As the tariff rate on U.S. export products has been raised from 10% to 15%, there are projections that the revenue of K-beauty companies could actually improve.
According to Yuanta Securities Korea on the 1st, some cosmetics companies operating direct export structures are responding to the tariff by lowering the invoice price. This results in a decrease in export unit price, but the quantity is maintained, leading to a distortion where only the export amount decreases in statistics. For example, if the production cost is $10, lowering the invoice price to $8.5 means the U.S. corporation will pay a 15% tariff ($1.275), making the total purchase cost $9.775.
Lee Seung-eun, an analyst at Yuanta Securities Korea, noted, "In this process, the revenue of the Korean headquarters decreases, but the U.S. corporation sees an improvement in profitability due to the lower purchase price." She added, "Particularly, when there is an in-house distribution channel, the consumer selling price remains stable, leading to an expansion of margins. Ultimately, regarding the profit and loss connection between the Korean and U.S. corporations, there are no losses due to the reduction in invoice prices, and through tariff optimization, overall profitability could actually improve."
For cosmetics brands exporting indirectly through B2B (business-to-business) distribution agencies, it is expected that the tariff increase, effective from today, may not be immediately reflected in consumer prices due to the inventory secured at a certain level in local U.S. warehouses.
The analyst said, "In the short term, pricing stability could be maintained as shipments utilizing existing inventory continue, but as inventory gradually depletes after mid-year, the tariff increase is likely to be reflected in delivery prices, and this could lead to sequential adjustments in consumer prices by brand." She emphasized, "Especially for brands where the margin in the distribution structure is not large, the pressure for price increases may become evident more quickly, so monitoring of the second-half performance and demand elasticity is necessary."
Moreover, domestic cosmetics ODM (original design manufacturer) companies have been considering transitioning to local production in the U.S. to avoid tariffs, but actual successful transfers have been rare. The biggest constraint is the production cost. The analyst added, "Korean corporations still show strengths in terms of price competitiveness. This is a result of various factors, including differences in labor costs and high productivity, supply chain management efficiency, and others acting together."