Aju Business Daily

SEOUL -- South Korean cosmetics firms may face a critical year in 2019 unless they reduce their heavy reliance on Chinese consumers and come up with diverse and innovative products in response to market changes, the research head of Komla Korea, a beauty and pharmaceutical company, said.

"It is time to develop killer items and killer categories that can realize a proper profit," Han Sang-geun, who heads Kolmar Korea's skin care R&D center, told Aju Business Daily. The original development manufacturing (ODM) company built its second plant last year in Wuxi to provide products tailored for Chinese customers.

Helped by Hallyu (Korean cultural wave), South Korean cosmetics products have gained popularity in China. Chinese cosmetics brands have expanded their partnerships with South Korean ODMs, which design and manufactures products, as specified, that are eventually rebranded by another firm for sale.

Thanks to steady growth in the Chinese market, South Korean cosmetics firms are expected to grow more than 10 percent in 2018, but the profitability of many has declined, Han said. "As reliance on the Chinese market has increased, competition among ODM companies has intensified."

Due to a bigger role by Chinese capital, Chinese distributors took the business initiative, leading to price cuts, he said, adding that many experts predict a crisis in 2019. "In particular, the growth and profit decline of ODM companies is considered to be a major crisis factor in K Beauty."

From a distribution point of view, Han said that 2018 saw the fall of road shops and the growth of health and beauty shops. Offline shops failed to satisfy young consumers who wanted variety, complexity and shopping space, while health and beauty shops gained a competitive advantage by offering diverse brands, he said.

"In order to respond to these various changes and crisis factors, it is necessary to maintain competitiveness and lead the market by creating innovative categories that can not be replaced," Han said, calling for a quick response to market changes and consumers' diversified tastes.