SEOUL, South Korea — LVMH has bought a minority stake in Clio Cosmetics for $50 million, in a deal valuing the Korean company at $700 million, according to a report in the Wall Street Journal late last week.
The deal is the second major investment in South Korea’s booming beauty industry last week, highlighting growing interest among Western companies. Earlier in the week, Goldman Sachs and Bain Capital Private Equity said they had acquired a controlling stake in specialty cosmetics firm Carver Korea, in a deal that values that company at about $675 million.
Demand for Korean beauty products is exploding. Last year, the country exported more than $2.64 billion of cosmetic goods between January and November, a new record high, according to the Korea Customs Service. Beauty exports from Korea have been growing rapidly, from $1 billion in 2012 to $1.3 billion in 2013 and $1.9 billion in 2014.
Indeed, the French luxury conglomerate’s move will come as little surprise to those closely watching the Korean beauty sector, which is renowned for creating trends and product innovations years ahead of their Western counterparts. From introducing unusual ingredients like snail mucus and bee venom to the market, to developing new application techniques like sheet masks and cushion compacts, Korean beauty companies have been at the forefront of beauty innovation for years, driven in part by the expectations of sophisticated local customers.
South Korean women — for whom flawless skin is the ultimate beauty ideal — are reported to spend twice as much of their income on beauty and make-up products than their American counterparts, with the average Korean skincare regime consisting of at least 10 steps. The beauty industry in South Korea was valued at $11.6 billion last year, and is expected to grow to $13.1 billion by 2020, according to Euromonitor.
“Large companies like LVMH are attracted to Korean beauty because its formula is clearly profitable, yet there is still a way to go to globalise the phenomenon,” said Hannah Symons, Beauty and Personal Care Associate at Euromonitor. Many Korean brands have failed to capture key markets outside of Asia, such as Western Europe and the United States, paving the way for international players to leverage their global reach to claim a stake in these prospective white spaces.
“South Korean beauty has a strategy of extreme segmentation, which provides constant opportunities for innovation in terms of packaging, ingredients, formats and textures,” said Symons. “These companies excel at creating needs that maybe consumers wouldn’t have thought of and then satisfying the need with exciting and novel products. This approach of short product development cycles provides ample opportunities for growth.”