Sephora Korea fails to find beauty in 2nd straight year of deficit

Industry

Published: 27 Apr. 2022, 18:32 Updated: 27 Apr. 2022, 18:45

Sephora Korea fails to find beauty in 2nd straight year of deficit

Sephora Korea opens its first store at Parnas Mall in Gangnam District, southern Seoul, on Oct. 24, 2019. [SEPHORA]

Sephora Korea recorded a deficit for two consecutive years.

There is speculation that the company may even retreat from Korea as the global beauty shop had a hard time getting settled in the country due to the Covid-19 pandemic and the company’s failure to keep up with the domestic beauty industry trends.

According to data from the Financial Supervisory Service, Sephora Korea recorded 12.4 billion won ($9.8 million) in sales last year, a 12.7 percent decrease from 14.2 billion won in 2020.

The company’s operating loss was recorded at 14.2 billion won.

Founded in 1970 by the Louis Vuitton Moet Hennessy Group (LVMH), the company operates over 2,700 stores in 35 countries and is tied for the highest market share along with Ulta Beauty.

In October 2019, Sephora Korea opened its first store at the Parnas Mall in Gangnam District, southern Seoul, and later opened five additional stores including one in the tourism hot spot of Myeong-dong in central Seoul.

However, the Myeong-dong branch ended up closing this January as the number of tourists had significantly dropped due to the pandemic.

Sephora Korea had initially announced plans to open 14 new stores including an online shop by the end of this year, but this now seems very unlikely.

Customers line up in front of Sephora Korea's first store in Gangnam District, southern Seoul, on Oct. 26, 2019. [CHUN YEONG-SEON]

Sephora had previously shut down its business in Japan, two years after launching its first store in the country in 1999. In 2010, the company also retreated from Hong Kong after first opening in 2008.

Following its first launch in Korea, Sephora’s marketing strategy focused more on lip, eye and cheek cosmetics, which backfired once people started wearing masks a few months later due to the pandemic.

Sephora isn’t the only cosmetics company struggling in the country.

Health and beauty shops such as Boots, LOHB’s and Lalavla also mostly scaled back their business or retreated from the country due to low profitability during the same time frame.

Sephora Korea's second shop in Myeong-dong, central Seoul, closed on Jan. 2, 2022. [BAE JUNG-WON]

Experts say the unsuccessful performance of these companies is due to Korean consumers’ tendency to visit CJ's Olive Young, the most popular health and beauty shop in Korea, for cheaper cosmetics and department stores for high-end beauty products.

Companies failing to differentiate themselves from other beauty platforms is another possible reason.

“Sephora was unable to stay competitive due to the absence of unique products [that appeal to Korean consumers], and the company lacks in terms of online strategy and pricing,” said a beauty industry insider.

Experts also say Sephora needs to have a better understanding of the Korean cosmetics market.

“The Korean cosmetics market is referred to as an innovative market globally,” said Jin Jeong-im, a beauty consultant. “Sephora failed in meeting Korean consumers’ expectations in terms of differentiating its products and operating both online and offline shops.”

BY YOO JI-YOEN [cho.jungwoo1@joongang.co.kr]