ASIA. Korean beauty house Amorepacific has posted strong fourth-quarter growth for its key duty free business (+25% year-on-year worldwide and +30% in Korea), writes Senior Retail and Commercial Analyst Min Yong Jung.
The company’s ecommerce business also flourished (+70% year-on-year globally; Korea +20%, cross-border over +100%). Amorepacific has prioritised these channels to allocate additional resources and induce growth.
The duty free sales growth outstripped archrival LG H&H’s 11.1% but fell slightly below the Korean travel retail market Q4 average of +38.7%.
| Differentiated approaches to daigou channel The key differences in strategy between Amorepacific and LG H&H have been the focus on luxury and the respective companies’ contrasting view of resellers (daigou) in duty free. Compared to LG H&H, whose beauty sales are heavily dependent on the luxury segment and on flagship brand Whoo, Amorepacific’s luxury segment and flagship brand Sulwhasoo accounts for a lower proportion of beauty sales.
And whereas LG H&H CEO & Vice Chairman Suk Cha has historically viewed the reseller business as an effective way to grow distribution and market awareness in China, Amorepacific for a long time took a dimmer view of the sector. In 2017 it began enforcing per customer buying limits, a policy it was forced to review around two years later due to how badly it was underperforming its competitors.
|
Unlike LG H&H, which has scaled back its lower-priced category by restructuring and closing down stores of the Face Shop (store count in Korea has declined from 1,138 stores in 2016 to 804 in 2018, and offline stores in China have been shut), Amorepacific has been busy building new Innisfree offline stores in China and other regions around the
Groupwide, Amorepacific posted an +8.9% rise in total revenues in Q4 2019 to KRW1.334 trillion (US$1.13 billion) against the same period last year.
Operating profit increased +92.9% year-on-year to KRW45.9 billion (US$40.48 million), missing market expectations by 35%.
Amorepacific 4Q19 results (IR Presentation)
For the full year, total revenue increased by+ 5.7% year-on-year to KRW5.6 trillion (US$4.79 billion) but operating profit declined by -11.2% to KRW427.8 billion (US$366.9 million).
Amorepacific 2019 results (IR Presentation)
Amorepacific’s Q4 2019 cosmetics sales in South Korea increased by +10% year-on-year to KRW754.8 billion (US$641.7 million) and operating profit turned positive at KRW33.6 billion (US$28.6 million).
Putting those numbers in context, operating profits had plunged in Q4 2018 when Amorepacific decided to streamline SKUs and losses were incurred as a result of inventory disposal. The South Korean cosmetics maker posted an operating loss of KRW15.3 billion (US$12.9 million) in Q4 2018, taking the markets by surprise when the result was announced in early 2019.
Amorepacific’s Q4 2019 overseas cosmetics sales increased by a mere +2.3% year-on-year to KRW557.9 billion (US$474.3 million) as the restructuring of the Innisfree brand in China continued to drag on sales.
China accounts for the majority (estimated over 60%) of Amorepacific’s overseas revenue and Innisfree (around 40% of Amorepacific China’s sales) continues to struggle against the growing number of local firms encroaching on the category.
Total sales in China grew by +4% year-on-year and flagship luxury brand Sulwhasoo (around 20% of Amorepacific’s China sales) recorded strong sales growth of +20%. But that was not enough to offset slower growth in the lower price categories.
Sulwhasoo shines
The growth of luxury brand Sulwhasoo has been one of the few bright points of Amorepacific’s recent run of results. The brand grew by +8% year-on-year in Q4 to KRW289.8 billion (US$244 million). The brand performed well in the key duty free channel, posting an estimated +30% increase.
Amorepacific’s full-year 2019 results pale in comparison to close competitor LG Household and Health Care’s (LG H&H) beauty & healthy segment, which grew +16.2% year-on-year in sales and +13.3% increase in operating profit. The operating profit margin was also much higher for LG H&H at 16.4%.
Note: LG H&H result above combines the beauty and healthy segments
