The Rise And Fall Of Suh Kyung-bae: A Journey Through K-Beauty's Challenges

At the end of 2017, Suh Kyung-bae was the second-richest person in South Korea thanks to the booming K-beauty industry. His immense wealth, estimated at around $8 billion, came from his significant shareholdings in the Amorepacific Group, the family-owned cosmetics empire. However, as of now, his net worth has plummeted to $3.6 billion due to a staggering drop of over 40% in the value of his company's shares since January. The COVID-19 pandemic has heavily impacted Amorepacific, but signs of struggle were evident even before the crisis, as lifestyle changes made makeup less essential for many consumers. With more people staying at home and wearing masks, why spend time on makeup?

The pandemic has caused a shift in consumer behavior, halting the rapid wealth accumulation of K-beauty moguls and the acquisitions of their firms. Between 2010 and 2014, foreign companies invested $215 million in acquiring K-beauty brands. This trend continued from 2014 to 2019, with South Korea emerging as the fourth-largest exporter of beauty products globally, witnessing acquisitions rise to an impressive $5 billion. Estee Lauder's acquisition of Dr. Jart's parent company in November 2019 for $1.1 billion propelled its founder, ChinWook Lee, into billionaire status, while Goldman Sachs invested in GP Club, elevating its founder, Kim Jung-woong, among South Korea's wealthiest.

Unfortunately, the K-beauty sector now faces a triple threat from the pandemic. Social distancing measures and remote work have diminished makeup demand, leading to numerous retail store closures. The United States, a significant market for K-beauty products, experienced a 7% decline in sales in 2020. Furthermore, travel restrictions have severely affected K-beauty brands. The loss of Chinese tourists and business travelers, who would purchase tax-free goods in bulk from South Korea, has dealt a substantial blow to the industry. Additionally, Chinese consumers now have greater access to international brands, increasingly leaning towards locally-made beauty products. The once-coveted "made-in-Korea" label no longer holds the same appeal it once did, as illustrated by GP Club's failed IPO plans in 2019.

Understanding the Impact of COVID-19 on K-Beauty

The K-beauty industry is grappling with unprecedented challenges due to the pandemic. Revenue for Amorepacific fell by 23% in the first nine months of 2020 compared to the same period in 2019. In response to these financial challenges, the company has implemented measures to cut costs, including offering voluntary retirement to long-term employees. This shift highlights the profound effects of the pandemic on even the most successful businesses.

The Shift to Online Sales in the Beauty Sector

As traditional retail sales have plummeted, the pandemic has forced the beauty industry to pivot towards online sales. Amorepacific has seen significant growth in its e-commerce segment, prioritizing this aspect of its business going forward. While closing several of its physical stores in China, the company anticipates that online sales will comprise half of its business there by 2021. In South Korea, online revenue is projected to increase from 20% to 30% of overall sales in the same period.

Current Trends in Cosmetics Spending

Even before the pandemic, cosmetics spending was on the decline, and the crisis has only accelerated this trend. Currently, only skincare products like moisturizers and face washes are maintaining sales levels similar to those before COVID-19. Consumers are re-evaluating their beauty routines, leading to a shift in spending habits that emphasizes essential skincare over decorative cosmetics.

Final Thoughts on the Future of K-Beauty

The K-beauty industry faces a challenging road ahead as it navigates the ongoing effects of the pandemic. Companies like Amorepacific must adapt to shifting consumer preferences and embrace digital transformation to thrive. With the rise of e-commerce and changing beauty standards, the future will require innovative strategies to capture consumer interest and drive sales in a post-pandemic world.

As the beauty landscape evolves, it is essential for industry players to remain agile and responsive to consumer needs. The K-beauty boom may have slowed, but with resilience and ingenuity, there is potential for a revitalization in the years to come.