Foreigners Stock Up at Olive Young... "K-Beauty to Stay Strong Next Year" [Weekend Money]

Shinhan Securities Names Cosmax Its Top Pick in Apparel and Cosmetics
"Foreign Visitors to Drive Domestic Demand, Exports to Lead Growth"

Although cosmetics and apparel are both consumer goods, analysts say cosmetics will post much stronger growth in 2027. With domestic demand expected to be driven by foreign visitors to Korea and growth by exports, cosmetics are forecast to continue performing well amid the K-beauty boom.

On November 12, Shinhan Securities analyzed the cosmetics and apparel sectors for next year, saying cosmetics would see stronger growth in both domestic demand and exports.

First, it forecast that domestic consumption by Korean consumers would decline. Although the Consumer Sentiment Index stood at 105.4 last month, above the 100 mark, the Retail Sales Index fell 0.3% year on year in August and 0.4% in September, marking two consecutive months of decline. The 3.00% base rate and the decline in the KOSPI are also weighing on consumer spending. Against this backdrop, foreign visitors to Korea are expected to drive domestic demand. From January to September, 17.11 million people visited Korea, up 21.5% year on year, while foreign card spending reached 15.9 trillion won, up 47.7%. Per-capita spending also rose 21.5% to 932,000 won.

One notable shift is that foreign visitors have moved their spending from duty-free shops to Olive Young and pharmacies. In August, the average spending per foreign customer at duty-free shops fell 22.4%, while foreign customers accounted for as much as 33% of Olive Young's offline sales. Pharmacies made up 69.0% of medical-related transactions. Park Hyunjin, a research fellow, and Kwon Chaeyoon, a researcher at Shinhan Securities, said, "Instead of duty-free shops, foreign visitors are buying derma and functional cosmetics at Olive Young and pharmacies. Foreign visitors are expanding domestic cosmetics demand, while apparel is managing to hold up mainly at stores in tourist areas, such as those operated by Musinsa." They added, "The variables are the visa-free entry program for Chinese group tourists, which ends at the end of this year, and the won's appreciation."

Cosmetics are also expected to outperform apparel in exports. Shinhan Securities forecast revenue growth of 13.5% to 15.6% for cosmetics companies next year, compared with 3.1% to 3.8% for apparel companies, saying the difference lies in exports. "Cosmetics exports totaled $10.3 billion from January to October, already exceeding last year's full-year figure. They could reach $12.48 billion for all of this year and rise to the $14 billion range next year," Shinhan Securities said. "The market share in Europe has tripled in two years to 6.2%, but there is still room to grow, as it is only 0.68 times the U.S. share of 9.0%." On apparel, it said, "This is a year when original equipment manufacturing (OEM) grows only in volume."

Because exchange rates and logistics costs are not favorable for exporters, maintaining profitability is expected to be key. Shinhan Securities said, "The impact of foreign-exchange translation on revenue will be greatest for apparel OEM companies such as Youngone Corporation and Hansae, while among cosmetics companies, the impact will be greatest, in order, for APR, Dalba Global, and Amorepacific." It added that cosmetics original development manufacturing (ODM) companies are relatively less exposed to exchange-rate effects.

Taking all these factors into account, Shinhan Securities concluded that cosmetics manufacturers are best positioned to defend growth and profitability in the cosmetics and apparel sectors. "K-beauty's success is extending beyond brands, as Korean manufacturing technology is gaining recognition from Western clients, and the U.S. production facilities of Korean ODM companies will serve as a key point of contact," the firm said. It named Cosmax as its top pick and Amorepacific and APR as stocks of interest. For apparel, it recommended Youngone Corporation and Handsome as stocks of interest.

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