Be­hind the Mask


Forbes Middle East - - CONTENTS - By Grace Chung

Red-hot de­mand in China for GP Club’s skin­care masks has turned gam­ing en­tre­pre­neur Kim Jung-woong into a cos­met­ics mogul.

Liu Jing, 32, is vis­it­ing Seoul from China’s east­ern seaboard. Other tourists might spend their day tak­ing in the cap­i­tal’s sights. Not Liu. She’s lin­ing up be­hind at least a dozen com­pa­tri­ots in a duty-free shop, wait­ing her turn to buy JM So­lu­tion fa­cial sheet masks. Each box of ten will cost her about $30, but Liu won’t walk away with just one. For the equiv­a­lent of $18,000, she and the oth­ers buy three re­frig­er­a­tor-sized pal­ettes of carts—so big they have to be wheeled away on dol­lies.

Liu isn’t buy­ing them for her­self. She’s a daigou—a Chi­nese term for sur­ro­gate buy­ers who ven­ture abroad to stock up on pop­u­lar prod­ucts and re­sell them back home. To say JM So­lu­tion masks are pop­u­lar is an un­der­state­ment. Be­tween its Honey Lu­mi­nous Royal Propo­lis Mask, the Lacto Sac­cha­romyces Golden Rice Mask, and the Ac­tive Pink Snail Bright­en­ing Mask, JM So­lu­tion’s owner, GP Club, has sold over a bil­lion skin­care masks, mostly in China, since launch­ing them in mid-2017. “It’s the No. 1 seller in China,” says Liu, who says she can earn as much as 20% sell­ing JM masks back home in Shan­dong prov­ince. “I’ve been com­ing here once a month for the past six months.”

Daigous like Liu are partly re­spon­si­ble for cat­a­pult­ing Kim Jung-woong, GP Club’s founder and CEO, onto our list of Korea’s 50 Rich­est at No. 30 with an es­ti­mated net worth of $1.15 bil­lion. Kim, now 44, started his own videogame store in high school, and within a decade had earned enough to ven­ture into China’s gam­ing ac­ces­sories mar­ket; a decade af­ter that he piv­oted to cos­met­ics in the main­land. But af­ter a diplo­matic dust-up which be­gan in 2016 sparked a boy­cott in China of Korean prod­ucts, Kim cul­ti­vated a fol­low­ing among the main­land’s so­cial me­dia in­flu­encers, trig­ger­ing an in­va­sion of daigous de­ter­mined to by­pass the boy­cott and ship GP Club’s masks from Korea to sell back in China them­selves.

The daigous not only blunted the boy­cott’s im­pact, but also helped GP Club grab mar­ket share from big-name Korean brands such as Amorepa­cific and LG House­hold & Health Care. Driven largely by de­mand from China’s con­sumers, sales at GP Club rose nearly ten­fold last year to 514 bil­lion won ($460 mil­lion), while net profit rose more than 30 times, to 170 bil­lion won. “I rode the wave well,” says Kim in his first ma­jor in­ter­view since be­com­ing a bil­lion­aire. To cope with the growth, he quin­tu­pled his staff to 170 last year. “But if you asked me to do it again, I prob­a­bly couldn’t,” he says.

GP’s stag­ger­ing ex­pan­sion prompted Goldman Sachs last Oc­to­ber to pay 75 bil­lion won for a 5% stake in the com­pany, mak­ing Kim, who with his wife and daugh­ter owns roughly 95% of the com­pany, a bil­lion­aire. Con­fi­dent it can sus­tain the mo­men­tum, GP says it has man­dated banks to ar­range an IPO in Seoul, which could take place later this year. “While the in­cred­i­ble growth in sales of JM So­lu­tion’s in­no­va­tive prod­ucts caught our ini­tial at­ten­tion,” says Jonathan Van­ica, a man­ag­ing di­rec­tor at Goldman Sachs who led its in­vest­ment in GP, “it was the com­pany’s deep un­der­stand­ing of the Chi­nese con­sumer’s ever-evolv­ing, in­ter­net-driven tastes and their first­hand knowl­edge of on­line and of­fline na­tion­wide dis­tri­bu­tion chan­nels that truly ex­cited us.”

