Chic and cheap: China takes shine to South Korean cosmetics

Wed Aug 7, 2013 4:59pm EDT

* South Korean cosmetics firms see strong sales in China

* Korean firms take on brands owned by L'Oreal, P&G

* Korea brands seen more suitable for Asians; prices affordable

* China's personal care and cosmetics market worth $34 bln this year

By Hyunjoo Jin

SEOUL, Aug 8 (Reuters) - Cosmetics brand Laneige has a French name and luxurious blue-and-white packaging but its legions of fans in China, the world's third-largest beauty products market, love it because it is South Korean and affordable.

Laneige, or "the snow", is one of about two dozen brands made by South Korea's biggest cosmetics company Amorepacific Corp which is using its Asian cachet and pocket-friendly prices to give global firms like L'Oreal SA , and Procter & Gamble Co a run for their money.

Other South Korea cosmetics manufacturers like LG Household & Healthcare and Able C&C are also using similar strategies to expand in China's beauty and personal care market, which is estimated to be worth $34 billion this year.

"We're taking aim at P&G's Olay and L'Oreal Paris in China's mass market segment with our entry-level brands," said Lee Chang-kyoo, head of Amorepacific's corporate strategy team.

"Our company is able to quickly read market trends and roll out products when something is in vogue," Lee told Reuters. "Recently Chinese local brands are also really doing well, so they are also our competitors."

Paris-based L'Oreal and Cincinnati, Ohio-based P&G declined to comment.

Korean beauty brands have little global renown, but in Asia they are household names because of perfectly groomed celebrity ambassadors such as actress Song Hye-kyo, singer Yoona of Girls' Generation and male entertainer Kim Hyun-joong.

Korea's vibrant entertainment industry has wide appeal in the region, and its stars are often held up as an ideal of beauty by both men and women.

On its website, Amorepacific says it wants to be thought of as the "Asian beauty creator" and its sales figures suggest it is winning over more Chinese customers.

Amorepacific saw the fastest sales growth in skin care products among the top 10 cosmetics companies in China last year, data from consumer research firm Euromonitor shows.

The Korean firm's China sales jumped 34 percent year-on-year, outperforming market leader L'Oreal's 13 percent increase, second-ranked Shiseido Co Ltd's 12 percent rise and third-ranked P&G's 5 percent growth.

Amorepacific also increased its share in China's skincare market by 0.5 percentage points to 2.6 percent last year, according to Euromonitor.

That compares with a 0.5 percentage point growth in L'Oreal's market share to 16.8 percent during the same period, and a 0.4 percentage point fall for P&G to 9.8 percent.

Zhang Pinghua, a 52-year-old Shanghai woman who usually buys products from Estee Lauder Companies Inc, started using Laneige face masks on a friend's recommendation.

"It fits Asian skin more," said Zhang.

Her 22-year-old daughter, Shen Ruyi, is a fan of The Face Shop, a low-cost brand of LG Household and Healthcare, a unit of the LG conglomerate.

"My school mates use it because it is cheaper than some Japanese brands," she added.

BULGING BEAUTY BOX

Japan is currently Asia's biggest cosmetics market but second-ranked China is growing at a much faster pace - Euromonitor forecasts 63 percent growth in China for the five years ending 2015 compared with flat growth for Japan.

Amorepacific posted on Tuesday a 35 percent increase in its second quarter China sales. LG Household and Healthcare's The Face Shop brand also posted a 52 percent jump in sales in China and Japan in the same quarter.

Most of the Korean cosmetics firms are targetting the mid-to-low end of the China market by rapidly opening stores and bombarding customers with hundreds of new products each year.

The Korean firms are able to offer so many products so quickly because they outsource production to companies such as Cosmax Inc, which also supplies L'Oreal, said Tiger Kim, head of Seoul-based consultancy CosmeticConsulting.

For example, Amorepacific's budget Innisfree brand launched 100 make-up and 70 skin care products in China in the first half of this year alone. The demand for cheaper cosmetics is rapidly growing in South Korea too, where global brands have been eclipsed by their domestic rivals in recent years.

Able C&C, owner of the budget Missha brand, relies on another strategy: it makes products that are similar to luxury cosmetics but which sell for a fraction of the price, such as a skin smoothing lotion that it markets as a cheaper alternative to the flagship product of P&G's high-end SK-II brand.

The company says it has 1,120 stores in 25 countries including China, Japan and the United States and plans to venture into Europe and South America next year.

"Most Korean beauty products emphasise natural ingredients and they are made for Asian skin. They are endorsed by various Korean celebrities as well," said Lui Meng Chow, a research analyst at Mintel, a global consumer research company.

"Their mid-range Korean beauty care products' entry into China will certainly impact the multinational brands."