EXCLUSIVE: Olive Young to establish Japanese subsidiary

Industry

Published: 10 May. 2024, 06:00 Updated: 10 May. 2024, 11:22

EXCLUSIVE: Olive Young to establish Japanese subsidiary

Olive Young Myeong-dong Town, Olive Young's first specialized store for foreigners in Myeong-dong, central Seoul [CJ OLIVE YOUNG]

CJ Olive Young, Korea's top cosmetic retailer, is ramping up overseas expansion centered around Japan and North America, betting that the so-called K-beauty could tap into the world's largest personal care markets.

Olive Young will set up a Japanese subsidiary in the first half of 2024 to fortify the offline presence of its basic and color makeup private brands (PBs), such as Bioheal Boh and Wake Make, rather than launching Olive Young stores in the region. In the United States, it will focus on extending its offerings on e-commerce platforms such as its Olive Young Global Mall and Amazon.

The establishment of a Japanese subsidiary “is currently under way,” Shin Eun-yeong, senior vice president at Olive Young who heads the brand business division, said in an interview with the Korea JoongAng Daily on April 29. “We aim to establish [it] within the first half of the year and stabilize the operation as quickly as possible.”

A joint pop-up store featuring Olive Young's four private brands Bioheal Boh, Wake Make, Bring Green and Fillimilli at @cosme in Tokyo bustles with customers in December 2023. [CJ OLIVE YOUNG]

Korea's exports of cosmetic products hit an all-time high during the first quarter of this year as they enjoyed higher demand among international beauty fans — especially those with affinity for Korean pop culture. First-quarter exports recorded $2.3 billion, up 21.7 percent from a year ago, according to data from Korea Customs Service.

“As global customers encounter Korean cosmetics brands through diverse e-commerce channels like Amazon, Shopee and Lazada, they gain a better appreciation for their quality, and consequently, Korean cosmetics companies reduce reliance on China and diversify the market toward countries such as Japan and the United States,” Shin said.

The Japanese market is dominated by home grown brands such as SK-II, Shiseido and Shu Uemura, reflecting its consumers' heightened interest in the premium skin care range. In contrast, Korean cosmetics are predominantly found in mass-market channels like multibrand stores, drugstores and e-commerce platforms as opposed to department stores. Consequently, such products are generally priced around 10 to 20 percent below their domestic premium counterparts.

A joint pop-up store featuring Olive Young's four private brands Bioheal Boh, Wake Make, Bring Green and Fillimilli at @cosme in Tokyo bustles with customers in December 2023. [CJ OLIVE YOUNG]

In establishing the Japanese subsidiary, Olive Young hopes to leverage Japan's prominent distribution channels in order to grow its brick-and-mortar presence and solidify its foothold in the country — which is the world's third-largest beauty market, according to London-based market tracker Euromonitor International.

Shin noted that Japanese customers tend to expect higher quality than other shoppers do, often conducting unusually thorough testing and research before committing to a brand.

“It is important to build trust by showcasing the authenticity of our products, highlighting the superior ingredients and technology and demonstrating our effectiveness,” Shin said. “The Japanese subsidiary will allow the company to understand Japanese preferences better, integrate them into product development, take a proactive role in local marketing and sales and, ultimately, assume full responsibility for operations in Japan.”

A Bioheal Boh pop-up store at @cosme Osaka in January 2024 [CJ OLIVE YOUNG]

Olive Young currently sells 10 PBs in Japan, including Bioheal Boh, Wake Make, Colorgram, Bringgreen and Fillimilli.

Bioheal Boh, known for its basic skin care products, entered Japanese retail chains Loft and Plaza in June 2022. Color makeup brand Wake Make became available in Loft, Plaza, and @cosme stores in October 2023. To enhance brand visibility, Olive Young has also operated pop-up stores. A joint pop-up featuring Bioheal Boh, Wake Make, Bringgreen, and Fillimilli was open in Tokyo's @cosme in December, and a similar setup featuring Bioheal Boh and Wake Make recently launched in Osaka.

Olive Young reported a 125 percent average annual increase in PB sales in Japan from 2020 to 2023. First-quarter sales for 2024 saw an on-year surge of 76 percent, indicating a positive consumer response.

While Olive Young has become a leading player in Korea’s beauty industry — achieving sales of 3.9 trillion won ($2.8 billion) last year and squeezing competitors like LVMH's Sephora and British retailer Boots out of the market — its international ventures have encountered challenges.

The company established subsidiaries in China in 2013 and the United States in 2018 with intentions to open physical stores, but those establishments either closed down or did not materialize as expected. Only two overseas subsidiaries currently remain operational, both of which are in China.

The decision to target Japan as a strategic market is based on several factors, including the country's proximity to Korea and the two markets' shared characteristics as well as the growing popularity of Korean culture.

“When looking at the scale of the global beauty market, the United States, China and Japan are the top three strategic countries. But in terms of prioritizing strategic investments at the current moment, I would say it is Japan,” Shin said.

The fact that “Japan's most-imported cosmetics come from Korea, coupled with [Japan's] potential to serve as a conducive environment for Olive Young's PB brand business — such as sharing similar skin care concerns with their Korea and exhibiting a penchant for factors that could resonate with Olive Young's brands — make it a compelling choice,” Shin added. “This has already translated into early success in reverse imports and e-commerce, underscoring Japan's high potential.”

Wives of LA Dodgers baseball players visit an Olive Young store during their trip to Seoul for the 2024 MLB World Tour: Seoul Series on March 15. [SCREEN CAPTURE]

Despite previous challenges in the United States and China, Shin highlighted the ongoing importance of those regions as massive beauty markets. Olive Young's online Global Mall, which serves 150 countries worldwide, draws a large portion of its customers from North America, including the United States and Canada, as well as Australia.

Looking ahead, the firm hopes to enact a strategy in the United States mirroring their plans for the Japanese market, involving “initially building brand recognition through key e-commerce platforms before expanding into local offline beauty platforms.”

Olive Young set up a Chinese subsidiary in 2023 to facilitate its entry into both online and offline channels.

“In China, once hurdles such as cosmetic regulations, are solved, we aim to [explore opportunities] in the Chinese market from the second half of the year,” Shin said.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]