LG Household & Health Care's American dream becomes nightmare
LG Household & Health Care CEO Cha Suk-yong
By Kim Jae-heun
LG Household & Health Care's (LG H&H) has branched out into America but its prospects aren't looking too bright. The Korean cosmetic firm acquired American health and beauty company New Avon last April to act as a bridgehead into expanding its business into the world's largest cosmetics market.
However, if New Avon continues to record deficits, this may lead to problems for the Korean company's broader plans.
The American cosmetics firm recorded a 40 billion won loss in 2018, which was the year before LG H&H acquired the company. New Avon was also projected to record another 20 billion won deficit this year, but in light of the worsening situation due to the novel coronavirus, it will likely see an even greater loss.
When a virus pandemic hits a country, demand for food and daily necessities goes up while demand for fashion clothing and cosmetics products decreases.
LG H&H says it is in the beginning of expanding is business in the American market so it is not highly concerned about recording losses with New Avon. However, the Korean firm did not deny the fact that new coronavirus will hamper its plans to do anything there because the whole country might lock down in fear of infection.
The outlook of LG H&H's performance in other countries including its biggest market in China also looks poor. If the cosmetics firm is struck hard by the pandemic, it may have to halt its investment in the American firm to aid other markets.
Also, the American market is far more saturated and competitive than other markets. For example, newcomers often have to offer unique items in order to find success.
LG H&H has previously been successful with its strategy targeting VIPs in China but the American market has totally different characteristics.
The Korean firm has to fully understand the market and offer customized products for Americans.