K-beauty boom shifts to small and mid-sized firms as ODM makers, indie brands surge

Products are manufactured at Kolmar Korea's Sejong factory. Kolmar Korea posted operating profit of 189.2 billion won in the first half of this year, up more than 40 percent from a year earlier. [Kolmar Korea]

Kolmar Korea's H1 operating profit up 41.8%; Cosmax sales rise 21.8%

APR, d'Alba Global post steep gains as indie brands accelerate overseas push

Mid-sized firms up 27.8%, SMEs up 23.0%; SME cosmetics exports hit record $5.07 billion

The center of gravity in the K-beauty boom is shifting rapidly toward small and mid-sized companies. Cosmetics original design manufacturers (ODM) Kolmar Korea and Cosmax extended their growth streaks in the first half of this year, while emerging brand houses APR and d'Alba Global also posted strong sales gains. Established players Amorepacific and LG Household improved profitability as well, though the pace of top-line growth varied noticeably across companies.

According to filings with the Financial Supervisory Service's DART system, Kolmar Korea's consolidated first-half sales reached 1.59 trillion won ($1.15 billion), up 14.8 percent from a year earlier. Operating profit rose 41.8 percent to 189.2 billion won. Second-quarter sales of 861.3 billion won and operating profit of 110.3 billion won — up 17.8 percent and 50.2 percent, respectively — both set all-time quarterly records.

The overseas expansion of K-beauty indie brands translated directly into higher ODM order volumes. Kolmar Korea's domestic cosmetics business posted second-quarter sales of 430.4 billion won, up 31 percent year on year, with operating profit climbing 44 percent to 70.8 billion won. "Orders from indie brands grew, centered on skin care and sun care, and a string of new product launches by global clients drove the strong results," an industry official said.

First-half earnings for major cosmetics companies. Mid-sized firms are showing particularly steep growth. [Source: each company]

Cosmax also delivered strong first-half results, with consolidated sales of 1.48 trillion won and operating profit of 126.8 billion won — up 21.8 percent and 13.0 percent, respectively, from a year earlier. Second-quarter sales of 794.9 billion won rose 27.5 percent, while operating profit of 73.7 billion won climbed 21.3 percent, setting new quarterly records on both lines.

Cosmax's growth extended well beyond Korea. Its domestic unit's second-quarter sales topped 500 billion won for the first time, while its US subsidiary turned its first operating profit since its founding, ending a prolonged streak of losses. Operations in China and Southeast Asia also expanded. Domestic indie brand clients' growing overseas sales and rising orders from global clients simultaneously lifted production volumes at home and abroad.

Behind the ODM makers' strong numbers are emerging brands rapidly building scale overseas. APR posted first-half sales of 1.36 trillion won and operating profit of 342.8 billion won, surging 129.2 percent and 150.4 percent, respectively, from a year earlier. Its first-half operating profit alone exceeded the consolidated operating profit of both Amorepacific and LG Household individually. APR's first-half operating margin reached 25.2 percent.

d'Alba Global likewise posted first-half sales of 358.1 billion won, up 47.9 percent, and operating profit of 92.3 billion won, up 55.8 percent. Second-quarter overseas sales rose 74 percent to 141.5 billion won, accounting for 75.7 percent of total revenue. Sales in North America jumped 174 percent and in Europe 242 percent.

The established cosmetics majors also improved their results. Amorepacific reported first-half sales of 2.31 trillion won and operating profit of 244 billion won, up 11.5 percent and 27.5 percent, respectively. Second-quarter sales rose 17 percent to 1.18 trillion won, while operating profit climbed 59.3 percent to 117.3 billion won, supported by expansion in the Americas, Europe and Japan and improved profitability.

LG Household saw consolidated first-half sales edge down 2.1 percent to 3.23 trillion won, though operating profit rose 6.8 percent to 210.6 billion won. Its beauty business recorded sales of 1.59 trillion won and operating profit of 82.9 billion won. The results reflect a deliberate emphasis on margin improvement over top-line growth.

The shift in growth momentum visible in individual company results is confirmed by recently released industry-wide data. The Korea Health Industry Development Institute published its first-quarter biohealth industry business analysis on Aug. 19, showing cosmetics industry sales grew 15.7 percent in the first quarter. Mid-sized enterprises expanded 27.8 percent and small and medium-sized enterprises 23.0 percent — both outpacing the industry average. The institute said strong sales by mid-sized and small companies were the primary driver of the overall cosmetics industry's accelerating growth rate.

Small businesses are also claiming a larger share of exports. According to the Ministry of SMEs and Startups, SME cosmetics exports in the first half of this year reached a record $5.07 billion, making cosmetics the top export category among all SME product lines. Total SME exports over the same period came to $64 billion, up 11.6 percent year on year and surpassing $60 billion for the first time on a first-half basis.

The way K-beauty grows is also changing. Where a handful of large brands once led by directly expanding their own overseas retail networks, the model now spreading has many indie brands rapidly building overseas sales through online platforms and local retail channels, with domestic ODM makers providing product development and manufacturing support. "In the past, large brands handled everything from concept to production," an industry official said. "Now ODM companies handle manufacturing while brand companies focus on planning and marketing — and specialist local marketing firms are joining forces with them to take on global markets together. That kind of coalition approach is becoming the norm."

hong@heraldcorp.com