Beauty Rivals Amorepacific vs LG Household & Health Care: The Hyperbolic Curve of Joy and Sorrow

[Asia Economy Reporter Yujin Cho] The performance of domestic beauty rivals Amorepacific and LG Household & Health Care diverged. Amorepacific's operating profit halved compared to its peak in 2016, while LG Household & Health Care set a record with nearly three times the profit gap compared to Amorepacific.

On the 5th, Amorepacific announced that its consolidated operating profit for last year was tentatively estimated at 427.8 billion KRW, down 11.2% from the previous year. During the same period, sales increased by 5.7% to 5.5801 trillion KRW, while net profit decreased by 37.2% to 210.4 billion KRW.

Amorepacific's operating profit has halved compared to the 2016 peak (848.1 billion KRW), continuing a three-year streak of poor performance. The ongoing impact of the THAAD retaliation in its key growth driver, the Chinese market, dealt a direct blow to its results.

Most major affiliates, including Amorepacific, which operates over 40 brands such as Sulwhasoo, Hera, and IOPE, saw a decline last year: Innisfree (-22%), Amos Professional (-2%). The core subsidiary Etude's sales dropped 18%, recording an operating loss of 18.5 billion KRW. Poor sales in duty-free channels and road shops in major tourist districts negatively affected performance.

Overseas sales showed slight growth. The Asian region business grew 5% year-on-year. This was the result of expanding the portfolio through new product launches centered on the five major global brands (Sulwhasoo, Laneige, Mamonde, Innisfree, Etude House) and collaborations with global business partners. The North American business performed relatively well with a 38% increase.

Earlier, on the 29th of last month, LG Household & Health Care announced a tentative consolidated operating profit of 1.1764 trillion KRW, a 13.2% increase from the previous year. This is the highest performance since its founding, marking 15 consecutive years of growth. During the same period, sales reached 7.6854 trillion KRW and net profit was 788.2 billion KRW, both up 13.9% year-on-year, achieving record highs in both scale and substance.

LG Household & Health Care stated, "Despite triple challenges including domestic economic downturn, the US-China trade dispute, and uncertainties in China's e-commerce law, sales and operating profit have shown steady growth of over 10% each quarter."

High growth in overseas business is cited as a major factor behind the strong performance. Overseas sales grew 48% last year due to strong business in China and Japan. The competitiveness of luxury cosmetics brands such as Whoo, Su:m37, and O Hui has solidified, supported by high market demand.

LG Household & Health Care said, "We are visualizing expansion into the global market based on a solid business foundation in Korea and Asia," adding, "Expectations are high for the expansion of Avon’s North American business."

As the Chinese business, a new growth engine for the domestic beauty industry, shrinks, the differing strategies focusing on marketing (Amorepacific) and sales (LG Household & Health Care) are pointed out as the reasons for the divergence in performance.

An industry insider commented, "Amorepacific has continued investment efforts to enhance brand power despite no significant progress in recovering its Chinese business," adding, "It appears to be a strategy pursuing external growth through brand strengthening rather than profit increase through cost reduction."

Amorepacific's marketing-focused strategy is also evident in the rising trend of selling and administrative expenses. Despite decreasing annual profits, Amorepacific has increased selling and administrative expenses every year since 2016 to strengthen brand power: 3.1477 trillion KRW in 2017 and 3.361 trillion KRW in 2018. Last year, expenses rose by 8.3% (cumulative for the first three quarters) compared to the previous year, with significant increases in Asia, including China.

LG Household & Health Care's unique growth background is attributed to a sales strategy focused on cost-effectiveness. Amid explosive demand for the brand Whoo, the company withdrew all offline standalone stores in China, including mid-priced brands, and reorganized channels focusing on department stores, online, and duty-free shops, concentrating on cost efficiency.

Meanwhile, concerns about first-quarter performance next year are rising in the market. Since the first quarter of this year falls under the influence of the novel coronavirus infection (Wuhan pneumonia), both companies are expected to inevitably suffer performance hits due to reduced consumption. An industry insider said, "With increasing confirmed cases and deaths from the infection, it is currently impossible to gauge the extent of the impact on first-quarter performance," adding, "Both companies are expected to see declines in sales and profits."

This content was produced with the assistance of AI translation services.