LVMH-owned Sephora to exit Korea after surrendering to CJ Olive Young

Sephora's first Korean store in Parnas Mall in Seoul / Courtesy of Sephora

Sephora will shut down its entire operation in Korea, in the wake of its snowballing losses since the French firm entered the Korean market in 2019, according to the LVMH-owned beauty product retailer, Wednesday.

Its latest decision has been attributed mainly to CJ Olive Young’s dominance over the domestic beauty market and the foreign firm’s failure to understand the needs of local consumers.

In a message posted on Instagram, Sephora Korea said it will start closing its online mall, mobile app store and offline shops on May 6.

“Sephora heavy-heartedly decided to stop doing business in Korea,” the message reads. “We are deeply grateful to our customers who have supported us.”

In October 2019, Sephora opened its first Korean store in Parnas Mall in southeastern Seoul, attracting thousands of customers to line up for its cosmetics products. It expanded its presence in the greater Seoul area by opening additional stores in major shopping districts.

The COVID-19 pandemic, however, immediately made it impossible for Sephora to attract consumers because it could no longer allow them to apply cosmetics products at its stores. In addition, the mid-luxury cosmetics seller has lost luster, as Korean consumers tend to prefer buying expensive makeup products at each brand’s stores in department stores or via online.

As a result, Sephora Korea faced a capital impairment in 2021, causing speculation that it would soon leave the Korean market. Its operating loss reached 17.6 billion won ($13.1 million) in 2022, up from 14.5 billion won a year earlier.

“The size of its deficit and debt shows that uncertainties remain over its viability,” Deloitte Anjin said in its audit report published last April regarding Sephora Korea’s business in 2022.

Industry officials expect Shinsegae’s Chicor to be the next company to close its beauty product stores, following Sephora and other drug store brands, such as Watsons, Lalavla, LOHBs and Boots, all of which have already left the domestic market.

Chicor, which opened its first store in Daegu Shinsegae Department Store in 2016, has reduced the number of its stores to below 30 and scrapped its plan to expand overseas after the COVID-19 pandemic. It is also expected to face difficulties in achieving its goal of generating 150 billion won in annual revenue this year.

In contrast, CJ Olive Young has solidified its lead in the Korean market, with around 90 percent market share and over 1,300 stores nationwide.

“Since 2022, Olive Young has enjoyed the status as the sole player in the market,” Hanwha Investment & Securities analyst Eom Su-jin said. “Rather than opening more stores, it will likely focus more on enhancing competitiveness of its private-label products and online channels this year.”