Cosmetics sales may be losing color in the U.S., but manufacturers are putting money into more innovative brands in the East.
Korean beauty brands, long popular with consumers outside their home country, are attracting investment from foreign players. German consumer-goods maker Beiersdorf Aktiengesellschaft said Dec. 9 that it would invest an undisclosed amount in Seoul-based startup LYCL Inc., which manages its own skin care brand as well as a review platform for Korean beauty products. And New York-based The Estée Lauder Cos. Inc. said in November that it would acquire the remainder of HAVE & BE Co. Ltd., the maker of skin care label Dr. Jart+.
The moves add to the companies' presence in multiple markets, from travel retail to developing parts of Asia. Among them is the U.S., where Korean beauty brands have yet to penetrate several areas, said Denise Herich, co-founder and managing partner at The Benchmarking Co., a consumer research firm that focuses on beauty products. Sleeping masks, oil-based cleansers as well as treatments for cleaning pores and brightening skin were among the products that consumers were interested in but had yet to try, according to a survey of 5,700 U.S. consumers conducted in April by Benchmarking.
"The most popular skin care products that U.S. consumers haven't used yet, but would like to, are well-represented in K-beauty offerings," Herich told S&P Global Market Intelligence.
Rubber face masks, seen here at a Sephora store in Arlington, Va., are among the products that have attracted customers to Dr. Jart+ in the U.S. Source: Alex Bitter |
New products are how K-beauty brands have found success in the U.S. so far, she added. Dr. Jart+, which has sold products in the U.S. for about a decade, made headway in the market through rubber face masks and blemish balm creams, which combine several skin treatments such as moisturizers, concealer and sunscreen.
Introducing similar new products will be key to success as other Korean brands also look to expand in the U.S. and foreign markets, Herich said.
"As these brands continue to innovate, the brand awareness will lead consumers to inquire about new products," she said.
Millions in deals, billions in exports
In Asia, other products made by Korean beauty brands are attracting customers for their focus on relieving specific maladies, said Ashley Kang, head of beauty, Asia-Pacific at Kantar Worldpanel. A line of Dr. Jart+ creams contains compounds from Centella asiatica, a plant known for its ability to heal red, irritated skin.
Claims around skin care products "have become much more complex and symptom-driven in the Asia market," Kang said during a November presentation.
Beauty companies in South Korea have led their peers in China and Japan when it comes to attracting investors so far in 2019. As of Dec. 9, 12 companies have announced deals worth a cumulative $68.7 million, dwarfing both the total value of transactions in the space as well as the total number of deals.
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Besides multinationals, private equity firms have also invested in Asia-based beauty brands in 2019, with Core Asset Management Co. Ltd. upping its investment in South Korea-based skincare product maker SR biotek Inc. over 2018 and Unison Capital Inc. announcing its acquisition of Japanese cosmetics maker Pyuru Co. Ltd in June for an undisclosed amount.
Globally, consumer goods makers in recent years have been willing to pay to acquire brands, especially prestige beauty labels, in order to unlock growth.
The growth has been especially appealing among Korean beauty products. The value of cosmetic exports from South Korea abroad rose more than 130% to $4.37 billion between 2014 and 2017, according to data from the U.S. International Trade Administration.
Losing glow
The investments from Beiersdorf and Estée Lauder come as U.S. consumers' desire for cosmetics appears to be softening and fewer innovative products are coming to market, Morningstar analyst David Swartz wrote in a Dec. 6 note.
"Based on commentary from industry sources, we believe makeup (color, especially) is in a downcycle after a strong period of innovation in 2016-17," Swartz wrote.
But skincare, the focus of many Korean beauty brands, has lifted overall results for cosmetics companies as other categories fade, he added. At U.S. retailer Ulta Beauty Inc., skincare, bath and fragrance products grew their share of sales to 21% during the quarter ended Nov. 2, up from 19% in 2018, and CEO Mary Dillon told analysts Dec. 5 that the category is "seeing nice growth" among both mass-market product as well as prestige products that sell for a premium.