[The Unsung Architect Behind K-Beauty: Cosmax and the Dawn of Second-Generation Management]

[Checking the Succession Structure in Fashion and Beauty]
Chairwoman Seo Seongseok Expands Stake in Cosmax Group
Byungman Lee and Byungju Lee Hold Equal Stakes in Holding Company
Who Will Inherit the ‘Brother Management’ Succession?
"Proving Management Capabilities Is Key"

Seongseok Seo, chairwoman of the Cosmax Group, has moved to expand her stake in Cosmax BTI, the holding company of Cosmax?the world’s largest cosmetics ODM (Original Development Manufacturing) company. Seo, the wife of Cosmax Group founder Kyungsoo Lee, is already the largest shareholder of Cosmax BTI, holding shares together with her two sons, both of whom have already joined the management frontlines. As Seo continues to acquire additional shares in the holding company, the group’s succession structure has become increasingly unclear.

According to the Financial Supervisory Service’s electronic disclosure system on April 24, Seongseok Seo, chairwoman of Cosmax BTI, acquired an additional 90,600 shares of Cosmax BTI through market purchases between March 25 and April 17. The purchase is valued at approximately KRW 1 billion (based on a share price of KRW 10,500), nearly matching Seo’s compensation of about KRW 1.4 billion received last year. Cosmax explained that Seo’s share acquisition was “in line with responsible management.”

Chairwoman Seo expands stake by 1 percentage point

This is the first time Seo has increased her stake since August 2022. After nearly three years, her shareholding has risen from 20.62% to 21.62%, a 1 percentage point increase.

Seo has been deeply involved in the company’s operations, overseeing HR and general affairs since her husband founded the company in 1992. The couple have both held the position of chairperson at Cosmax BTI, the group’s holding company. While Lee is in charge of overall group management, he currently holds no shares after transferring and selling his stake in the holding company to his children in 2023.

Seo is the largest shareholder of the holding company with a 21.62% stake, followed by her eldest son Byungman Lee, CEO of Cosmax (19.95%), her younger son Byungju Lee, CEO of Cosmax BTI (10.52%), and CosM&M (9.43%). CosM&M is a wholly owned private company of Byungju Lee, meaning the two brothers hold equal stakes in the holding company.

Within the beauty industry, there is a widespread expectation that, given Kyungsoo Lee was born in 1946 and is now 79 years old, the succession structure of the Cosmax Group will be finalized soon. As a result, Seo’s recent share acquisition is drawing attention as a potential catalyst for the group’s succession process. The core of this succession process is the direction of the shares held by Seo, the largest shareholder of the holding company. An industry insider commented, “Kyungsoo Lee remains deeply involved in the business, strongly pushing for overseas plant construction and more. It appears he believes the management capabilities of his two children have yet to be fully proven.”

Cosmax’s ‘brother management’... Focus on role changes this year 

Byungman Lee, CEO of Cosmax, and Byungju Lee, CEO of Cosmax BTI.

Cosmax BTI was split into Cosmax (newly established) and Cosmax BTI (existing company) through a spin-off in 2014. Cosmax BTI serves as the holding company, focusing on new business development, and is actively expanding its health functional foods business through its subsidiaries Cosmax NBT (formerly NutriBiotech) and Cosmax Bio. The cosmetics business is overseen by Cosmax.

Last month, Cosmax Group appointed the elder son as CEO of Cosmax and the younger son as CEO of Cosmax BTI. Until last year, Byungju Lee led the cosmetics business, while Byungman Lee headed the holding company, but their roles have been switched as of this year.

Cosmax BTI experienced negative growth last year, posting sales of KRW 597.6 billion and operating profit of KRW 16.8 billion, down 5% and 17% year-on-year, respectively. Despite operating factories in the US, Australia, and Korea and expanding its global health functional foods ODM business, performance was weak. Cosmax NBT’s sales fell 5% to KRW 318 billion due to sluggish US operations. Cosmax Bio’s sales also dropped 10% to KRW 146.7 billion as domestic clients reduced orders amid weakened consumer sentiment. The pharmaceutical division, Cosmax Pharma, saw sales decrease by 17% to KRW 39.1 billion.

The new business initiative, the personalized cosmetics platform ‘3WAAU (ThreeWAUU),’ has yet to deliver meaningful results. ThreeWAUU is a hyper-personalized beauty platform that uses data and AI to provide the most suitable solutions for each individual. Products are sold online, with personalized solutions currently limited to shampoo, treatment, and essence products. In October last year, the board decided on an additional equity investment. Cosmax Laboratory’s book value is currently zero, as it has been recognized as an impairment loss. A Cosmax official explained, “ThreeWAUU is a field with high growth potential. Cosmax aims to actively expand its cosmetics ODM business by strengthening synergies with its holding company, Cosmax BTI, and leveraging the global boom in K-beauty.”

Cosmax’s US operations have struggled. After earning his MBA from the University of Michigan’s Ross School of Business, Byungju Lee became CFO of Cosmax USA in 2014. In 2019, he was promoted to executive vice president and CEO of Cosmax USA, overseeing the group’s US business. During his tenure as co-CEO of Cosmax BTI alongside Byungman Lee, their focus was also on overseas operations, particularly in the US.

However, since its entry into the US market with the establishment of Cosmax USA in 2013, the company has continued to post losses. After acquiring L’Oreal’s Ohio plant in 2014 and commencing full-scale operations in 2015, last year’s sales reached KRW 137.1 billion, but operating losses amounted to KRW 32.2 billion. The deficit has widened from a net loss of KRW 4 billion in 2014. In 2017, Cosmax established Cosmax WEST and acquired NuWorld, a US color cosmetics manufacturer, further expanding its US business by making Cosmax USA a subsidiary.

To improve business efficiency, Byungju Lee decided in 2023 to close the Ohio plant and merge Cosmax USA with NuWorld. Since the second half of last year, Cosmax’s US subsidiary has established a sales office in California, where many indie brands are located, expanding its sales network beyond its traditional base in the eastern US to the west coast. However, the book value of Cosmax WEST is now zero due to impairment losses.

Advisors step in... Strengthening management training

This year, Cosmax has brought in professional managers as advisors. Kyung Choi, a founding member of Cosmax who successfully led the company’s China operations, has been appointed CEO of Cosmax, while Minho Heo, who drove the early growth of CJ Olive Young in 2008, has become CEO (Vice Chairman) of the holding company. It is reported that Kyungsoo Lee expects Minho Heo to provide Byungju Lee with guidelines for new business initiatives and solutions to address the underperformance in the US market.

Kyung Choi and Byungman Lee are expected to work together to strengthen Cosmax’s domestic operations and revive its China business. Byungman Lee, who earned his MBA from Shanghai Jiao Tong University’s School of Business, has extensive experience in the Chinese market. Last year, Cosmax’s China business saw its growth slow, with sales reaching KRW 574.3 billion, up only 5% year-on-year. The 2023 growth rate was around 8%. The slowdown in China’s economic growth led to reduced orders from local clients.

Cosmax plans to tighten its focus on China, recently establishing ‘Kekey International Trade’ in Shanghai to manage local materials partners. Next year, the company will open a new headquarters spanning 13,200 square meters in the Xinzhuang Industrial Zone in Shanghai. An industry insider explained, “It appears that Chairman Lee is rotating the roles of his two sons to assess their management capabilities. The appointment of professional managers as co-CEOs is also intended to provide management advice and foster collaboration.”