Amid a surge in cosmetics exports fueled by a global K-beauty boom, exports to China have instead contracted, prolonging LG H&H's slump. With a high reliance on China, LG H&H posted weak results in the first half, and the downturn is expected to continue in the second half. In response, LG H&H is signaling deep restructuring, including strengthening its North American business and replacing its CEO.
According to the Ministry of Food and Drug Safety on the 13th, cumulative cosmetics exports in the first through third quarters this year were tentatively tallied at $8.5 billion (about 12.14 trillion won), up 14.9% from a year earlier. Monthly export volumes steadily increased from the start of the year through 9th. Third-quarter exports rose 17.5% on-year to $3.02 billion (about 4.34 trillion won), setting a new quarterly record.
The country that imported the most Korean cosmetics this year was the United States ($1.67 billion, about 2.39 trillion won), accounting for 19.6% of total exports. By contrast, China, in second place ($1.58 billion, about 2.26 trillion won), saw exports fall 11.7% from a year earlier. China's share of total exports was 46.7% in 2022 but dropped sharply to 33.9% in 2023 and 24.3% in 2024, and this year fell into the 10% range for the first time.
Recently, domestic cosmetics corporations expanded sales in the United States and posted steep growth. However, LG H&H, which has centered its export business on China, saw its results backslide.
In the 2nd quarter, LG H&H's cosmetics institutional sector sales fell 19.4% on-year to 604.6 billion won, and the company swung to an operating loss of 16.3 billion won. It was the first time in 20 years and six months, since the fourth quarter of 2004, that LG H&H's cosmetics business recorded a loss.
LG H&H generated 185.6 billion won in sales in China alone in the second quarter, about 12% of the total, while U.S. sales were 140.4 billion won, or 9%. Rival APR posted U.S. sales of 98.2 billion won in the second quarter, accounting for 29% of its total. Amorepacific also recorded 134.4 billion won in the Americas in the second quarter, or 13.4% of its total sales.
LG H&H has targeted the Chinese market with its brand "The History of Whoo" (THE WHOO). However, after COVID-19, China shifted to strengthening its own beauty brands, and the preference for luxury beauty has waned, reducing demand for The History of Whoo products.
Many Chinese consumers buy The History of Whoo products at duty-free shops and then resell them in their home country, and recently a downward price trend has been detected in the resale market. In response, LG H&H reduced duty-free volumes to protect its brand image, but this has led to deteriorating sales and profitability.
From this year, LG H&H has focused on lowering its dependence on China by strengthening its North American business. To that end, on Apr. 10 it participated in a rights offering by its U.S. subsidiary LG H&A USA and injected 185.6 billion won. LG H&H USA places and sells key brands in major beauty multi-shops such as Sephora and Ulta, while subsidiary The Avon Company is in charge of local door-to-door sales. At the same time, LG H&H is also placing major brands such as belif, CNP, and The Face Shop on online channels like Amazon to target younger consumers.
In addition, LG H&H plans to appoint Lee Seon-ju, a president with a long career in the global beauty industry, as the new chief executive officer (CEO) after a board meeting on the 10th of next month, tasking Lee with spearheading global expansion. Lee previously led Yves Saint Laurent and Kiehl's at L'Oréal Korea, boosting domestic sales. Lee then served as head of global strategy at L&P Cosmetic and head of the U.S. unit, overseeing the entry of the sheet mask brand Mediheal into the U.S. market.
However, there is a view that such efforts will be hard to translate into results in the short term. According to FnGuide, LG H&H is estimated to post third-quarter sales of 1.6294 trillion won and operating profit of 61.8 billion won this year. That would be a 4.91% drop in sales and a 41.78% drop in operating profit from a year earlier. The securities industry also expects LG H&H's sales and operating profit to decline in the fourth quarter from the fourth quarter of last year.
Lee Ji-won, a researcher at Heungkuk Securities, said, "LG H&H is continuing efforts such as seeking non-China channels and diversifying its portfolio, but it will likely take considerable time before these are meaningfully reflected in results."