Slow Economy Takes Toll on Imported Cosmetics

      June 11, 2012 12:51

      The seemingly unstoppable popularity of imported cosmetics is beginning to flag amid the continuing recession. Domestic brands, meanwhile, have gone on the offensive with gimmicks like traditional herbs or fermented ingredients and products that have to be kept in the refrigerator.

      Brands like Estee Lauder, Clinique, Lancome and Kiehl's saw a drop in sales between 10 and 26 percent from January to May compared to the same period in 2011. Their sales had grown by up to 200 percent over the last five years.

      Instead, Amore Pacific's Sulwhasoo brand of cosmetics containing traditional herbal ingredients took the No. 1 spot in department store sales in May, pushing P&G's SK-II and L'Oreal's Kiehl's into second and third place. Disappointing sales also hit L'Oreal's signature brand Lancome, luxury brand Sisley, which has one product costing more than W1 million, and Estee Lauder, which had enjoyed bumper sales thanks to a night repair tonic known as the "Little Brown Bottle."

      "Chinese and Japanese tourists who visited Korea during the extended holidays in May bought Korean cosmetics, and the high-price strategy of imported brands is now working against them," said a department store staffer.

      New Yorkers are introduced to Korean cosmetics brands at an event by the Korea Health Industry Development Institute in Manhattan on Saturday. /Yonhap

      The biggest reason is the slow economy. Consumers are especially picky about how effective a product is compared to its price tag. "The thinner the wallets, the pickier customers tend to get about the effectiveness of a product, rather than being swayed simply by brand power," said Chung Hae-young at Hanbul Cosmetics. "Regardless of the type of product, a growing number of customers compare prices and sizes."

      Domestic cosmetics companies have launched an all-out offensive. The Korean cosmetics market has been growing at a rate of more than 10 percent a year even amid the global recession since 2008. The main reason is mushrooming budget cosmetics shops, which have increased 37 percent a year on average over the last three years.

      These shops account for a third of the total cosmetics market in Korea, which was worth W2.5 trillion last year. TheFaceShop, Missha and Innisfree boast operating profit margins of more than 10 percent. "The most popular products cost just a tenth of high-end brands yet the quality is similar,"  said an industry insider.

      Another reason for the slowdown in sales among foreign brands is their strategy of keeping their prices high and relying too much on department store sales. There is virtually no way to buy foreign cosmetics other than at department stores. "Parallel import of cosmetics is completely legal, but major importers of foreign cosmetics wield so much power that there is very little chance of lowering prices," said another industry insider.

      In contrast, domestic brands sell their products not only in department stores but in other cosmetics shops, through door-to-door salespeople and even on the Internet. Amore Pacific, the No.1 cosmetics company in Korea, generates a third of its total revenues from door-to-door sales.

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