K-Beauty market in South Korea to be worth USD 21.8 billion by 2026

The cosmetic market is projected to be worth USD 21.8 billion, growing at a CAGR of 11.3% by 2026.

Asia-Pacific is one of the prominent regions in the market that solely accounted for approximately 70% of the total K-beauty products market share in 2019.

Definition / Scope
Market Overview
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

The cosmetics market encompasses set of products like shampoo, make-up, perfume, soap, skin care among other. The cosmetic market is a multi-sided market broadly divided into two categories based on its offerings.

Beauty salon and spa are considered as the service provider of cosmetic industry. Health clubs and cosmetic surgery labs are the newest innovators in this segment. The other side of the cosmetic spectrum solely sells beauty related products.

Market Overview

% of world beauty retail sale	2016	2017	2018	2019
USA	18	18	18	20
Japan	13	12	12	13
China	17	18	19	20
UK	4	4	4	4
South Korea	5	5	4	3

The Korean beauty and cosmetics market is among the top 10 around the world, with an estimate worth of over USD 14 billion in salesin 2019, capturing 3% of the global beauty market. USA and China combined captured 40% of the beauty market worldwide in 2019.

Skin care is the cash cow for big beauty brands. Over the last five years, skin care has grown so much that it captures the largest piece of beauty category pie making up about 49 % of the total annual revenue made by beauty market. Facial skin care products alone make up half of the total market share and are projected to reach USD 7.2 billion by 2020.

China is the largest export market for Korean cosmetics, and exports to Southeast Asia (39 percent), North America (29.8 percent), and Europe (51.3 percent) have been found.

Make-up sub-segment rank third that constitutes 17% share while hair care for both men and women represents 10% share. Other products such as perfumes, toiletries, lipstick, eye shadow, nail enamel, etc. combined capture 20% revenue share.

Top Market Opportunities

R & D and Export Market:

The marriage between Korean Pop and Beauty culture is dramatically spreading overseas. In 2018, the exports of K-beauty rose 110% and 65% to Indonesia and South East Asia respectively. Similarly, in the UK, the figure increases by 70% and 65% to Russia, 47% to France, and 31% to the US. The Korean cosmetic has become huge market internationally.

South Korea has become the hotspot for manufacturing OEM beauty products for international brands, even the R & D formulations is being outsourced to Korean chemists and experts, a growing demand from international market.

South Korea has always been a export-oriented market since the country lacks stock of any natural gas, oil, or any minerals. From the early industrialization it has focus on export of electronics and automobiles followed by K-pop and now K-beauty, Korea is always looking for new products to export.

Tapping medicinal segment

For instance, a shampoo that contains Inula Helenium (IH) and Caesalpinia Sappan (CS) extracts is found to be effective in the treatment of hair loss and helps recover lost hair and stimulates growth. Such types of extracts are in line with the FDA’s approved drug to treat hair fall but are natural and clean cosmetics.

Organic and natural ingredients:

The global organic personal care market is expected to reach a market valued at USD 15.98 billion by 2020, growing at a CAGR of almost 10 percent. Organic personal care products are made from plant-based ingredients such as almond, palm, jojoba, safflower and coconut oils; soy and oat derivatives; and cocoa and Shea butters.

Market Trends

Cultural Transformation

The Korean wave, called “hallyu,” is the spread and propagation of South Korean pop culture, food, dramas, makeup, and movies and throughout the world through social media and online platforms.

A lot of this wave radiates off of the music, K-pop, with artists like PSY, Wonder Girls and BTS whose edgy look, style and sound attract global fans. Recent such phenomenon is the maneuver of Korean beauty throughout the international market.

Changing demographics

The demographic of beauty consumers is shifting. Firstly, millennial are projected to represent 30% of total global retail sales by 2020.They adopt ‘digital first’ pathways to purchase, they actively seek out online influencers, and they function in a world that is driven by image.

Moreover, older demographic categories are also adopting millennial‑like consumption habits.

Camera ready beauty

With a desire to always be camera-ready, consumers’ crave for beauty a product is intensifying. The playing field for high-end cosmetics continues to expand as the barriers to entry have come down, largely due to digital commerce and social media.

Global reach

Globally, with 16.1 percent annual growth, the cosmetics and fragrances sector recorded the fastest growth among all the other sectors.

Innovatively Packaged Cosmetics

The innovative packaging has played an important role in driving sales of cosmetics in 2019. Multinationals preferred to use environmentally friendly packaging material. Packaging requirements of men are different from that of women.

For instance, when it comes to face creams, men do not like to stick their fingers into a jar. Thus, companies had been offering creams in pump packages. Pack functionality was also very important in this sector as male consumers seek more practical and simple forms of packaging.

