[Why&Next] The Cost Didn't Rise... Why Are Cosmetic Prices Increasing from the New Year?

LG Household & Health Care Raises Prices on Key Brand Products
Logistics and Marketing Costs Likely Driving Price Increase
Consumer Burden Expected to Grow if Small Brands Also Raise Prices

Cosmetic prices have sharply increased from the beginning of the new year. Major cosmetic brands such as O Hui, Su:m37, and Sulwhasoo are at the forefront. It is analyzed that the rapid fluctuations in exchange rates amid persistent high inflation have influenced the price hikes. There are concerns that the price increases at the start of the year may spread to small and medium-sized brands, increasing the burden on consumers.

The First Geniture Lipstick & Lip Balm Duo Holiday Edition. Ohui website

According to the cosmetics industry on the 9th, LG Household & Health Care raised prices of products from brands O Hui, Su:m37, belif, and The Face Shop by 1,000 to up to 6,000 KRW as of the 1st of this month. O Hui, which belongs to LG Household & Health Care's luxury brand group, increased prices mainly for its top line 'The First Geniture' as well as key lines such as 'Prime Advancer,' 'Miracle Moisture,' 'Extreme,' and 'Miracle Aqua.'

LG Household & Health Care raises prices from the start of the new year... up to 10% increase

On the 2nd, cosmetics are displayed at a cosmetics store in Seoul where road shop cosmetic brands such as LG Household & Health Care, Missha, A'PIEU, and Etude have raised or announced price increases for the New Year. Photo by Kang Jin-hyung

The product with the largest price increase is the 'The First Geniture' line. Being the most expensive, basic products in this line saw a 5,000 KRW increase. Among them, the 'Lipstick & Lip Balm Duo Holiday Edition' rose from 85,000 KRW to 91,000 KRW, a 6,000 KRW increase, marking the largest hike. LG Household & Health Care raised the prices of the lipstick and lip balm products in this line by 3,000 KRW each, resulting in the set product price increasing by the same amount. In terms of rate of increase, O Hui's 'Wellmade Base' line's 'Ultimate Commerce Stick Foundation' saw the highest, rising 10% from 50,000 KRW to 55,000 KRW.

The brand Su:m37 raised prices between 1,000 and 5,000 KRW. The 'Micro A' line's 'Micro Routine Set' product increased by 5,000 KRW to 80,000 KRW, changing the leading digit, and the 'Waterfull' line's 'Ampoule Essence 50ml' product was priced at 105,000 KRW after a 5,000 KRW increase. The brand belif saw product price increases up to 4,000 KRW, and The Face Shop also adjusted prices for some products. The company plans to continue price adjustments for some products of O Hui, Su:m37, and belif on February 1.

This is the first price increase for LG Household & Health Care's major brands since November 1, 2023. It marks a price adjustment after about 1 year and 2 months. At that time, the company raised prices by an average of 4% for O Hui brand products and about 5% for Su:m brand products, citing inflation. LG Household & Health Care explained, "The price adjustments were made due to high exchange rates and high inflation."

Amorepacific also announced a price increase for its major brand Sulwhasoo. Price adjustments are expected in March, but the extent of the increase has not yet been determined. However, the company explained that only renewed upgraded products will undergo price adjustments. Amorepacific stated, "For Sulwhasoo's Jaumsoo, Jaum Emulsion, and Elasticity Cream, price adjustments are being made due to changes in ingredients and packaging," adding, "There is no plan to uniformly raise product prices."

Additionally, Amorepacific's subsidiary Etude raised the price of the eyeshadow 'Look At My Eyes' from 5,500 KRW to 6,000 KRW. Brands Missha and A'PIEU under Able C&C also adjusted prices between 1,000 and 2,000 KRW.

"Price increases likely reflect rises in packaging materials and marketing costs rather than raw materials"

Industry insiders believe that cosmetic prices have risen more due to increases in packaging materials and marketing costs rather than raw materials used in production. Even if raw material prices rose due to exchange rate increases, the cost increase was not enough to significantly raise consumer product prices.

In fact, cosmetic prices are composed of about 10-20% raw materials, 30% packaging materials, and 50% marketing costs. Raw materials refer to the factory shipment price from cosmetic contract manufacturers (OEM) during the manufacturing stage. Since 2020, the cost trend for cosmetic manufacturers shows that basic products had a cost of 2,236 KRW as of the third quarter last year, rising about 400 KRW. Compared to the previous year, this is an increase of about 13 KRW. For color cosmetics, the cost was 2,723 KRW as of the third quarter last year, 20 KRW cheaper than the previous year. During this period, major raw materials for cosmetics such as ethanol decreased from 1,980 KRW to 1,700 KRW. Glycerin slightly increased from 1,150 KRW to 1,230 KRW.

In particular, according to recent confirmations with domestic cosmetic manufacturers by this publication, there were no notifications of price increases for existing production products to cosmetic brands. It is presumed that increases in logistics and marketing costs were major factors influencing the price hikes. A cosmetics manufacturing industry official explained, "If the exchange rate rises sharply and remains high, price increases due to raw material cost hikes may be inevitable, but this does not lead to a large-scale price increase for products," adding, "This is because there are reserved raw materials and long-term business partners." Furthermore, as cosmetic export volumes have increased significantly, companies can offset cost increases through foreign exchange gains.

For this reason, some speculate that cosmetic companies may be raising prices to defend their earnings. LG Household & Health Care currently produces most of its products in-house and sells them directly. As of the third quarter last year, it recorded sales of 5.202 trillion KRW and operating profit of 415.6 billion KRW, which are decreases of about 0.6% and 4%, respectively, compared to the previous year. Securities firms estimate that LG Household & Health Care's operating profit for the first quarter of this year will decrease by 10% year-on-year, with sales of 1.7366 trillion KRW and operating profit of 135.2 billion KRW.

The industry is concerned that small and medium-sized cosmetic companies may also join the price adjustment trend. Even if manufacturers supply products at the same price, brand companies may raise prices citing marketing, labor, and logistics costs in line with the overall price increase trend. A cosmetics industry insider said, "A double-digit price increase rate is very high," adding, "Unless products are renewed or incorporate new technologies, consumers will not accept the price hikes."