Foxconns of fast beauty lift Korean cosmetics in China
At a factory two hours south of Seoul, women clad in plastic caps and masks put peachcoloured eye-shadow into cases, right next to a machine churning out a skin-colour face powder.
The difference between the two lines: the first is supplying one of France’s best-known premium cosmetic brands, while the second is serving a South Korean budget firm.
The plant is operated by Cosmecca Korea, the country’s thirdbiggest contract cosmetics maker, which produces a range of products for more than 300 customers, all the way from high-end brands like Estee Lauder to nimble domestic firms such as Clio and Dr.Jart.
It is factories like this that have made South Korea the epicentre of fast beauty, a world in which the time it takes to get a product idea onto store shelves has dropped dramatically, often by years. This is vital as fickle millennial consumers can easily leave last year’s hits as this year’s busts.
Their dominance of the world of contract manufacturing for cosmetics may have become as important to the industry as Apple iPhone manufacturer Foxconn has been for electronics.
Some of the major Korean brands they work for have been acquired by global cosmetics companies such as L’Oreal and Unilever, and according to people with direct knowledge of the matter, the manufacturers themselves have received investment offers, some from foreign cosmetics firms.
South Korea’s three largest contract manufacturers — Cosmax, Korea Kolmar and Cosmecca — have all been approached by foreign investors about buying a minority stake in recent years, three people with direct knowledge of the situations told Reuters. The sources asked for anonymity and declined to elaborate further citing confidentiality of the approaches. One of the sources said one of the manufacturers had rejected a 2016 offer from an overseas cosmetics company for a minority stake, partly due to concerns that such an alliance could upset its broader customer base.
Representatives for the companies declined to comment.
Demand from Chinese brands
Though largely staying in the background with little public recognition themselves, contract manufacturers stand to benefit as Korean brands they work for rapidly grow in China’s $53.5 billion cosmetics market. That’s thanks to their value for money image, fast turnaround times for new products, and smart online marketing.
China’s own fast-growing cosmetics brands, albeit still small, are also driving the revenue growth of South Korean manufacturers, although margins on these contracts can be low, company officials say.
The stock market performance of the three has been mixed, though they have all outperformed the main benchmark in South Korea.
Shares of global No.1 Cosmax, has gained 34 per cent year to date, far outpacing a 8 per cent drop in the wider South Korean market. Cosmecca shares rose 8 percent and second-ranked Korea Kolmar fell 3 per cent in the same period. All three have, though, outperformed the 21 per cent decline in shares of Amorepacific Group, South Korea’s largest cosmetics powerhouse. —