Sephora wants to lose South Korea?

CBO reporter Zhu Cong

The new normal after the epidemic, global physical retail is cold, and the beauty retail giant Sephora is also dissatisfied?

Since entering the Korean market in October 2019, Sephora, a beauty retailer backed by French luxury group LVMH, is struggling to keep up with the fast-paced K-Beauty market.

01

Sephora South Korea ran a deficit for two consecutive years

According to South Korea's JoongAng Daily, Sephora Korea Sephora South Korea has been losing money for two consecutive years.

According to the Financial Supervisory Authority, Sephora Han's sales in 2021 were 12.4 billion won (about 65 million yuan), down 12.7% year-on-year, and the operating loss was 14.2 billion won (about 74 million yuan), which was not enough to make ends meet.

In 2020, Sephora Korea's revenue was 14.2 billion won (0.74 billion yuan), and Sephora's revenue in China has reached 9.3 billion yuan in the same period.

In October 2019, Sephora opened its first store at Parnas Mall, a shopping mall on the first basement floor in Gangnam-gu, Seoul, South Korea, with an area of up to 160 square meters. To date, Sephora Korea has opened six physical stores, with the latest sixth opening in October 2021.

Sephora Korea initially announced plans to open 14 new stores by the end of 2022, including an online store. Now it seems unlikely that the 14-store plan is possible.

It is reported that Sephora's second store in South Korea is located in Myeongdong, a tourist hotspot in the center of Seoul, mainly for foreign tourists, especially Chinese tourists. The pandemic has led to a sharp drop in visitor numbers, and the Myeongdong branch closed in January.

02

A number of exotic beauty retail brands folded in Korea

As asia's leading beauty market, South Korea's beauty industry is well developed. According to Euromonitor data, in 2021, the per capita consumption of beauty personal care in China will be about 405 yuan, and in South Korea, it will be 1630 yuan, which is 4 times that of the Chinese market.

Korean makeup style is a difficult market, colliding with the Korean beauty market, and the choice of Products in Sephora's Korean stores has become the focus of industry insiders.

Compared with H&B (health and beauty) stores, Sephora Korea stores focus on "Beauty", not only have many "Luxury" brands, but also import targets, huda beauty, etc. with a strong European and American makeup atmosphere, and cooperate with local K-Beauty brands Hera and amuse.

"Following its first launch in South Korea, Sephora's marketing strategy focused more on cosmetics on lips, eyes and cheeks, and a few months later people started wearing masks due to the pandemic, which backfired." South Korea's JoongAng Daily reported such a detail.

The company's failure to differentiate itself from other beauty retail platforms is another possible reason.

"Sephora can't stay competitive because of the lack of unique products that appeal to Korean consumers, and the company lacks an online strategy and pricing." An industry insider said.

In the Korean cosmetics market, RoadShop (street shops) and H&B stores have developed channels. As a representative of H&B stores in South Korea, Olive Young sells more affordable beauty products with 1250 offline stores and is Sephora's number one competitor, although they are not directly competing.

In the high-end beauty field, Sephora needs to compete for share from South Korea's developed duty-free formats and shopping mall formats, and also compete head-on with Chicor, a local beauty collection store built by NWDS with 30+ stores across the country. Before Sephora entered the Korean market, Chicor has been known as the "Korean version of Sephora" since its birth in 2016.

Sephora isn't the only beauty retail system in South Korea that struggles.

Beauty aggregators such as Boots, LOHB's and Lalavla have also mostly scaled back or pulled out of South Korea due to "low profitability over the same period."

△ Cut from the Little Red Book

03

After Japan, is it possible to exit the Korean market?

There has been speculation that Sephora may even be retreating from South Korea, as the European-American beauty store has had a hard time settling in South Korea due to the pandemic and the company's failure to keep up with trends in the domestic beauty industry.

Before that, Sephora had also returned home in Japan.

Sephora opened its first store in Japan in 1999 and closed its operations in Japan two years later.

"Sephora is self-service, which is different from the Japanese sales concept. Sephora's model undermined Japan's cosmetics distribution system. The manufacturer boycotted and did not supply, and Sephora rolled up and left Japan. One blogger said.

Founded in 1970 by Louis Vuitton Moët Hennessy Group (LVMH), Sephora has more than 2,700 stores worldwide, with the highest market share alongside UltraBeauty.

△ Source Korea Times

"The Korean cosmetics market is known globally as an innovative market, and Sephora needs to better understand the Korean cosmetics market."

Beauty consultant JinJeong-im said, "Sephora has failed to meet the expectations of Korean consumers in terms of product differentiation and online and offline operations. ”

Belonging to North Asia, Sephora's downturn in Japan and South Korea reflects the success of the Chinese market.

As of the end of October 2021, Sephora has 312 stores in China. Chen Bing, general manager of Sephora China, once pointed out in an interview with the media about Sephora's soaring progress in China: "Sephora's success in the Chinese market does not refer to the number of stores, sales or growth ratio, but how to establish a Sephora model suitable for the Chinese market and be sustainable. ”

Clearly, it's not enough to be the best on a global scale, it's also about challenging strong competitors in the local market. Sephora, which is dominated by European and American brands, challenges the "hometown" of the Korean makeup genre, and in the future, it is necessary to find a local rhythm between standardization and differentiation.