North American subsidiaries of Korea's two leading original design manufacturers (ODM) in cosmetics, COSMAX and Kolmar Korea, are struggling to break out of the red. That is unusual given the popularity of K-beauty in the North American market.
On the 21st, the retail industry said Kolmar Korea's U.S. subsidiary posted 54.9 billion won in revenue and an operating loss of 13.4 billion won last year. Revenue fell 5.3% from a year earlier, and the size of the loss more than doubled. Kolmar Korea's Canada subsidiary also saw revenue drop 8.9% to 35.9 billion won and continued to log an operating loss of 5.4 billion won.
COSMAX is in a similar situation. Last year, the U.S. subsidiary, "COSMAX USA," recorded revenue of 112.1 billion won, down 18.2%, and remained in the red with a net loss of 32.2 billion won.
As of last year, Kolmar Korea had a production capacity (CAPA) in North America of about 330 million units, including 230 million units at the U.S. subsidiary and 100 million units at the Canada subsidiary. Kolmar Korea laid the groundwork for its North American expansion by acquiring PTP in the United States and CSR Cosmetic in Canada in 2016, and last year it significantly expanded capacity by completing its second plant in Scott Township, Pennsylvania.
COSMAX has an annual production capacity of about 360 million units in the United States. After acquiring L'Oréal's plant in Solon, Ohio, in 2013, it established COSMAX USA in 2014 and began operations in 2016. In 2017, it acquired color cosmetics maker NuWorld in New Jersey, and since 2023 it has been operating the two companies in an integrated manner.
One reason the two companies' North American results are falling short of expectations is that local K-beauty demand does not directly translate into orders for local plants. Korean brands exporting to the United States still prefer to produce at plants in Korea. The main customer base for North American ODM subsidiaries consists largely of brands in North America, Europe, and Latin America.
An industry official said, "If a Korean client produces locally in North America, there is an advantage of avoiding the United States' mutual 15% tariff, but in the recent K-beauty market there is still a strong preference for 'Made in Korea,'" adding, "From the brand's perspective, entrusting production to the domestic plants they have worked with tends to feel more familiar and stable in terms of quality and delivery."
The person added, "There is also uncertainty that U.S. trade policy could change at any time, so expanding local production is not proceeding as quickly as expected."
Fixed costs coupled with low utilization are also an obstacle to improving profitability. In the cosmetics ODM business, economies of scale work only when production facilities are secured in advance and then filled with orders. But the two companies' North American plants have yet to secure sufficient volume, and the facility burden is eroding profitability. In addition, many facilities at the North American plants are outdated, limiting cost efficiency through automation.
A long lag from order intake to actual revenue recognition is another burden. In the North American market, brands often conduct multiple rounds of testing and quality verification before launching products, so even when new clients are secured, it does not immediately translate into results. The industry believes that for U.S. subsidiaries, it takes around a year on average from winning a new client to recognizing actual revenue.
Kolmar Korea and COSMAX are continuing efforts to find new clients for their North American plants. For Kolmar Korea, the prevailing view is that a rebound in North American results will not be easy in the short term. Kwon Woo-jung, an analyst at Kyobo Securities, said, "Kolmar Korea's North American subsidiaries continue to be affected by reduced orders from their largest existing client, and we expect meaningful client inflows to begin in earnest in the second half."
There is a view that COSMAX could return to the black as early as this year, helped by expanded sales targeting indie brands in the West. Lee Gyo-seok, an analyst at Shinyoung Securities, said, "COSMAX injected 28.6 billion won into its U.S. subsidiary in the first half of last year and has been working to attract new brands by operating an LA sales office to target the western region, where U.S. indie brands are mainly located," adding, "This year will be when the results of new client acquisitions become visible in the numbers."