The rise in the won-dollar exchange rate is creating a mixed bag of fortunes for cosmetics and clothing export companies. Clothing Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) firms, which have a high proportion of exports to the U.S., are expected to see a significant improvement in sales.
On the other hand, K-beauty brands, which are seeing an increase in exports to the U.S., are expected to fall short of profit expectations due to rising costs of imported raw materials and logistics as a consequence of the increase in the won-dollar exchange rate (the decline in the value of the won).
According to the related industry on the 7th, Hanse Apparel's sales in the fourth quarter of last year are estimated to have increased by double digits. The company, which counts U.S. apparel firm Gap among its clients, likely saw increased sales due to a rise in its order volume along with a 6% increase in the won-dollar exchange rate (a 6% decline in the value of the won) compared to the previous year.
However, a decline in operating profit is expected. Yoo Jung-hyun, a researcher at the Korea Investment & Securities Co., said, "The proportion of margin-low grocery buyers is increasing, and OEM companies are having difficulty negotiating order prices due to concerns about tariffs following the Trump administration's launch, leading to a continued rise in cost rates," and noted, "Even in a favorable high exchange rate situation, operating profit margins are estimated to have fallen."
Yeawon Trade also estimates that sales in the OEM sector increased by about 5% year-on-year in the fourth quarter. The company primarily serves outdoor and sports brands like The North Face, Lululemon, and Arc'teryx. Hwaseung Enterprise, a production partner of Adidas, is also expected to report favorable results. According to Korea Investment & Securities, the company's sales in the fourth quarter are estimated to have increased by 26% year-on-year, with operating profit up 270%, driven by increased production of Adidas's bestseller, 'Samba.'
Typically, clothing OEM and ODM companies take approximately 3 to 6 months from order to shipment. If the exchange rate at the time of product shipment is higher than when raw materials were purchased, the company benefits accordingly. The industry indicates that Yeawon Trade has a 41% proportion of sales in the U.S., while Hanse Apparel's share is reported to be 85%.
Recently, cosmetics-related companies that are increasing their exports are also expected to be affected by the rising exchange rates. According to the '2024 December and Annual Import and Export Trends' report announced by the Ministry of Trade, Industry and Energy on the 1st, cosmetics exports reached $10.2 billion, surpassing $10 billion for the first time in history. In particular, as the popularity of Korean cosmetics rises in the U.S., they have overtaken France to become the number one in market share in the U.S.
The Korea Trade-Investment Promotion Agency (KOTRA) forecasts that this year's K-beauty exports will increase by 3% to 10% compared to last year.
Accordingly, the related corporations are expected to benefit. Park Eun-jung, a researcher at Hana Securities, noted, "When the won-dollar exchange rate rises by 10%, the consolidated operating profit of major cosmetic corporations is expected to rise by an average of 3% compared to previous estimates," and forecast that C&C International, SILICON2, and Amorepacific Corporation are likely to benefit as they manufacture products domestically and then export them directly.
However, unlike clothing OEM and ODM companies that primarily serve overseas corporations, cosmetics mainly cater to domestic brands, which suggests a lesser impact from the exchange rate fluctuations. A representative from a large ODM cosmetics company stated, "Most of our clients are domestic companies, so they do not feel the effects of the high exchange rate," adding, "We have stockpiled glycerin and coconut oil (palm oil), which are used as raw materials for cosmetics, so it has been confirmed that there is no immediate disruption in business operations."
Nonetheless, outlooks indicate that small and medium-sized OEM companies may see a decline in profitability due to rising raw material and logistics costs. For brands with local affiliates such as in the U.S., the increase in the exchange rate means greater sales but also higher cost burdens.
According to a report published by the Small and Medium Business Administration in September, the proportion of foreign exchange gains and losses in operating profit for small manufacturing companies was found to reach up to 25%. Additionally, it was shown that a 1% increase in the won-dollar exchange rate results in a 0.36% increase in foreign exchange losses.
A representative from the cosmetics OEM and ODM industry stated, "As interest in K-beauty grows overseas, indie brands with low recognition are increasingly entering foreign markets by emphasizing cost-effectiveness. However, if the high exchange rate continues for a long time, the situation may become challenging," asserting, "Recently, as domestic cosmetics have raised their prices, the impact will inevitably be passed on to consumer prices."