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THE BACKGROUND

Ranked as the 11th largest cosmetics company in terms of sales worldwide, South Korea’s Amorepacific booked $4.8 billion in sales for 2016, all accumulated from 25 brands under its umbrella, including Sulwhasoo, Laneige, Innisfree, and Etude.

The company is known for its low to mid-range prices but high-quality products targeted towards the masses, especially young females.

By establishing Korea’s first cosmetics research lab in 1954, less than a decade after being founded in 1945, the company pioneered popular skincare trends such as boosting essences, sleeping masks, cushion foundations, and two-tone lip bars.

Forbes placed Amorepacific at No. 16 on its 2016 list of the world’s most innovative companies, and No. 7 in all of Asia.

Riding the ‘Hallyu Wave’ or South Korea’s pop culture phenomenon, the company has been largely credited to enhancing the Asian-ification multi-step beauty regime around the world.

Amorepacific Southeast Asia expansion
Amorepacific Southeast Asia expansion

The expansion of Korean Wave or “Hallyu” influenced the rise of Korean cosmetics brands. Source: Korean Joongang Daily.

THE CHALLENGE

The company reported a drop in its net profit by nearly 60% in Q2 2017 as geo-political tension between South Korea and China worsened due to the implementation of the THAAD anti-missile system earlier this year.

China was the company’s biggest overseas market, accounting for approximately 20% of total sales.

The tensions impacted a 22.5% drop in domestic sales and nearly 40%less Chinese tourists traveled to the country after travel agencies stopped selling packages to South Korea as insisted by the Chinese government.

With its two top markets performing poorly, Amorepacific had to look to other markets in order to grow and lessen its dependability on China.

THE STRATEGY

While the long-term focus was on typically homogenous markets in East Asia, the company’s ambition to tap into the global market was accompanied by a commitment to creating attractive products for new markets.

“Our growth strategy remains firmly focused on creating innovative, singular brands, and products that appeal to consumers in target markets, and we will continue to work towards becoming a great company delivering new beauty values to customers around the world,” said Amorepacific Chairman & CEO Suh Kyung Bae.

Amorepacific globalization plans seemed to start with Southeast Asia, as the company began dedicating more resources to efforts in the region.

Amorepacific Southeast Asia expansion

Amorepacific presence in Southeast Asia. Source: Pulse News.

 

“The market (ASEAN) is particularly important in that it is a gateway to India and the Middle East because ASEAN consists of multiple ethnic groups, including Indian, and is closely related to those markets,” said Na Jung Kyun, Head of Amorepacific ASEAN Regional Headquarters.

To penetrate the market, Amorepacific reformulated its products to compensate for the region’s humidity, darker skin tones, and the needs of Muslim women (“Muslimah”).

Examples include a lighter washable makeup that can be easily removed and applied for Muslimah that conducts daily prayers, which require a light washing of the face.

The company also developed darker shades of foundation for Laneige and Innisfree specifically sold in the region and aptly named “ASEAN Cushion Shades”.

In addition to localizing its product lines, the company also opened its first research and innovation lab earlier this year in Singapore. The aim is to develop highly tailored products for the ASEAN market and address regulatory issues.

Malaysia, in particular, has caught the cosmetic giant’s fancy as it invested 110 billion won ($95.7 million) to build its third overseas factory in the Nusajaya area – completion scheduled for 2020 – and opened an Etude flagship store in Kuala Lumpur early this month.

Amorepacific Southeast Asia expansion

Etude’s large range of lipstick in its flagship store.

“I believe among ASEAN member countries, the Malaysian market has the highest growth potential. In fact, it has been our goal to open a flagship store in Kuala Lumpur, and introduce the new core values of Etude House to a wider range of customers,” said Etude House CEO Geum Joo Kwon.

Not only has the company focused on traditional brick and mortar stores, Amorepacific has also taken its brands online with Innisfree launching an official brand.com web store, to offer its products worldwide.

Laneige has also opened an official store on popular Southeast Asian marketplace Lazada Indonesia and Thailand.

Often the other way around – first developed then developing markets – the company is eyeing North America for further expansion.

“Our company is operating in the Korean market, the Chinese market, and the ASEAN market. The US market will be our fourth pillar for our business, so we are very much committed to developing the US market,” revealed Amorepacific Chairman and CEO Suh Kyung Bae.

Through Innisfree, the company made its official introduction to the US market earlier this month with a grand opening of its first store in NYC, where it currently offers 900 different items from skincare, makeup, and home scents.

It also expanded to 14 different shades in its cushion foundation to serve a wider range of skin colors.

Amorepacific Southeast Asia expansion

THE FUTURE

The company’s decision to place a bet in Southeast Asia has reaped fruitful results as it overtook competitor brand Estee Lauder and doubled its market share in Asia Pacific to 6% in 2016.

Amorepacific Southeast Asia expansion

It has lagged behind L’Oreal and Shiseido, two companies with the strong digital presence in Southeast Asia.

