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Cosmetics And Toiletries in South Korea
Cosmetics and toiletries sales drop for the two consecutive years
Sales of cosmetics and toiletries suffered a second consecutive year of negative growth in 2004 with sales dropping by 3% in current value terms. The industry was most affected by the contracted economy and the resulting expansion of low-end mass products which visibly undermined value sales. Amongst the worst hit victims were skin care and colour cosmetics with sales declining by 8% and 5% respectively in current value terms as consumer traded down to lower-priced goods. Fragrances fared worst of all with current value sales plunging by more than 19% value plunge as local consumers cut down their spending on non-essential and luxury items. However, not all cosmetics and toiletries suffered the same fate. Emerging products such as sun care and deodorants enjoyed strong growth due to increased consumer awareness of their benefits.
Low-end price brand shops cause upheaval
The most dramatic development during 2004 was the significant expansion of low-end mass products, underpinned by the unprecedented success of so-called ‘low-end price brand shops? The two main chains - Missha and The Face Shop ?became highly popular amongst consumers during 2004 on the back of extremely low prices, wide ranges of products, and effective marketing strategies. Most importantly, these shops purported their transparent pricing policy of eliminating bubbles in production costs by reducing non-essential aspects in packaging, product formulations (colour/fragrance, etc), and multiple distribution layers. With reasonable quality appeal for money, these chains rapidly increased their number of outlets nationwide and garnered remarkable sales during the year. The success of these shops triggered a row of similar-concept brand shops including mass players such as Somang Cosmetics Co Ltd and VOV Cosmetics Co Ltd. Threatened by the gigantic force, industry leaders Amore Pacific Corp and LG Household & Health Care Ltd also joined the fray in the latter part of 2004 although with a slightly different concept of higher prices, quality products, and premium counselling and skin care services.
In 2004, the polarisation between consumption of high-end and low-end cosmetics and toiletries intensified.
Whilst for the financially stricken domestic consumers the aforementioned low-end brand shops provided a good platform to trade down, several prestigious high-end cosmetics companies enjoyed strong growth as the country’s high income groups were not affected by the economic gloom and continued luxury spending. Also, with the gradual disappearance of the middle-income groups in the country, consumers are inclined towards either very expensive or very cheap goods. In view of such a development, many cosmetics players either increased their focus on driving sales of their highly prestigious brands via department stores and direct sales or moved down towards lower-mass brands targeted for discount stores or brand shops.
Niche opportunities in deodorants and sun care
Amid the sedate performance of most cosmetics and toiletries, deodorants and sun care each enjoyed dynamic current value growth of 25% in 2004. Deodorants are the second smallest contributor to overall cosmetics and toiletries accounting for significantly less than 1% of value sales. However, bullish growth over the review period suggested strong potential to strained cosmetics players. As a result, new players entered into the niche and existing players widened their product portfolios.
Sun care sales were driven by manufacturers?efforts to emphasise the need for sun protection year round, as such products are regarded as highly seasonal. In addition, new launches offered highly advanced features with detailed product descriptions which received a warm consumer response due to the trend towards more functional cosmetic products.
Local players look overseas for expansion
With the growing maturation of the cosmetics and toiletries industry and continued domestic economic gloom, local players are increasingly turning their eyes towards overseas opportunities. Industry leader Amore Pacific Corp has been a pioneer in this move, first starting with its own brands and know-how before strategically absorbing local brands and businesses. Currently, it operates subsidiaries and branch offices in a number of countries and aims to develop global power brands. The most lucrative region for local players at the moment is the Asian countries. As well as similar consumer tastes, skin, and hair types, the recent success of Korean movies, music and television dramas in countries such as China, Taiwan, and Hong Kong raised consumer demand for the fashion and make-up of Korean celebrities. Missha and The Face Shop also started their global expansion in early 2004 following their huge initial domestic success.