As signs emerge that China's cosmetics consumption, which had slowed in recent years, is recovering, Korea's beauty corporations operating there are also raising expectations for improved earnings. Following double-digit growth in China's retail sales of cosmetics last month, exports of Korean cosmetics to China rebounded in July. Observers say LG H&H(051900), which is heavily affected by China results, and COSMAX(192820) and Kolmar Korea(161890), which have local production bases, are likely to benefit more from the industry's turnaround.
On the 28th, according to China's National Bureau of Statistics, China's retail sales of cosmetics in June were 45.6 billion yuan (about 9.88 trillion won), up 12.6% from a year earlier. That was 10.1 percentage points (P) higher than May's 2.5% growth rate in just one month. In the same month, China's total retail sales of consumer goods rose only 1.0% to 4.2691 trillion yuan (about 925 trillion won).
In the first half of this year, China's cumulative retail sales of cosmetics reached 244.5 billion yuan (about 53 trillion won), up 6.3% from the same period a year earlier. During the same period, the growth rate of China's total retail sales of consumer goods was 1.3%. While consumption in China slowed overall, the cosmetics category recorded a relatively higher growth rate.
In recent years, exports of Korean cosmetics have surged, led by the United States, while they have been sluggish in China. Consumer sentiment weakened due to factors such as China's prolonged real estate slump, and local cosmetics companies also improved their product competitiveness.
According to the Ministery of Food and Drug Safety, last year's cosmetics exports to the United States rose to $2.2 billion (about 3.2183 trillion won), surpassing China for the first time to take the top spot, while exports to China fell 19% to $2.0 billion (about 2.9232 trillion won). In the first half of this year as well, exports to the United States increased 41.5%, while exports to China fell 6.6%.
However, with cosmetics consumption in China and imports of Korean products both increasing recently, some say the local market has passed its bottom. According to tariff import and export statistics, from the 1st to the 20th of this month, exports of Korean cosmetics to China rose 21.8% from a year earlier.
In this situation, Korean corporations operating in China are also raising expectations for improved performance. A representative corporation with high dependence on the Chinese market is LG H&H, which runs the luxury cosmetics brand "The History of Whoo." LG H&H's sales in China fell 14.4%, from 208.8 billion won in the first quarter of last year to 178.8 billion won in the first quarter of this year.
This was due to proactively reducing duty-free volumes to maintain The History of Whoo's brand image. Still, if the recovery in China's cosmetics consumption continues into the second half, analysts say the brand's reorganization could gain traction.
Original design manufacturer (ODM) companies with local clients are already showing improvement in their China operations. COSMAX's China subsidiary posted first-quarter sales of 194.7 billion won, up 19.6% from a year earlier, marking a quarterly record. Production demand for new products from emerging Chinese brands and diversification of client sales channels drove growth.
Kolmar Korea's China subsidiary also posted first-quarter sales of 47.3 billion won, up 13.7% from a year earlier. As revenue from clients secured last year began to be fully reflected, orders for sun care and skin care products fueled growth.
Kim Myung-joo, an analyst at Korea Investment & Securities Co., said, "The recent recovery in cosmetics exports to China was influenced by last year's low base," but added, "Given that China's cosmetics industry sales were solid in June, it is clear the market is bottoming out."