Cosmetics to Korea
Trends and opportunities
The Republic of Korea (ROK, also known as South Korea) cosmetic industry is currently one of the fastest growing markets for beauty and personal care, achieving nearly six per cent growth a year. The market was valued at approximately US$8.6 billion (10 trillion Korean Won) in 2015. The growth is largely driven by increased sales in duty-free businesses and the rise in exports to overseas markets. Cosmetics exports have increased significantly to reach approximately 30 per cent of total local production, largely due to the ‘Korean Wave’ – the increase in global popularity of South Korean culture since 1990’s.
South Korea’s beauty and personal care market is estimated at US$12 billion in terms of retail sales in 2016. The cosmetics market will grow further on the back of the growing popularity of its competitively-priced but quality products in China, Europe, the United Sates (US) and the Middle East (Source: Beauty and Personal Care in South Korea, Euromonitor International, April 2016).
Since 2009, South Korean Television series and Korean Pop (K-Pop) culture serve as primary beauty trend drivers. The ‘Korean Wave’ helped drive up demand for South Korean cosmetics. The slowing of China’s economy has afforded neighbouring countries such as South Korea an opportunity to become a tourist destination, which in effect has brought increased exposure to the country’s products. More and more tourists are visiting the country to shop for South Korean cosmetics. The country’s duty-free market is the world’s largest with sales revenue of US$8 billion in 2015.
The country also has a thriving cosmetics manufacturing industry, with domestic manufacturers having strong market share, accounting for a 52 per cent value in 2015. Some examples of famous brands which are popular with the South Korean middle-income bracket are Laneige, SK II, Etude House and Skin Food (Source: Beauty and Personal Care in South Korea, Euromonitor International, April 2016).
Position of Australian cosmetics in South Korea
The top three source countries for cosmetics imports are the Unites States, France and Japan, accounting for 31.1 per cent, 24.3 per cent, and 12.2 per cent, respectively. Imports from these countries comprise 67.6 per cent of total imports into the South Korean cosmetics market in 2015.
South Korea has Free Trade Agreements (FTA) with 15 countries including its major trading partners. In particular, the country’s FTAs with Europe and the US in 2011 and 2012 have allowed a wide range of European and American brands to enter into the market. A large number of beauty products have become available at more competitive prices and promotional activities of US and European products increased. Before KAFTA came into effect in December 2014, Australia was disadvantaged by other countries who enjoyed the benefits of free trade agreement with South Korea. As of 2016, Australian exporters now enjoy tariff reduction of zero to 2.6 per cent. From 1 January 2018, all tariffs on cosmetics will be removed.
South Korea imported around US$1.4 billion worth of cosmetics globally and US$10.2 million from Australia in 2015. Currently relatively few Australian brands are present in the market but Australia’s presence has grown over years. According to the Foundation of Korea Cosmetics Industry Institute, Australian cosmetics ranked 16th in South Korea in 2015, accounting for 0.7 per cent of the cosmetics imports (Source: Korea Customs Service, Trade Statistics, April 2016; Foundation of Korea Cosmetics Industry Institute, 2016).
Australian Cosmetic Brands in the South Korean market include:
Advanced Cosmetica, AESOP, A’Kin, Alexami Botanique Cosmetics, Ausganica, AUSOME, Australian Native Botanicals, BEAUSOME, Biopacific, Bondi Wash, Eco Bubs, Dunappel, Gaia Skin Naturals, Glamour Flage, Goat Soap, Grahams, INIKA, Jurlique, Kelapa Organics, Lohas Bebe, Miessence, Milkana Soap, MOR, Natio, Nui Coconut, Paw Paw from Nature’s Care, QV, Sini Care, Skin O2, Sunsense, and Zuii Organic.
These brands are sold in department stores, supermarkets, health and beauty specialist stores, pharmacies, home-shopping channel, and e-commerce market including open market malls and social commerce platforms.
- South Korean consumers are traditionally strongly image-conscious, and given the ageing population consumers are keen to invest in skin care.
- Facial masks and cushions are popular. Consumers are willing to invest in optional products such as facial masks.
- Due to the demand for convenience, multi-functional products such as BB (blemish balm) and CC (colour correcting) creams are popular.
- Serums in liquid and oil format continued to gain in popularity, though lotion and cream were the most prevalent formats.
- Natural skincare and naturally positioned skincare products continue to be popular, while skin whitening fell in value share across all categories. Also, skincare sets and trial kits showed strong growth in 2015.
- Derma-cosmetics/pharma brands have a small but growing presence in South Korea. Currently cosmeceutical (cosmetics plus pharmaceutical) cosmetics accounts for 2.9 per cent of the total cosmetics market.
- Body wash/shower and intimate washes posted stronger value growth in 2015.
- The high image-consciousness of female consumers has led to colour cosmetics being widely used among all age groups. However, students ranging from middle school to college have formed an increasingly big consumer base for colour cosmetics. Colour cosmetics registered eight per cent current value growth to reach 2.1 trillion Korean Won (approximately US$2 billion) sales in 2015 (Source: Colour Cosmetics in South Korea, Euromonitor International, April 2016).
- More than 10 per cent of the country’s beauty product sales (approximately US$1.5 billion) are driven by a relatively new niche segment – men’s beauty. Euromonitor data indicates that South Korean men are the top per-capita consumers of skin care products in the world. Changes in social attitudes, increases in living standard and the influence of celebrity idols have all increased male demand for aftershave, moisturiser, anti-aging products and even concealer. Willingness to invest in facial care supported the growth of men’s grooming in South Korea with six per cent value growth in 2015.
