Suh Kyung-Bae, CEO of AmorePacific

Suh Kyung-Bae, CEO of AmorePacific

State-of-the-art facility in China

AmorePacific plans to complete the construction of its new Shanghai Production & Research Centre in March 2013. With 92,788 sqm of land area and 41,001 sqm of building area, the new facility will have an annual production capacity of 7,500 tons and one hundred million units, a 16-fold increase compared to current capabilities. The production will be organized so as to address the needs of both diversified small-quantity production and mass production.

The new facility will be used as the main production, research and distribution hub for serving the Chinese market, with the aim to accelerate the company’s business in the country, explained Suh Kyung-Bae, CEO of AmorePacific.

The group aims to grow its sales by more than 30 percent in China, to reach 1.4 billion yuan (221 million USD) in 2012, compared to 1.04 billion yuan in 2011.

Strong growth of domestic market

The domestic market will also be key in the Korean group’s attempt to become one of the top 10 global cosmetics marketers by 2015. AmorePacific expects the Korean market to grow by 9.1% in 2012 to reach 9.7 trillion wons (8.5 billion USD), compared to 8.9 trillion wons (7.7 billion USD) in 2011 [1]. Over the last five years, cosmetics sales in Korea grew at an average annual rate of 10.4%.

According to AmorePacific, “the biggest issue on the cosmetics market in 2011 was the rebound of One-brand shop, which recorded 32.1% growth and showed the highest growth of all cosmetics market channels.” Thanks to “quick response to consumer needs, increased product types, enhanced quality, and the development of a wide range of items” this retail channel should carry on growing at a similar pace in 2012.

The other most dynamic retail channels are the internet (+11.9% forecasted in 2012) and department stores should (+ 9.6% forecasted in 2012).

AmorePacific also foresees strong growth opportunities in the men’s cosmetics market, which has been steadily growing at an average annual rate of 13.2% since 2007 in Korea. According to the group, the men’s market achieved a 13.4% growth in 2011. “Products especially developed for Korean men’s skin are also doing their share of growth on the domestic cosmetics market. ‘Hera Homme Magic Skin Essence,’ a moisturizing essence product for men, was developed by taking into account the nature of Korean men’s skin with ‘high sebum production and less moisture.’ This is a steady-seller, recording over 10% growth annually as a unique item among men’s cosmetics. It proves that men’s cosmetics are no longer simply limited to basic toner and lotion,” the company explains.

However, the Korean market is also affected by the current economic turmoil. “Due to high inflation, the disposable income of consumers decreased and they demonstrated cautious purchasing behaviour,AmorePacific says. As a consequence, Korean consumers tend to put more stress on the real qualities of products rather than on brands. Price sensitivity also increased. “The ‘Value Consumption’ trend is forecast to continue for the time being. The polarization of consumption according to income level is worsening, and it seems that it will be accompanied by polarized consumption according to product types.