Further, consumers are actively seeking cosmetics with packages/labels, which depict that the manufacturer complies with environmental ethics.

Industry Challenges

Export competition:

The beauty industry is facing an excessive competition in the nearby markets, particularly China. China’s retaliatory actions as part of the THAAD missile crisis in 2017 led to huge decrease in cosmetics sales.

China holds largest market for Korean Cosmetics with USD 53 billion domestic beauty industry and the restriction means a huge loss of the reveue pie. For instance, Innisfree brand owned by Amorepacific captures as little as 1.1% cosmetic market share in China.

Other two brands Lanelge and Whoo combined make up another 1.1% share in Chinese market where the flux of other international brands competes.

Societal Transformation

Today’s marketers need to divest from product-centric focus to customer-centric focus. Customer-centric means to understand customer needs, a strong sense of attachment, and knowledgeable about the customers.

Brands are required to respect the vanity of customers and need to transform their offerings based on the customer demand. Another challenge is to adapt with the transforming omni-channel distribution.

The availability of digital purchase platforms has significantly altered the way consumers buy beauty products.

From a generation back, when everything that needed to be bought had to be bought from local state-owned stores, to the present time when there is a wider selection of local retailers selling a global assortment of products and the availability of online retailers at the touch of a smartphone button, the brand purchase funnel has seen a significant change and has become the crucial challenge for both the big and emerging brands.

Innovation

The inner texture, colour, and fragrance have become a core necessity for any beauty product categories, which needs to be managed. It is equally important to ensure that the innovation behind a range launch forms the augmentation of the range’s positioning. Moreover, the product packaging plays another impulsive factor.

In a competitive marketplace, prpduct innovation always has strong positionning to act as a brand’s strategic differentiator. The emergence of concepts like “biomimetics” is pushing thinking behind the manufacture of beauty products by borrowing principles from nature (which includes understanding of the microstructure of human skin and other animals).

Covid-19 pandemic

First, the beauty products are not reaching the targeted customers as the beauty and cosmetic market came into halt amid coronovirus pandemic. Secondly, the beauty products sold through service part like parlour, saloon, spa, and all other wellness means have also been hit hard due to pandemic.

Technology Trends

Cushion makeup

Introduced by Amore Pacific Group, Cushion products are the latest Korean trend to draw worldwide attention in the beauty sector. The term “cushion” means a makeup compact, which is built with a specially designed urethane foam that contains and preserves a makeup liquid (usually a foundation, blended with sunscreens and skincare actives) and applied with a dedicated sponge.

Amore Pacific group had started working on cushions in 2007. The group has 13 registered patents for cushions in Korea, China, Japan, the United States and Europe. In 2014, it succeeded in automating the entire cushion production procedure.

Micro-innovation

Fermented botanicals contain micro-organisms that release enzymes that ferment and break down molecules into the raw material, resulting in the creation of new substances that benefit the skin.

Fermentation helps the skin absorb the product better due to the smaller molecular sizes, and it also reduces skin irritation, because the fermentation process neutralizes potentially toxic substances like pesticides.

Another example of innovation is the combination of beauty balm cream, BB cream, with an air cushion compact. Although these creams were created in Germany, Korean companies popularized the merging of foundation, moisturizer, anti-aging cream, whitening agent and sunscreen in one product.

The air cushion compact wicks the formula off a sponge and effortlessly applies evenly onto the face for that dewy, no-makeup makeup look.

SkinFood brand, for instance, with food cosmetics that contain natural food extracts rather than artificial preservatives applies holistic approach of food towards beauty.

Pricing Trends

Department stores, e-commerce, and home shopping channels do not directly purchase/import goods in general. Instead, they rent out space to various brands and charge 30-35% commission fees on sales. The retail price in South Korea reflects margins of retailers and distributors.

Product	Price Range (in USD)
	Mass Market	Premium Market
Perfume	4.3-28.3	40-423
Lipstick	3.4-13.7	24-51
Sunscreen	4.3-15.3	27-238
Skin Cream	2.9-58.4	42-1415
Shampoo	7-11.3	23-181
Deodorant	2.3-3.5	24-46

Regulatory Trends

Some guidelines for labeling and advertisement of organic cosmetics (KFDA) include:

No more than 5% of synthetic ingredients
More than 95% of natural origin ingredients
More than 10% of organic ingredients
More than 70% of organic ingredients exclude sodium and water

For the trending clean cosmetics, there is no any stringent regulation to be followed as the products feature more of herbal and natural proliferation than the chemical composition.

Other Key Market Trends

Anti-aging

The growing number of Korean woman is narcissistic of maintaining outer youth. In order to do so, they dope Botox injections, all in the name of looking young.

