month. Researcher Park said, "Amazon's interest in Korean cosmetics likely stems from seeing K-beauty as a good tool to increase transaction volume," adding, "Amazon announced that K-beauty's transaction amount increased by more than 75% last year and by over 100% cumulatively until May this year. The growth of K-beauty is accelerating." She also added, "The more sellers there are on the platform, the higher the probability that Amazon will earn more advertising revenue."

Researcher Park also pointed out the competitive relationship with TikTok, a social networking service (SNS) with one billion users worldwide. TikTok's e-commerce platform, TikTok Shop, rapidly expanded its market from Indonesia in 2021 to the Philippines, Thailand, Vietnam, the U.S., the U.K., and others. Some speculate that since TikTok Shop filed a trademark in Korea last December, it could enter the domestic e-commerce market at any time.

In response, Researcher Park said, "Many cosmetics companies are marketing through TikTok Shop. Amazon seems to have already experienced losing transaction volume to TikTok Shop in the U.S.," adding, "TikTok's influence in Korea may not yet be strong, but from Amazon's perspective, it needs to attract Korea's competitive brands before TikTok does." She also shared, "One industry insider mentioned a case where the monthly transaction amount achieved on Amazon after entering the U.S. market was reached in a shorter period on TikTok."

Concerns About Export Peak-out Are Premature... "Need to Keep Monitoring Performance Trends"

Researcher Park expects the trend of increasing exports to non-China markets to continue. She said, "Since strong demand for K-beauty from various countries other than China continues to be confirmed, companies are focusing more on exports to non-China markets," adding, "They are refining and segmenting export strategies on how to expand and penetrate channels to establish themselves in the cultures of various countries."

Regarding exports to China, she said, "In China, the key now seems to be how much costs can be reduced rather than aggressively expanding business," emphasizing, "Targeting the Chinese market seems more about securing stable sales rather than aiming for tremendous high growth, and it is important to optimize the business structure to prevent further sales decline."

Meanwhile, some raise concerns about the slowdown and peak-out of cosmetics export amounts. In response, Researcher Park said, "Even in a growth trend, there can be periods when export amounts decrease compared to the previous month," adding, "The fact that many companies are just starting overseas sales has not changed." She continued, "At the current situation, it is not a level to worry about greatly," but noted, "However, it is necessary to watch variables such as rising logistics costs, regulatory changes in export countries, and image damage due to accidental quality issues."

Researcher Park reiterated that the key factor for investing in the cosmetics sector in the second half of the year is performance driven by exports. She said, "Even though competition among numerous products is fierce, there are brands that survive by increasing export amounts. Successful brands will be able to see a high operating leverage effect. But no one knows which brand will be the winner, so continuous observation of changes is necessary," adding, "The market with high potential for continuous growth in the future is indie brands, and since the existence of that market is made possible by Original Design Manufacturing (ODM) businesses, we can expect a re-rating of ODM companies."