Tough times hit Estee Lauder

By Kim Tae-jong

Office worker Kwak Seung-jin used to buy skincare products made by fancy foreign cosmetic brands but she has recently turned to much cheaper and locally-manufactured items.

“There is not much difference in terms of quality these days but imported cosmetics are way more expensive than local ones,” the 36-year-old said.

An increasing number of people are cutting back on spending amid the prolonged recession and have been reversing the fate of local and foreign cosmetics brands ― the former booming and the latter in a slump.

One of the most popular imported cosmetics brands here, Estee Lauder posted an 11 percent decrease in sales at department stores in the first half of this year, compared to last year. It was the first time for the New York-based cosmetics brand to see a double digit drop in sales here.

In the same period, another luxury cosmetics house, Lancome, posted a 17 percent fall in sales.

Experts said the lower sales by the prestige cosmetics brands are attributed to how the sluggish economy has changed spending habits.

“The reason seems to be that customers prefer local brands sold for low and mid-range prices with high quality amid the prolonged recession,” said Samsung Securities analyst Park Eun-kyung.

In a simple comparison, a 50-milliliter bottle of Estee Lauder Advanced Night Repair has a price tag of 155,000 won while Korean cosmetics company Missha’s Night Repair Science Activator Ampoule, an obvious me-too product, costs less than a third of it at 42,000 won.

Park also pointed out that cosmetics products of foreign brands are mostly sold at department stores and consumers are avoiding shopping there.

Meanwhile, local brands have enjoyed huge growth rates in recent years.

According to recent market data by Amore Pacific, a popular local cosmetics manufacturer, the size of the local cosmetics market was estimated at 8.9 trillion won in 2010, up from 7.9 trillion won the previous year. The firm now estimates it will increase to 9.7 trillion won this year.

Analysts said behind the fast growth of local cosmetics brands is their aggressive marketing by opening more “one brand shops” over the past few years.

“The market size of one brand shops is estimated at 1.5 trillion for stores such as The Face Shop, Missha, Etude House, Skin Food,” said Yang Ji-hye, an analyst at E-Trade Securities. “These one brand shops are now located in major shopping districts and also in big hypermarkets, shopping malls and even in residential areas.”

She added that they have been successful in expanding the scope of customers in terms of ages.

“In the early days, most customers who went to such one brand shop were teenagers and in their 20s, but they have grown older to have more purchasing power and still use them, trusting their quality,” she said.

She also pointed out that local cosmetics makers here have been enjoying booming business over the past few years thanks to the soaring number of Chinese, Japanese and other foreign visitors, who love the skincare, makeup and other beauty-related goods produced here.