When Sephora opened its first store in Seoul in October 2019, hundreds of consumers lined up in front of the store to get their hands on the latest beauty products. The beauty retailer, owned by French luxury group LVMH, had high hopes for the Korean market - Sephora announced that it would open six stores in South Korea by the following year and add another seven by 2022. Then the Covid-19 pandemic took the world by storm in 2020.
Four years since its launch in Korea, Sephora operates just five stores, significantly fewer than anticipated. The retailer even shut down two stores in the last two years. The initial excitement surrounding the retailer has mostly subsided - the new store launch in The Hyundai Seoul, Korea’s largest department store, last December was considered a modest affair.
Sephora’s struggle in Korea is an exception for the retailer, which is widely successful in other parts of the world. LVMH reported that Sephora “achieved another historic year, both in terms of sales and profit” last year, following a record performance in 2022. “Momentum was particularly strong in North America, Europe and the Middle East,” LVMH chief executive Bernard Arnault said during the group’s annual presentation last month.
LVMH’s selective retailing branch, which includes Sephora and travel retailer DFS, reported $19.2 billion (17.9 billion euros) in revenue last year, up 25% from 2022. Profits from recurring operations jumped 76%.
Although LVMH does not disclose Sephora’s exact sales and profit figures, industry insiders estimate worldwide revenues hit $15 billion last year, up from an estimated $12 billion in 2022. According to Business Insider, the beauty retailer broke records by reaching $10 billion in sales last year in North America, its biggest market.
But Sephora’s growth has been less prominent in Korea. In 2022, Sephora Korea’s revenue increased 10 percent to $10 million (13.7 billion won) as store activity resumed post-pandemic, but operating losses widened 21 percent to 17.6 billion won, according to the company’s audit report. Sephora Korea’s 2023 audit report has yet to be released.
The beauty retailer’s slow start in Korea cannot be solely attributed to pandemic woes. While pandemic lockdowns and social distancing took a toll on Sephora, which relies heavily on in-store activity, the retailer has other problems.
Sephora faces fierce competition from domestic beauty retailers and drugstores, namely Olive Young, which dominates the Korean market. Olive Young offers a wide array of affordable beauty products and operates over 1300 stores in Korea.
CJ Olive Young, the company that owns the Olive Young brand, reported record sales in 2022 and 2023. CJ Olive Young’s annual sales rose 31.7% to $2.1 billion (2.77 trillion won) in 2022. Operating profits surged 97% to 271.4 billion won. The company’s cumulative sales through the third quarter of 2023 reached 2.79 trillion, surpassing its total sales for the previous year. Operating profits rose 44.3% during the same period.
Boosted by strong performance, industry insiders expect the company’s plans to go public will gain traction this year.
Experts and consumers say that Sephora’s position as a high-end beauty luxury retailer puts the brand at a disadvantage in the Korean market, where beauty products are abundant and affordable.
Olive Young has been focusing on curating low-to-mid-priced brands, effectively drawing in young consumers in their 20s and 30s. The domestic retailer also runs week-long sales events several times a year, which helps boost sales both online and offline, according to the company.
Olive Young’s online presence is also more prominent than Sephora’s - the retailer operates an aggressive same-day delivery service where products are delivered within 3 to 4 hours after ordering online. “More than half our online orders in Seoul are delivered using our same-day delivery service,” said a company representative.
Consumers looking for pricier, high-end beauty products usually shop at local department stores, where a purchase is generally accompanied by a handful of product samples. Online purchases involve various discount coupons ranging from 5 to 15 percent. Regarding samples or discounts, Sephora has not been able to provide better offers than department stores.
“The Korean market is different from other markets where Sephora is thriving in that there is a strong perception that expensive, high-end cosmetics should be purchased at department stores or duty-free shops,” said Kim Ju-deok, professor at Sungshin Women’s University. “Sephora could appeal to a wider range of consumers by adding more mid-priced cosmetics to its product mix,” he added.
Some experts note that Korea’s retail sector, armed with ultra-fast deliveries, is also making it hard for Sephora to remain competitive online.
“Cosmetics are increasingly sold online in Korea, with major online platforms like Coupang and Market Curly selling beauty products, but the domestic retail market is very supplier-oriented and a lot more complicated than in other countries,” said Seo Yong-gu, professor of marketing at Sookmyung Women’s University.
“There have been cases where extremely successful brands, such as Walmart, pulled out of Korea because they failed to localize. It remains to be seen if Sephora will perform well in Korea.”