Kim’s road to China’s $15 bil­lion a year fa­cial mask mar­ket was long and wind­ing. The youngest of three sib­lings, Kim had a com­fort­able child­hood un­til his fa­ther, a well-to-do bank branch man­ager, lost his job and the fam­ily’s money in a failed foray into pol­i­tics. Kim’s fa­ther traded his white-col­lar shirts for a con­struc­tion la­borer’s hel­met. They were hard times, Kim re­calls. Rice was a lux­ury; the fam­ily ate bar­ley in­stead.

When Kim was 15, his fa­ther died of liver cancer, leav­ing his mother and grand­mother to raise him, his brother and sis­ter. Hard­ship ig­nited his en­tre­pre­neur­ial flame. “Early on, I felt driven by the need to make money,” he says.

An avid gamer like so many teenagers,

Kim landed a part-time job at a small videogame store run by an el­derly cou­ple. Kim’s fas­ci­na­tion with games quickly trans­lated into a tal­ent for sell­ing them. With $4,000 he saved from his job and $3,000 bor­rowed from his fam­ily, Kim opened his own small store sell­ing videogames and con­soles from an apart­ment and called it Game Par­adise, the ori­gin of to­day’s GP Club.

Kim would open shop af­ter school and sell videogames un­til 11 pm, fash­ion­ing home­made loy­alty cards—buy10-get-one-free—to en­cour­age re­peat busi­ness. When he’d made enough money, he used it to open a se­cond store in an­other apart­ment nearby. By the time he was 20, Kim had amassed a small for­tune of 300 mil­lion won (equiv­a­lent to about $500,000 to­day).

Af­ter a four-year in­ter­lude—two years per­form­ing Korea’s com­pul­sory mil­i­tary ser­vice and an­other two earn­ing a de­gree in in­te­rior de­sign from a vo­ca­tional col­lege— Kim started plow­ing his sav­ings back into ex­pan­sion. He opened a new branch of his store in an elec­tron­ics mall, and even­tu­ally added five more there.

Videogames weren’t the only thing mov­ing out of GP, though. Kim no­ticed that cus­tomers were also keen on ny­lon and polyester shoul­der bags to pro­tect their pre­cious PlaySta­tion and Nin­tendo gam­ing con­soles. So in 2003, Kim made the first of what would be many trips to China, where the car­ri­ers were made, to se­cure a net­work of sup­pli­ers. GP’s game and ac­ces­sories busi­ness grew to gen­er­ate, at its peak, as much as 50 bil­lion won in an­nual sales.

Kim picked up more than bags in China. He learned Chi­nese and, he says, “a lot about the Chi­nese cul­ture and the habits of peo­ple.” Kim was quick to spot the resur­gent pop­u­lar­ity of Korean pop cul­ture in China, part of a se­cond K-Pop wave like the one that swept Asia in the 1990s, but now su­per­charged by the rise of so­cial me­dia.

With the new craze for Korean bands and TV dra­mas came a yearn­ing to em­u­late the fair and dewy skin of their

stars: the K-Beauty trend. Korea’s big­gest beauty brands had been ex­port­ing to China for years; now even smaller brands could sell to Chi­nese con­sumers on­line or to the rapidly ris­ing num­ber of Chi­nese vis­it­ing Korea. The se­cond wave gave Kim the chance to make use of his China con­nec­tions, and in 2013 GP be­came the dis­trib­u­tor for Korean brands still try­ing to ride the K-Beauty wave into China’s mar­ket.

“It did in­cred­i­bly well—at first,” Kim re­calls. But his role as mid­dle­man was pre­car­i­ous: as his Korean clients’ sales soared, they be­gan cut­ting him out and sell­ing di­rectly to China’s re­tail­ers. Turn­ing to a small Korean cos­met­ics fac­tory, Kim in April 2016 launched his own brand of body washes and lo­tions, JM So­lu­tion, which stands for “Jour­ney to Mir­a­cle.”

