AmorePacific enters downsizing mode
AmorePacific's fragrance factory in Chartres, France / Courtesy of AmorePacific
Cosmetics giant rushing to unload unprofitable assets amid sluggish sales
By Nam Hyun-woo
AmorePacific Chairman Seo Kyung-bae
AmorePacific appears to have kicked off a full-fledged downsizing campaign to cope with its faltering bottom line amid sluggish sales at home and abroad, industry analysts said Friday.
The cosmetics giant has decided to unload its perfume plant in France and scrap an investment plan to create a beauty industry complex south of Seoul, which the analysts said are only the first batch of many downsizing moves to follow.
They say AmorePacific Chairman Seo Kyung-bae is belatedly making efforts to revamp businesses after losing its No. 1 status to LG Household & Health Care in 2018. But the company argues these moves are to rationalize its business structure, not downsize.
AmorePacific said it decided to sell its fragrance factory in Chartres, France, to Christian Dior Perfumes after running it for nearly three decades. AmorePacific did not disclose the value of the deal.
At the plant, AmorePacific has made the mass-market brand Lolita Lempicka perfumes for 20 years.
Lolita Lempicka perfumes were regarded as one of top 10 fragrances in the European market in the 2000s, but sales declined in recent years as consumers shifted to high-end perfumes.
“After its manufacturing license on Lolita Lempicka expired in 2017, the company decided to sell the plant in order to prevent it being left idle,” an AmorePacific official said. The plant has also been producing high-end fragrance brand Goutal. The company will now outsource production of Goutal.
The sale was made public just days after the company announced its scrapping of a 163 billion won ($144.8 million) investment plan, in which the company was supposed to establish a beauty product industrial complex in Yongin, Gyeonggi Province.
Though AmorePacific explained that it decided to do so to concentrate on marketing and sales, analysts interpret the series of moves as an “inevitable choice” because of its faltering profitability.
After its China business was hit hard by the diplomatic friction between Korea and China, the cosmetics giant's operating profit has declined for two straight years from 1.08 trillion won in 2016 to 731.4 billion won in 2017 and 552.5 billion won last year.
While AmorePacific was backpedaling, its rival LG Household & Health Care emerged, logging 782.7 billion won in operating profit last year and becoming the domestic No. 1 for the first time in 40 years.
“While LG Household & Health Care promptly reorganized its portfolio to focus on profitable products, namely luxury cosmetics, AmorePacific is keeping its domain too wide, including multiple ill-positioned low price brands,” a cosmetics firm official said.
AmorePacific has 17 cosmetics brand and most of them showed a significant decline in their sales. Especially, low-market brands of Etude House, Innisfree and Espoir either logged operating losses or double-digit decline in their operating profit.
While AmorePacific's operating profit nearly halves in the past two years, its share also plummeted. AmorePacific was traded at 443,000 won on July 8, 2016, but showed downturn since then, falling to 145,500 won on Nov. 23.
The share price climbed slightly to stand at 201,000 won on Thursday, after the company announced it will buy back its shares worth 100 billion won on Wednesday, but analysts said investors should be careful because there is no meaningful change in the company's business.
“The buyback is sending a positive signal to investors,” Korea Investment & Securities analyst Na Eun-chae said. “But it is yet to show a positive change in the company's fundamental operation. It is reorganizing its brands and shops in Korea and China, but meaningful outcome could be available only after summer.”