The beauty market is very strong with potential opportunities in:
- skincare products with natural and organic ingredients, preferably Australian-grown
- functional hair care products, preferably with natural and organic ingredients
- natural colour cosmetics and mineral make up
- baby and child-specific products
- sun-protection products
- men's grooming products
- distribution in online shopping malls including mobile shopping, and duty free shops.
Cosmetics and related products such as foods, food additives and pharmaceuticals are regulated by the Ministry of Food and Drug Safety (MFDS). The MFDS does not permit importing cosmetics which contain dangerous ingredients or ingredient exceeding an amount prescribed in South Korea cosmetic-related laws, to protect national health and safety. Accordingly, importers are required to submit ingredient lists, a bovine free declaration (to prevent BSE), and certificates of free sales for examination. All cosmetic products must be preapproved by the MFDS before being imported. Depending on the ingredients used, the registration process takes two to five months.
The Korean Cosmetic Products Act (KPCA), passed in 2000 to separate cosmetic and pharmaceutical regulations, categorised cosmetic products into three major categories: general cosmetics, functional cosmetics such as sunscreens and whitening products, and quasi-drugs such as anti-acne products. Both functional cosmetics and quasi-drugs must be evaluated by the MFDS before they are allowed in the country. Quality testing must be conducted by lot or batch according to the KCPA. However, the required testing differs based on whether the product is a quasi-drug and general or functional cosmetic. Functional cosmetics are evaluated based on the functionality of their individual ingredients rather than the finished product as a whole.
South Korea is in the process of phasing out animal testing for cosmetics by 2018. The country passed a law that from 2018 will mandate the use of non-animal alternative tests for cosmetics where such alternatives have been accepted by Ministry of Food and Drug Safety.
The major distributional channels for cosmetics are:
- health and beauty specialist retailers - 24.2 per cent
- direct-selling - 19.3 per cent
- department stores - 16.2 per cent
- hypermarkets - 12.7 per cent
- supermarkets - 4.5 per cent
- pharmacies/drugstores - 4.2 per cent
- home shopping - 5.4 per cent
- internet retailing - 9.0 per cent
- others – six per cent (others include living shops and multi-stores).
(Source: Euromonitor, Beauty and Personal Care in South Korea, April 2016).
Beauty and personal care retailing experienced increased competition in 2016. Consumers do not simply look for the best prices but also want to enjoy a holistic store experience whereby they can indulge in the brand concept as well as gain professional recommendation on the most suitable product for themselves.
Department stores was a key channel for premium beauty and personal care brands in 2015. Another aspect to note is that consumers’ rising sophistication has seen them turning to other channels such as internet retailing and home shopping channels as alternatives to purchasing premium beauty and personal care. Besides the convenience of internet retailing and home shopping, consumers have utilised these channels as they tend to offer cheaper prices than department stores.
‘Malling’ culture has become popular in South Korea. ‘Malling’ is a trend in which consumers enjoy diverse activities such as dining, gaming or watching films or concerts during shopping trips, in one-stop location. Examples include the Coex Mall in Gangnam, IKEA outlet, and Shinsegae’s E-Mart Town.
Tourism industry and distribution in duty free shops
South Korea has become a good place to showcase products for Asian consumers as the country is a favourite shopping destination for tourists from countries including China, Hong Kong, Japan, Taiwan, Thailand and Vietnam.
The country is top global duty free market valued at US$7.9 billion in 2015. China Central Television reported that an estimated 6.1 million Chinese tourists visited South Korea in 2015, accounting for more than 40 per cent of all foreign tourists.
According to the Korea Tourism Organization (KTO), the average amount a tourist spent on shopping was 1,060,000 Won (approximately US$1,000) and 46.9 per cent of the tourists visited for shopping in 2015. In the case of China, nine out of ten tourists bought cosmetics from Seoul during their visit in 2015 and the average amount a Chinese tourist spent on shopping was 2,130,000 Won (approximately US$2,000).
According to Korea Customs Service, sales of 50 duty free shops from January to June 2016 came to 5.77 trillion won (approximately US$5.1 billion). The sales of the duty free shops in 2015 was US$9 billion and the sales for 2016 year are estimated at about 12 trillion won (approximately US$10.6 billion). A monthly average number of consumers who shopped at duty free shops in 2015-16 is 4.3 million. In duty free stores, 66.5 per cent of the purchase was made by foreigners and cosmetics was the number one item purchased.
The country has launched ‘Visit Korea Year 2016-2018’ with the massive Korea Grand Sale event taking place around the country in the months of February and October. Korea Grand Sale is an integrated festival that promotes culture, tourism and shopping to international visitors. More than 20,000 shopping, accommodation, transportation, entertainment, beauty and health, food and other various participating companies offers special and unprecedented benefits and discounts to all international tourists visiting Korea.
Korea-Australia Free Trade Agreement (KAFTA)
The Korea-Australia Free Trade Agreement (KAFTA) was signed on 8 April 2014 and came into force on 12 December 2014. KAFTA reduces trade and investment barriers, making it easier for Australians to do business with South Korea. The Agreement helps level the playing field for Australian exporters competing with those from the US, the EU, Chile and the Association of South East Asian Nations (ASEAN), who benefit from existing trade deals with South Korea.
2016 is the fourth year of KAFTA implementation and duty taxes on many cosmetic categories have been removed this year. Find out more about tariffs at the Department of Foreign Affairs and Trade's Free Trade Agreement Portal.
Links and industry contacts
Korea Cosmetic Association (KCA)
Korea Pharmaceutical Traders Association (KPTA)
Ministry of Food and Drug Safety (MFDS)
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