JM’s first prod­uct line was gain­ing pop­u­lar­ity, but its rise was cut short when, in the sum­mer of 2016, Korea had agreed to de­ploy the U.S. anti-mis­sile THAAD sys­tem on its turf, de­signed to pro­tect it from North Korean mis­siles. Bei­jing, wor­ried the sys­tem’s radar could pen­e­trate Chi­nese ter­ri­tory, in­ter­preted that as a na­tional se­cu­rity threat and re­tal­i­ated swiftly by ban­ning Chi­nese group tours to Korea. “Be­fore the cri­sis, 800,000 Chi­nese were com­ing to South Korea every month,” says Park Hyun-jin, an an­a­lyst at bro­ker­age DB Fi­nan­cial In­vest­ment in Seoul. “It fell to about a quar­ter of that.”

State me­dia also urged China’s con­sumers to boy­cott Korean prod­ucts. Sales at Korea’s largest cos­met­ics firm, Amorepa­cific, dropped by more than 9% dur­ing the twoyear boy­cott. Its net in­come tum­bled by more than half. “The ap­petite for K-Beauty was big,” says Lee Sun-hwa, an an­a­lyst with Eu­gene In­vest­ments and Se­cu­ri­ties in Seoul. “But with the tourism ban, there were fewer chan­nels for Chi­nese con­sumers to pur­chase these prod­ucts di­rectly.”

GP wasn’t spared. “I lost a bil­lion won I couldn’t get back from one re­tail part­ner. We had or­ders of three bil­lion won be­ing can­celled,” says Kim. “Peo­ple were lit­er­ally telling me, ‘Stop pro­duc­ing.’” He didn’t. In­stead, Kim in­vested all of his money at the time—1.5 bil­lion won—into a new prod­uct: fa­cial sheet masks. Un­like tra­di­tional fa­cial masks that are brushed on as a paste and then al­lowed to dry be­fore be­ing peeled or washed off, fa­cial sheet masks are tis­sue-thin sheets cut to fit the face— with holes for the eyes and mouth— and coated with chem­i­cals de­signed to mois­tur­ize and re­ju­ve­nate the skin. China’s con­sumers buy $15 bil­lion in these masks every year, ac­cord­ing to Bain & Co.

In mid-2017, GP launched JM So­lu­tion’s Honey Lu­mi­nous Royal Propo­lis Mask. Other masks soon fol­lowed, in­clud­ing the Ac­tive Bird’s Nest Mois­ture Mask, the Ac­tive Jel­ly­fish Vi­tal Mask and, of course, the Ac­tive Pink Snail Bright­en­ing Mask (con­tain­ing real snail ex­tract), just to name a few. GP didn’t ad­ver­tise. In­stead, it sent masks to China’s top beauty in­flu­encers, who would in turn post re­views—for free—on Sina Weibo (China’s equiv­a­lent of Twit­ter), or on TikTok, the short video plat­form op­er­ated by Bytedance.

Some in­flu­encers be­gan buy­ing masks in bulk and re­selling them on­line. But it was the daigous who ar­guably made a sig­nif­i­cant dif­fer­ence. Daigous aren’t lim­ited to GP’s masks or to Korea, but the THAAD boy­cott and the pop­u­lar­ity GP’s in­flu­encers in China stoked spawned a lu­cra­tive grey mar­ket in masks for the daigous to ex­ploit, buy­ing masks in bulk in Korea and sell­ing them to buy­ers at home who put com­plex­ion ahead of pa­tri­o­tism.

GP’s al­lure to the daigou was also fed to some ex­tent by its own com­peti­tor: Amorepa­cific lim­ited how much of its prod­ucts any sin­gle cus­tomer could buy. A spokesper­son for Amorepa­cific says the com­pany was more con­cerned with pro­tect­ing and pro­mot­ing its long-term brand im­age than with boost­ing short-term sales.

