Dr. Jart, a Korean beauty brand acquired by Estee Lauder for over 1 trillion won ($735.5 million), is experiencing a slowdown in growth. Once celebrated as Estee Lauder’s first Asian acquisition, why has Dr. Jart started to stumble despite the surge in K-beauty’s popularity?
According to the Financial Supervisory Service on Oct. 15, Have & Be, the operator of Dr. Jart, reported sales of 232.9 billion won for fiscal year 2024 (July 2023 to June 2024), a 30% drop compared to the same period last year. The company posted an operating loss of 14.4 billion won, marking its first operating deficit in 10 years. The net loss also reached 10.6 billion won.
Dr. Jart is a derma-cosmetic brand founded in 2004 by architecture graduate Lee Jin-wook. It gained popularity with products like BB Cream (blemish balm), Ceramidin, and Cicapair. In 2015, the brand sold a 33.3% stake to Estee Lauder and later sold the remaining shares in November 2019, establishing itself as a K-beauty success story. At that time, Dr. Jart was valued at $1.7 billion, and the total acquisition cost was approximately $1.1 billion.
Since the acquisition, Dr. Jart has faced ongoing struggles. In 2019, the brand reported sales of 634.6 billion won and operating profit of 121.4 billion won, but sales have since dropped to one-third of that amount, resulting in losses. In 2021, Estee Lauder transformed Dr. Jart into a limited liability company and changed its fiscal year-end from December to June.
After acquiring Dr. Jart, Estee Lauder faced the COVID-19 outbreak the following year and executed four rounds of capital reduction by buying back and canceling shares, recovering a total of 406.9 billion won, including 220.8 billion won in the first round. As a result, the company’s capital decreased from 200 million won to 140.35 million won. Capital reduction is carried out to downsize the business or when shareholders request to recover their investments.
In its August earnings report, Estee Lauder revealed a $471 million impairment charge for Dr. Jart due to lower-than-expected growth and profitability. The company, which also owns Clinique, Jo Malone, Aveda, and MAC, reported a 2% decline in sales and a 61% drop in net profit for fiscal 2024 due to sluggish duty-free sales in Asia, particularly in China, since the pandemic. Estee Lauder once generated 30% of its total sales from China, but with the rise of “patriotic consumption” favoring domestic brands and a decline in duty-free sales, performance has suffered.
Dr. Jart had emerged as a popular brand in China, with domestic duty-free sales reaching 240.9 billion won in 2018, surpassing luxury brands like Chanel, Gucci, and Louis Vuitton, which attracted Estee Lauder to K-beauty. Around the same time, Unilever acquired Carver Korea, the operator of AHC, for 3 trillion won, while L’oreal purchased Stylenanda, the operator of 3CE, for 600 billion won, both aiming to penetrate the Chinese market.
As the influence of Korean cosmetics brands waned in China, companies like Carver Korea implemented voluntary retirements, while others, like Stylenanda, downsized their offline stores in response to declining performance. According to the Korea Customs Service, South Korean cosmetic exports to China shrank from $4.9 billion (6.65 trillion won) in 2021 to $2.8 billion (3.8 trillion won) last year.
An industry insider noted, “Dr. Jart popularized BB Cream and was highly successful in duty-free stores but has since failed to produce another hit product. Meanwhile, similar mid-range brands have emerged, weakening Dr. Jart’s brand power.”