But the experience and knowledge it picked up in this region are expected to be helpful for its venture into other new markets.

“If we can achieve success in Southeast Asia with this much diversity, it can also be a very good experience for us to enter different countries with great diversity as well,” commented Na Jung Kyun, Head of Amorepacific ASEAN Regional Headquarters.

Beauty is undeniably a big industry but within the sector, the hundreds of well-loved brands are owned by only seven global conglomerates. These household names range from Unilever, L’Oréal to Estée Lauder.

The 182 beauty companies contribute heavily to a beauty market worth $63 billion in the US alone and responsible for shaping consumer ideas about modern day beauty. The US and China alone will account for 54% of the premium beauty segment by 2021.

The chart, illustrated by Business Insider, shows how interconnected beauty brands really are and which houses are most prominent. Below are a few that stand out:

L’Oréal’s footprint

L’Oréal had the most brands on this list – a total of 39 beauty brands ranging from Maybelline to Kiehl’s.

It was estimated that L’Oréal made $27.6 billion in annual beauty sales in 2016. What factors attribute to its success? The company’s ecommerce sales rose by 33% year on year in 2016 and 30% of its media spend was on digital.

For the company, ecommerce isn’t only a peripheral revenue stream, but the new growth engine.

La Roche Posay, a skincare brand under L’Oréal, also has a marketplace presence in Thailand through a flagship shop-in-shop on Lazada.

La Roche Posay flagship store, Thailand

Beyond Thailand, Johnson & Johnson in the Philippines recently launched an official flagship store for its brands, Aveeno and Neutrogena, on Lazada to take advantage of the marketplace’s high traffic.

“Ecommerce isn’t the cherry on the cake, it becomes the new cake,” says Jean-Paul Agon, CEO of L’Oreal Group.

Selling online also helps L’Oreal cut costs,

“With traditional channels, there’s counters, samples and purity materials, when we do ecommerce, the cost is lower,” says Agon.

Unilever’s footprint

Unilever has 38 sub-brands under its management, and many are drugstore staples such as Vaseline and Sunsilk. The company reportedly made $22.3 billion from beauty sales last year.

The FMCG giant announced a partnership with Lazada earlier this year to collaborate on supply chain, fulfillment, data, marketing and social commerce. As Lazada saw a 181% growth surge in one year in its FMCG category, Unilever is looking to grab a large piece of the pie.

Unilever’s digital strategy in Southeast Asia reflects the company’s global ambitions,

“It’s important to change business models, to be inspired by startups, because the model of the past is not the model of the future,” says Keith Weed, CMO of Unilever Global.

Unilever Thailand unveiled a flagship store on Lazada earlier this year, selling ten of its most popular brands on the marketplace.

Unilever, Lazada Thailand

Johnson & Johnson’s footprint

Johnson & Johnson is responsible for nine beauty brands on the list – relatively small compared to the others but what it lacks in quantity, it’s well-known brands make up in popularity among users. Aveeno and Neutrogena are household staples for body and hair care.

The J&J brands can easily be found on the shelf of US drugstore chains such as Rite Aid, and as equally easily across the globe in a department store in Singapore or Bangkok. Offline footprint aside, consumers can also find a lot of these brands online – especially in China.

“Ecommerce is becoming a strategic imperative to winning baby,” says Christina Lu, VP Marketing for consumer personal care, Johnson & Johnson. In China, 15% of baby skincare sales come from ecommerce.

The group is also doubling down on an online strategy in Southeast Asia.

Aveeno flagship store, Lazada Philippines

Estée Lauder’s footprint

The company has reached $1 billion mark in yearly ecommerce sales, with online being Estée Lauder’s fastest growth channel.

“New experiences and innovative high quality products and services, which will encompass digital marketing, disruptive in-store merchandising, compelling creativity and omni-channel offerings is a priority for enhancing the customer engagement experience,” says Fabrizio Freda, CEO of Estée Lauder.

Brands under Estée Lauder, such as Bobbi Brown and MAC leverage from being global powerhouses, and solidify their presence in countries such as Thailand by launching brand.com.

Bobbi Brown Thailand

Why are these beauty brands so successful?

In 2016, global brands such as Unilever, Procter & Gamble and L’Oréal maintained a strong foothold in Thailand even as the market saw a rise in local beauty brands. According to Euromonitor, beauty brands have experienced a faster growth rate in 2016 because of aggressive digital marketing strategies via: 

  • Online content
  • Different purchasing incentives such as click-and-collect
  • Free delivery with online purchases.

What this research shows is the importance of a digital strategy – not many brands have the capability of breaking into markets without a long term online play.

Interested in reading more on beauty? Check out eIQ’s BeautyIQ Series, where we cover different aspects of building a successful beauty brand in a digital age.

The original infographic was published on Business Insider, access the article here.

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3. Mobile is like having a makeup artist in your pocket: Estée Lauder exec

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