Plastic Surgery

Korea carried out 311571 cases of facial plastic surgery in 2018, the third largest number in the world, having performed by 2,150 plastic surgeons, the 5th largest number globally. Among the recipient of surgery in Korea, 11.3% are foreigners, and 57.7% of them are Chinese.

Market Size and Forecast

South Korea is the 8th largest cosmetics market in the world, representing nearly 3.0% of the global market. In 2019, the market size was estimated to be USD 14 billion.

(Billion USD)	2016	2017	2018	2019
Production	11.18	11.56	13.28	14.89
YOY Production growth rate (%)	25.91	3.55	19.88	12.12
Export (in billion USD)	4.18	4.96	6.3	8.3
Import (in billion USD)	1.31	1.41	0.91	0.91

Total cosmetic production reached USD 14.89 billion in value in 2019 from USD 11.18 worth in 2016. However, the rate of growth has stumbled since 2016 growing at less than CAGR of 20%.

Export figure saw a gradual increment since 2016 reaching worth USD 8.3 billion in 2019. With increasing production, the imports of beauty and cosmetics products has reduced from USD 1.31 billion in 2016 to USD 0.91 billion in 2019.

Import & Export Figures for major products 2016-2019


(in ,000 USD)	2016	2017	2018	2019
Export	Import	Export	Import	Export	Import	Export	Import
Perfumes & Scents	6,124	153,837	15,685	165,653	8,954	166,416	10,111	157,444
Toilet waters	2,824	6,875	969	8,499	1,048	8,929	1,060	8,202
Lipstick	31,447	57,073	63,734	67,205	61,980	72,515	57,302	64,267
Eye Shadows	13,504	18,461	20,467	23,263	34,594	27,537	45,917	20,568
Nail Enamels	8,185	4,436	7,715	2,872	7,140	3,948	5,442	2,070
Face Powders	25,215	15,297	24,230	14,802	25,051	16,676	27,583	14,420
Baby Powders	112	402	215	439	33	458	10	304
Make up	348,326	67,626	361,752	75,874	463,031	86,411	484,526	84,551
Skin Care	1,678,270	483,286	1,989,417	558,279	2,426,750	463,218	2,589,538	479,200
Baby cosmetics	4,336	15,726	4,460	16,309	16,986	14,483	17,477	13,572
Shampoos	29,652	486,984	37,551	476,630	137,560	48,931	144,215	59,912
Total	2,147,995	1,310,003	2,505,748	1,409,825	3,183,127	909,522	3,383,181	904,510

Overall, the export of baby cosmetics and shampoos has made unprecedented growth of 303% and 386% respectively from 2016 to 2019.

However, baby powders and toilet waters have seen negative growth of 91% and 61% respectively during the same period. On the import side, make up and toilet waters have made positive growth of 25% and 19% respectively while negative growth appeared for shampoos and nail enamels, 87% and 53% respectively.

In 2016, the export of skin care products was the largest, making up 78.13% of total exports while shampoos contributed highest import, comprising 37.17% of total imports. In 2017, the total export grew by 16.66% while total import rose by 7.62% from the previous year’s figure.

Similarly, Korea exported and imported the highest quantity of skin care products in 2017, constituting 79.41% and 39.61% of total exports and imports respectively. The total export rose further by 27.03% however, total imports declined by 35.49% in 2018. Likewise, in 2019, skin care products further took the momentum with 76.54% of total exports and 52.98% of total imports share.

Despite the individual product’s import and export growth, the total export and import were marginally fluctuated from 2018 figure. During the 2016-2019 periods, total exports were highest in 2018 and total imports were highest in 2017.

AmorePacific appeared on top as the leading export company, followed by LG Household & Healthcare and Aekyung Industry.

Market Outlook

South Korea is aiming to become the third-largest cosmetics exporter from the current 8th position in the world by 2022. The move will be made through extensive investment in research and development and concerted marketing efforts, garnished by tax rebate provided to companies who are export oriented only.

The goal is to ship out more than USD 7.6 billion worth of cosmetic products annually from the current USD 3.38 billion worth of exports and have at least seven of the world’s top 100 makeup companies, from four at present.

Such growth target will add 276 more local cosmetics companies with annual sales exceeding USD 4.2 million in the target year and will contribute to the creation of 73,000 new jobs in the sector.

For this target to achieve, the government will provide MSMEs with USD 6.5 million in support in 2020, with USD 16.86–25.3 million to be injected in this field after 2020 onward.

Its main overseas markets will be China, Hong Kong, the US, Japan, Vietnam and Thailand, with total numbers of makeup manufacturing companies and retailers standing at more than 12,000.

The cosmetic market is projected to be worth USD 21.8 billion, growing at a CAGR of 11.3% by 2026. Asia-Pacific is one of the prominent regions in the market that solely accounted for approximately 70% of the total K-beauty products market share in 2019.

