There was an outlook that exports by domestic cosmetics corporations, which showed strong growth this year, will gain further momentum next year, centered on the United States and Europe. However, there was also an assessment that since valuations across the cosmetics sector have already risen significantly, there is pressure on the potential for short-term stock price gains.
Hyeong Gwon-hun of SK Securities said in a report on the 7th, "Despite the high growth rate this year, the peak of K-beauty's Western penetration cycle is still far off," and noted, "Next year, more brands are expected to enter shelves and already-listed brands are likely to see reorders, increasing the visibility of export growth."
This year, domestic cosmetics corporations saw strong exports, centered on the United States and Europe. As of the cumulative total through August, this year's export growth rate is 37% for the United States and 68% for Europe. Hyeong said, "In the United States, offline channel penetration is getting underway in earnest, and in addition to Amazon, major retailers such as Ulta, Sephora, and Target are competitively bringing in K-beauty."
Europe is also seeing all-around penetration across online and offline channels. K-beauty's overall sales traffic on Amazon has surged this year, and exports to regions that serve as a barometer of offline B2B demand across Europe—such as the Netherlands, Poland, and Estonia—have recorded growth rates exceeding 100%.
SK Securities estimated the upper bound of K-beauty's Western penetration rate at 10%. Assuming that over the past four years, from the end of 2022 to this year, North America's penetration rate rose by 3.2 percentage points (P) and Europe's by 3.3P, a simple calculation suggests there are five years left until the peak of K-beauty's penetration cycle.
Hyeong said, "In the United States, because offline penetration began in earnest for the first time this year, more brands are expected to enter shelves next year and already-listed brands are likely to see reorder demand," adding, "In Europe, K-beauty awareness is rising, and as brands increase direct marketing investment, we expect offline penetration and export growth to gain full momentum next year."
However, the short-term share prices were judged to be in a high phase. Hyeong said, "Since valuation rerating has already taken place across the sector, caution seems necessary for investments from a short-term perspective," and added, "Because we expect export values to remain high through the end of the year, sharp stock declines due to export drops and earnings shocks at corporations are likely to be limited."