THAAD impacts K-Beauty cosmetics growth

25-Jun-2017 - Last updated on 26-Jun-2017 at 12:49 GMT

As the political tensions resulting from the deployment of the THAAD (Terminal High Altitude Area Defense) system continue, we spoke to Ju Rhyu, Founder of Inside the Raum and the former Director of Marketing of K-Beauty e-tailer Peach & Lily, to talk through the implications for the Korean-hailed beauty phenomena.

THAAD dispute: An update

Ju Rhyu recently worked with Hong Kong-based Sandalwood Advisors, an alternative data platform that concentrates on Chinese consumer transactions, to analyse the effect that the THAAD dispute is having on Korean cosmetic buys in China.

Chinese consumer transaction data revealed from Tmall — China's biggest B2C e-Commerce company — depicts how year over year transactions from April 2017 to May 2017 have significantly dropped.

Speaking to Ju Rhyu, Founder of Inside the Raum, we asked how cosmetics companies can navigate their way through the THAAD impact, without detrimentally affecting the success of the Chinese cosmetics marketplace: “THAAD negatively impacts mostly Korean brands but Sandalwood Advisors' data shows an overall decline in cosmetics during April and May 2017.”

On the other hand, “some Western brands like Estee Lauder are outperforming and this may be a great time to take advantage of the THAAD crisis to more aggressively play into anti-Korean sentiment in China”, added Rhyu.

Implications: Short and long-term

In the short term, the cosmetics market may witness some Korean brands being unable “to recover from the financial impact of THAAD”.

“Many brands are quickly trying to cut costs such as marketing budgets and travel expenses, to maintain profitability, but there may be some K-Beauty brands that fall victim to the crisis,” added Rhyu.

Rhyu highlighted that this year “there are fewer Korean beauty brands exhibiting at trade shows and conferences” and puts this down to the increasing importance placed on “cutting down on spending and curbing costs in the short-term”.

In the near future, the US K-Beauty market's growth may be slow as many brands will be focusing their strategies on risk management instead of growth.

Over the longer-term future, however, Korean brands are expected to seek out other markets like Southeast Asia, US, Europe, and the Middle East.

Companies are preparing to move outside of the domestic Korean marketplace:“While China is the easiest market for brands to tap into the volatility, a lack of transparency in the country will make brands realise the need to explore and have strategies for other markets.”

Planning strategies

Ultimately, THAAD is “making Korean beauty companies understand how risky it is to heavily rely on the Chinese market”. In addition, “the financial impact of THAAD has been swift and painful and Korean beauty brands are now realising the need to quickly diversify their portfolio”.

Leading K-beauty player, AmorePacific, recently revealed the US as their 4th pillar as it focuses on global expansion.

Rhyu highlighted that while this decision “is probably in reaction to their China exposure” and “is a risk mitigation strategy”, it is also as a result of its “realised potential in the US”. As AmorePacific is also starting to re-establish its brand in France through its Sulwhasoo label, Europe is expected to be a major market for the Korean household name too.

This strategy is one that Rhyu believes will also be followed by smaller brands who “may pour into the US to quickly diversify their business”, but will do so “without adequate education or ample demand”.

As a result, “this may lead to an over-saturation of K-Beauty in the US in the near future”, Rhyu concluded.

For further insights on the ongoing political dispute between China and Korea, visit http://www.insidetheraum.com/.