GP had vir­tu­ally no lim­its. By the end of 2018, GP had sold 800 mil­lion masks, a num­ber that has now sur­passed a bil­lion. “Tourism was de­clin­ing,” says Eu­gene an­a­lyst Lee. “But sales of JM prod­ucts at duty-free stores were ris­ing. It was peo­ple who were sell­ing them not con­sum­ing them.” To­day, GP, the com­pany that started out sell­ing videogames and ac­ces­sories, counts on cos­met­ics—largely to China—for

90% of its sales, half of which now come from ecom­merce plat­forms such as Alibaba’s Tmall. Games and re­lated ac­ces­sories ac­count for just 6%.

GP Club’s China-pow­ered rise was so me­te­oric that an­a­lysts ini­tially pro­jected the com­pany could be val­ued as high as 10 tril­lion won in an IPO. They’ve since brought that es­ti­mate Earth­ward—cur­rent pro­jec­tions are for a val­u­a­tion of roughly 4 tril­lion won. “The 2018 fi­nan­cials, while im­pres­sive were still less than what we thought they’d be,” says Lee at Eu­gene.

“JM So­lu­tion prod­ucts have had a me­te­oric rise for sure, but GP Club, even when deal­ing solely with videogames was clearly suc­cess­ful,” says Jane Han, GP’s gen­eral sales di­rec­tor and its first cos­met­ics hire, in 2014. “What has not changed is our CEO’s pas­sion and sin­cer­ity for what he does and his metic­u­lous fo­cus on fully un­der­stand­ing all the de­tails in­volved in bring­ing a prod­uct to mar­ket and sell­ing it. That is one of his great­est strengths.”

As proof that it is no longer an up­start in China, GP now must grap­ple with the bane of so many brands there: coun­ter­feit­ing. “Fake prod­ucts are al­ready in the Chi­nese mar­ket,” says Florence Bernardin of In­for­ma­tion & In­spi­ra­tion, a re­search firm spe­cial­iz­ing in the Asian cos­met­ics mar­ket. Fake cos­met­ics not only un­der­cut sales; some­times tainted with dan­ger­ous chem­i­cals, they can hurt un­wit­ting con­sumers and spark a back­lash against the gen­uine brand. China’s so­cial me­dia is rife with com­plaints about coun­ter­feit Korean cos­met­ics. GP says it’s work­ing to foil coun­ter­feit­ers by mon­i­tor­ing on­line and of­fline sales chan­nels, up­dat­ing its pack­ag­ing and work­ing closely with its on­line part­ners such as Alibaba.

Vig­i­lance may curb copy­cats, but con­tin­ued growth, an­a­lysts say, will de­pend largely on di­ver­si­fi­ca­tion into new prod­ucts and mar­kets. GP has ex­panded of­fices from Seoul into Guangzhou, Hangzhou, Hong Kong, Tokyo and Wei­hai in China’s Shan­dong prov­ince. Roughly a quar­ter of its 170 em­ploy­ees are fo­cused on R&D, it says, and it’s now sell­ing its cos­met­ics not only in China, but in Ja­pan, Malaysia, Sin­ga­pore, Thai­land and back home in South Korea. “The next big mar­ket for cos­metic firms ap­pears to be South­east Asia,” says Shiny­oung Se­cu­ri­ties an­a­lyst Shin Su-yeon in Seoul. “K-Beauty is pop­u­lar in the re­gion. But it’s a dif­fi­cult mar­ket, frag­mented be­tween sev­eral coun­tries.”

Kim hopes an IPO will give GP the cash it needs to bridge those di­vides. When all is said and done, though, suc­cess is a rel­a­tive mat­ter for Kim, who feels his fa­ther died pre­ma­turely: “My dream is to be able to spend the bet­ter part of my life com­fort­ably with my fam­ily.”

Kim poses on the streets of Myeong­dong shop­ping dis­trict in Seoul.

Kim in ear­lier days at one of his videogame stores in Seoul, circa 1993.

Shop­pers wait­ing in line to en­ter the Lotte Duty Free Shop in Seoul (top). Daigous haul­ing re­frig­er­a­tor­sized carts of JM So­lu­tion masks to sell back in China (right).

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