AmorePacific rides high on China beauty demand

AmorePacific, South Korea’s biggest cosmetics company by sales, is riding high on booming Chinese demand amid the huge popularity of Korean pop culture in the region.

The cosmetics maker has become investors’ favourite company, thanks to its rapid earnings growth and bright outlook, with its share price surging nearly 160 per cent to about Won2.3m over the past year.

The company’s overseas sales surged 38 per cent to Won382.7bn ($349m) in the first half of this year as it generates one-fifth of its revenue outside South Korea. Its full-year overseas sales are expected to reach Won700bn as growing interest in South Korean drama and music helps boost sales of its skin care products in China and other parts of Asia.

Young Asian women, especially Chinese tourists, are flocking to Seoul to buy moisturising creams and foundations, with the help of ads featuring South Korean stars from the films, soap operas and music that have taken Asia by storm over the past decade.

“The Korea Wave has certainly been helpful in raising our brand awareness in the region,” says Sean Kim, the company’s vice-president in charge of business strategy. “We aim to become the Asian beauty creator by answering Asian women’s strong needs for clean and bright skin.”

China lies at the heart of the company’s plans to increase international sales to half of its target sales of Won12tn by 2020. Its total revenues amounted to Won3.1tn last year. Despite its fast growth, AmorePacific is still finding its feet in China with just a 1.2 per cent share of the country’s beauty and personal care market, compared with Procter & Gamble’s 13.5 per cent and L’Oréal’s 9.1 per cent, according to market researcher Euromonitor International.

“China is the biggest and most important market for us,” says Mr Kim, forecasting Chinese sales will jump more than 40 per cent a year to top Won3tn by 2020 from Won338.7bn last year.

The company is pinning high hopes on a new cosmetics factory and research centre in Shanghai, which will boost its annual production capacity by 10 times to 100m units, as it tries to wrest share from bigger western rivals such as P&G and L’Oréal.

While AmorePacific uses famous South Korean actors and actresses to promote its products, Mr Kim stresses that high quality is essential to ensure that Chinese consumers keep buying its products. The company, which has about 3,500 shops in China, is expanding its product line-up tailored toward Chinese customers such as ultra-hydrating creams, cleansing creams and collagen drinks to address their concern about pollution and dry weather.

Asia is still our main market but we will have to go beyond the region eventually to become a truly global company

Chinese sales are driven by mid-priced lotions and face creams under brand names such as Laneige and Innisfree, which highlight natural ingredients such as green tea from the scenic Jeju island. Yet its luxury cosmetics range, Sulwhasoo, based on traditional herbal medicines such as ginseng, is also gaining increasing popularity.

“While emotional communication is effective for Korean consumers, Chinese women often ask for more scientific functions such as whitening and anti-ageing,” says Mr Kim.

About half of the company’s overseas sales come from China but the company products such as whitening creams and “air cushion” foundations soaked in a sponge are also popular in southeast Asia. Mr Kim says however that the company must expand further into western markets to achieve its long-term vision of joining the top five global brands by 2020 as well as becoming the number one cosmetics company in Asia.

Its Lolita Lempicka perfume was once one of France’s top five-selling fragrances although sales in the French market have stagnated in recent years. The company is now trying to revive momentum in France after acquiring premium perfume brand Annick Goutal in 2011. In the US, the company is also trying to position itself as a high-end niche player, focusing on premium brands such as Sulwhasoo.

“Asia is still our main market but we will have to go beyond the region eventually to become a truly global company,” says Mr Kim. “It will probably be an uphill battle, given our low brand recognition in western markets. However, we see an optimistic sign in westerners’ growing interest in Asian beauty.”