Tag: Korea

How YSL Picked Up a Social Lipstick Trend in China – and Won

By Jiaqi Luo

In a modern world of diversity, cross-cultural interchange and rapidly evolving societies, it remains fair to say: women love lipstick. In the west, the term “lipstick effect” was born; when disposable income drops during a time of economic crisis, lipstick sales rise. Women love lipstick because it is an affordable product that instantly feels luxurious and increases their confidence level. (editor’s safety note – the writer is a woman!) Continue reading “How YSL Picked Up a Social Lipstick Trend in China – and Won”

Korea: Politics vs. Luxury Business – Who’ll Win?

Over the last couple of weeks a lot has been said about the deterioration of China Korea relations. China is concerned by the South Korean government’s decision to host American THAAD anti-aircraft missile technology and have made their displeasure known by banning popular Korean cultural exports – including pop stars and soap operas – from appearing in China. So what exactly does that mean for those prized Korean brands, which have been enjoying rapturous success with Chinese consumers, both in China and with travelers to Korea?

Korean brands have enjoyed a major popularity surge among Chinese consumers in recent years, particularly among Chinese women who have embraced Korean skincare as being a suitable and affordable mid-range alternative to expensive foreign brands and lower-priced domestic brands.

According to the Korean International Trade Association, exports of skincare and makeup rose 45 percent last year to $3.97 billion; of that, China accounted for 37 percent, or about $1.45 billion.

Experts are split on whether the broader political schism between the two countries will impact on the desire Chinese consumers have cultivated for Korean beauty products.

Sunny Um, a research analyst with Euromonitor, said the implications for the Korean beauty industry could be significant and Korean companies could lose market share to their Chinese competitors.

“Global luxury giants’ investments in Korean beauty [companies] will also be discouraged, as their objective to capture the China market through the Korean companies won’t be fulfilled,” she said. “China has already started a stricter inspection process for South Korean beauty products, causing delays in product launches and supplies.”

Benjamin Cavender, a senior analyst at China Market Research Group, said he sees limited impact on Chinese consumers.

Korean Model – TLC.png

“Probably this will have the biggest effect on talent that previously had endorsement deals in China, but I’m not sure that it’s going to stop anyone from finding ways to watch Korean dramas online or from buying cosmetics products or electronics that they like,” Cavender said.

The tension is definitely having repercussions on tourism, and therefore shopping in Korea.

“Some of our clients have seen a significant drop in Chinese customers in the last couple of weeks, this has really affected their business,” said Chloé Reuter, Founder and CEO of Reuter Communications, an agency that helps luxury brands connect with Asia’s luxury consumer.

Last year, almost six million Chinese visited South Korea, a number that’s grown an average of 40.6 percent since 2012, according to Seoul-based think tank, LG Economic Research Institute. The estimated spend of these travellers was 12.58 trillion won ($10.6 billion), accounting for 0.8 percent of South Korea’s GDP.

Many experts are already predicting a significant fall in tourism from China to Korea in 2017, with Nomura forecasting five percent growth in Chinese tourist numbers to Korea this year, down from 12 percent year-on-year growth last year.

Much of this fall, however, can be attributed to the ban in low-cost (under RMB 2,000) tour packages implemented by China’s government last October. These tour packages were responsible for bringing in 20 percent of China’s group tourists to Korea and are generally focused on duty free shopping.

Korean cosmetics brands with high exposure to duty free shopping channels such as Amorepacific would be the most negatively impacted, Nomura said.

South Korea’s duty-free shops including Lotte Duty Free and Shilla Duty Free, which saw sales of 12.27 trillion won, or $10.6 billion, last year, will also experience a sharp drop in revenues if Chinese tourism declines as predicted.


“The 2017 market expectation for duty-free revenue growth was somewhere around 15 percent, some who were bullish in their forecasts even anticipated 17 to 18 percent growth, and now it’s looking like single-digit growth. Some might even predict it to be minus growth,” said Kang Soo-min, a retail analyst at LIG Investment and Securities.

“This issue is not going to be resolved in a short period of time. This has been going on for more than six months now…[Companies should try to] find some other markets other than China, try to lessen the dependency on one single market.”

Among those firms dependent on Chinese consumers is Lotte Group, which has total sales of 30 billion won, or $2.6 billion, in China. The group confirmed in January that it will hand over a golf course in Seongju County to be used by the Korean government for THAAD deployment, in exchange for other land.

Since the announcement, Lotte’s products and Lotte Mart sections have disappeared from prominent Chinese e-commerce sites, including JD.com, Baidu Waimai and Meituan.


So what should Korean brands do in the meantime in order to minimize the damage? The best course of action is probably to keep their heads down and ride out the storm. Whilst the immediate impact may seem dramatic, we don’t believe that consumers will be permanently turned off from buying their favourite Korean brands any time soon. People will still need their K-Beauty and snail masks so we predict that we’ll see a pick up as soon as politicians have moved onto the next item.