Distribution Chain Analysis

Omni-channels like E-commerce, drug stores, and television home-shopping are becoming increasingly popular for consumers to purchase cosmetic products in Korea. Duty-free shops and select shops are challenging traditional retail channels like direct selling, multi-level marketing, “mom and pop” stores, department stores, and discount stores.

Since the demand for new retail channels has become bigger and consumer demands segmented, various channels such as select shops and multi shops are entering the market. For example, LG Healthcare and Household launched its select shops ‘Tomaru’ and ‘Nature Collection’ and expanded its operations in duty free shops.

While, imported cosmetics are primarily sold through online shopping malls (34.7%), specialty stores (21.4%), medical institutions (9.0%; hospitals, clinics, drug stores), multi-level marketing (6.1%), department stores (5.4%), select shops (4.4%), home shopping channels (2.8%), hypermarkets (2.3%), and others.

Competitive Landscape

South Korea’s top two leading players, AmorePacific and LG Household & Health Care have stepped into global markets. Although their performance in global markets is not yet significant, both have achieved to be top 10 beauty companies in Asia Pacific.

Combined, these two domestic brands capture 59.6% market share in the home market.

Competitive Factors

Enhanced brand competitiveness by strengthening collaboration with local celebrities and influencers is the winning factor in the beauty segment. For example, Amore did enhance brand competitiveness by strengthening collaboration with local celebrities and influencers (‘Concentrated Ginseng Renewing Serum’ China launching event, T-mall Livestreaming, etc.)

Another competitive factor is reinforced brand responsiveness of millennial customers by increasing online channel growth. For instance, Amore reinforced brand responsiveness of millennial customers by increasing online channel growth in China, expanding ASEAN digital channels and signing business agreements with Singapore ‘GrabPay’

Key Market Players

LG Household & Health Care Ltd.

LG Household & Healthcare Ltd. is a Korea-based company principally engaged in the manufacture of distribution of cosmetics. The Company operates its business through three segments.

The Beautiful Segment which is engaged in the manufacture of skin care and make-up products, as well as healthy foods. The Healthy Segment which is mainly engaged in the manufacture of household goods, including oral, body, hair care products, household detergents, and all the related materials.

The Refreshing Segment is mainly engaged in the manufacture of carbonated and non-carbonated beverages such as cola, juice, tea, coffee, and bottle water products.

The company made combined revenue of USD 6.3 trillion from selling products and offering services in all the three segments in 2019. Healthy and Beautiful segment combined revenue was 81% of the total revenue in that year.

Amore Pacific

Amore Pacific is a Korea-based company engaged in the manufacture and distribution of cosmetic products. The Company operates its business through two segments.

The Cosmetic segment is mainly engaged in the manufacture and distribution of skin care products, makeup products and perfumes under the brand names of Sulwhasoo, Hera, IOPE, Laneige, MAMONDE, Haneul, Odyssey and others.

The Daily Beauty (DB) and Sulloc segment is mainly engaged in the manufacture and distribution of shampoos, body cleansers and toothpastes under the brand names of Mise en Scene, Happy Bath, Ryoe, Dantrol and Median.

Amore Pacific made USD 4.6 trillion (KRW 5.6 trillion) in revenue in 2019. Revenue from domestic market constitutes 63% while the remaining 37% was contributed from overseas market. The cosmetic segment comprised 53.7% of the total revenue in the same year. Sulwhasoo is the luxury skin care product offered by Amore. Likewise, ARITAUM, Laneige, and IOPE are the products offering under premium brand.

Strategic Conclusion

Apparently, K-beauty wave is likely to spread throughout the world. However, there is a potential challenge to slowdown the growth as already witnessed a sluggish cosmetic sector in the last two years. With the growing appeal and opportunity, there will be new entrants stepping into the market with innovative product offering like clean cosmetics.

In order to lead the competitive market, it will be important for manufactures to develop innovative products with new ingredients, unique features while maintain a good quality. Establishing user-friendly platform to purchase products online will be another key to success in the market.

Southeast Asian market will be a lucrative hotspot for South Korean cosmetic products. Despite, stumbling export to Chinese market after South Korean relations with China snagged since Seoul deployed the US Terminal High Altitude Area Defense (THAAD) on in early 2017, as more Chinese consumers are taking an interest in the components contained in cosmetic products, South Korean cosmetic brands will infiltrate the Chinese market using their reputation for using clean cosmetics.

The aim to reach the cosmetic market worth USD 21 billion in 2026 looks promising for the K-beauty.

References

Appendix

OEM- Original Equipment Manufacturer
R & D- Research and Development
CAGR- Cumulative Annual Growth Rate
K-beauty- South Korean Beauty