"At Home, Olive Young; Outside, Dior"…Luxury Cosmetics Thriving Despite Recession [Luxury World]

Luxury Cosmetic Brands Achieve Double-Digit Growth Rate This Year

Due to the impact of the economic downturn, sales growth rates for luxury bags and fashion are slowing, but imported luxury cosmetics seem to be avoiding the recession. This is thanks to the continued demand for so-called 'small luxury' items, which allow consumers to experience luxury at a relatively affordable price compared to high-priced bags or jewelry. As a result, luxury cosmetics companies have maintained growth even after raising product prices.

Color Cosmetics Sales Growth Rate 25%

Dolce & Gabbana Beauty Bestsellers
[Photo by Dolce & Gabbana Beauty]

According to the industry on the 15th, sales of luxury beauty brands at Lotte Department Store from January to August this year increased by 10% compared to the same period last year. Looking at recent annual sales growth rates, it was 15% in 2022 and about 10% last year. Considering that demand for cosmetics tends to surge toward the end of the year, there is a possibility that this year's sales growth will increase further. The aggregated sales include all categories such as basic cosmetics (skin care, lotion, cream, serum), color cosmetics (cushion, eyeshadow, eyeliner, lipstick), and perfumes.

The largest contributor to sales is color cosmetics. According to Lotte Department Store, the year-on-year sales growth rate of luxury color makeup brands during the same period was 25%, already surpassing the 20% growth rates of last year and 2022.

Color cosmetics have a lower price point compared to perfumes or basic products, making them more accessible. For example, Prada Beauty, which launched its beauty products in Korea last month, priced the 'Monochrome Lipstick' at 60,000 KRW and the 'Dimensional Durable Multi_Effect Eyeshadow' at 130,000 KRW. In contrast, the basic cosmetics 'Augmented Skin Serum' (30ml) is sold at 550,000 KRW, and the 'Augmented Skin Cream' (60ml) at 540,000 KRW. Dior products follow a similar pattern. The 'Dior Forever Cushion Mix & Match' is priced at 112,000 KRW, while the 'Dior Prestige' serum related to basic skincare costs 399,000 KRW.

Color cosmetics are linked to the conspicuous consumption demand, which is one of the reasons for purchasing luxury goods. There is even a joke that "skin care products used at home are bought at Olive Young, but cosmetics visible outside are purchased from luxury brands." Cushion products are a representative example. They are easy to carry and often used for touch-ups outside the home. There is also demand for purchasing products to receive luxury cosmetics companies' gifts (pouches, mirrors). In fact, Dior Beauty caused a buying frenzy by offering a 'Cannage' card wallet as a gift to customers who purchased over 200,000 KRW this month.

Cost is 10%... Luxury Brands Raise Prices for Marketing Expenses

Luxury companies are maintaining a price increase trend in the cosmetics sector as well. Previously, most imported luxury brands in department stores, including Chanel, Dior, L'Or?al Group (Lanc?me, Yves Saint Laurent, Kiehl's, etc.), and Est?e Lauder (La Mer, Bobbi Brown, etc.), raised their prices. Imported luxury cosmetics companies generally raise prices once a year, mostly explaining the reason as increases in raw materials, components, and labor costs.

On the other hand, domestic cosmetics industry insiders believe that while raw material cost increases have some impact, luxury companies raise prices primarily to maintain brand value. Cosmetic prices are roughly divided into 10-20% cost of goods, 30% component costs, and 50% marketing expenses. The cost difference between luxury and non-luxury products in the manufacturing process is not significant. Components may vary depending on how much gold foil is used in packaging, but the gap is not large enough to be substantial.

According to the half-year report of Cosmax, a cosmetics ODM (Original Design Manufacturer) company that serves global brands as clients, the average price of color cosmetic products was 2,725 KRW this year, about 3 KRW less than in 2022. The average price is calculated by dividing sales amount by sales volume, representing the cost of one product.

Ultimately, it can be seen as an attempt to increase sales by raising product prices under the name of marketing expenses. This is because there is sufficient demand to purchase even if prices rise. A cosmetics industry insider said, "Manufacturers produce products according to set price ranges, and brands add additional charges on top of that for sales. It is true that marketing expenses have a larger share than costs."