Unraveling the K-Beauty Paradox | BoF

When Joohyun Lim returned to Seoul in 2014 after living abroad, veganism had yet to take off in the K-beauty space. South Korean beauty exports continued to be famous for their 10-step skincare routines and disposable sheet masks, rather than products in line with her plant-based lifestyle and burgeoning “pure beauty” movement.

Forced to pay close attention to the food she ate and the creams she used for her sensitive skin, Lim began creating cosmetics for herself before officially launching the Areencia brand five years later. Its range of vegan, cruelty-free and often plastic-free shampoo bars, soaps and body oils hit the market just before the pandemic.

Driven by the next wave of interest in beauty products that claim to contain safe, natural, organic or environmentally friendly ingredients, Arencia has started selling on Korean mass market platforms such as Kakao, Naver, Musinsa and 29cm. Outside of Korea, however, this modest brand was just one of many in an increasingly crowded market.

Rather than expanding first to another country in Asia, where the demand for botanical beauty is still relatively low, Lim launched in the US last year to cater to a much larger audience. Complications soon arose, however, when she discovered that the manual she had developed for Korea was different from the one she needed in the West.

In Korea, Arencia is positioned as a mid-to-high-end brand, with products selling 30 to 40 percent more than the average plant-based beauty business for a customer in their 20s. But in the US, which now accounts for about 30 percent of the brand’s sales, mostly through Amazon, a more mature market for plant-based products means many of its customers are in their 30s and prioritize value for money.

How do Korean brands like Areencia — and their international sales and marketing partners — deal with this apparent disconnect?

Korean brands vs. K-beauty

Years after K-beauty took the world by storm and found an enthusiastic global audience, Korean innovative skincare and makeup techniques continue to shape the global beauty industry. By 2020, Korea has moved up to third place after France and the US in the cosmetics export value ranking by country, according to a report in Korean Herald.

Korean brands such as Sulwhasoo, Hera, Laneige and Tonymoly can now be found on the physical and digital shelves of Sephora, Bergdorf Goodman and Amazon in the US and Selfridges and Boots in the UK, to name a few. Many are large companies or brands within a major conglomerate that have headed west to ease over-reliance on the Chinese market. Some have been successful overseas; others begin to fight.

Arencia is unusual because few other independent brands have conquered foreign markets. The founders say they simply cannot afford to take their eyes off the rapidly changing domestic market.

It’s a reality well captured in a TikTok video, where an American user while shopping in Seoul noticed that K-beauty products that are going “viral” in the US (such as Laneige lip mask and Beauty of Joseon sunscreen) are only drops in the ocean compared to the wide range of local brands and products available at Korean beauty stores such as Olive Young.

While the meteoric rise of K-beauty may be ending, the country’s status as a global trendsetter is maintained thanks to the strength of local groups such as Amorepacific and LG Household & Health Care (LG H&H), the cultural wave “Hallyu” featuring K-pop music and the growing popularity of Korean celebrities as ambassadors for global fashion brands. The problem with Korean beauty brands operating outside of this universe is that such benchmarks are often the only ones international customers have.

Here’s the dilemma faced by brands like Arencia that don’t fit perfectly into these narrow definitions of K-beauty: first, Korean products seen as a success story in markets like the US often rely on notoriety rather than longevity; second, some founders don’t want to be associated with the high-octane image Western consumers expect from brands marketed as K-beauty.

Meanwhile, in Korea’s domestic beauty market, competition is now even fiercer than before the pandemic. “You’ll see 10 success stories,” said Arencia’s Lim, “but not the thousands of brands that took off and fell.”

While it is true that ” [beauty] rituals and daily routines of Koreans are completely different than those of buyers in other countries”, a bigger challenge for Korean brands wanting to export is that “trends come and go very quickly in Korea, [which means that when brands] launch a completely new product, it may not sell in other markets” because the product is either too advanced or too specific to be applied in other countries, he suggests Elle Korean beauty director Youji Jung.

This explains why Lim knows of several Korean locally produced brand owners who bypass the domestic market entirely and instead sell to countries like Indonesia where K-beauty is in high demand. Southeast Asian markets are often easier to navigate than China and may turn out to be more similar to markets than the US.

However, China was the largest importer of Korean beauty products as recently as 2020, followed by the United States and Japan, according to data released by the South Korean Ministry of Food and Drug Safety. Significant growth markets for Korean cosmetics exporters include Vietnam, Indonesia and Kazakhstan, as well as Australia, Canada, the UK and Russia. There are also reports of a growing demand for K-beauty in the Middle East.

Unlocking new categories

Niche Korean brands are entering the market not only in the so-called “pure beauty” segment. Underdeveloped categories across the board have naturally gained favor as a result of oversaturation in the skincare and makeup segments, says Jung. It helps that products like body lotion and shampoo tend to be less risky to produce than face creams and serums.

One niche-forming company is Kouve, which sells nail polishes and Instagram-friendly soft gel adhesives. The brand was launched in 2022 after the pandemic boosted demand for salon-like home nail products, says former CEO Sangvin Lee.

The Korean DIY nail market was small at the time and Kouve had few competitors, but this prompted Lee to introduce the brand to neighboring markets such as Japan, Hong Kong, Singapore and Taiwan.

Lee mentions that while Japanese brands had a major influence on Korean trends in the 1990s and 2000s, things have since turned around for some products thanks to Hallyu and the added value of the K-beauty moniker for some products. Among the beneficiaries is Kouve, who is working through Nugu, an e-commerce platform for Japanese shoppers specializing in products based on Korean trends, to tap into the larger nail care market in the neighborhood.

The growing trend of nichification in Korea also signals a shift away from beauty industry business models that relied on keywords and prescriptive procedures to oversimplify the diverse needs of shoppers. “We accept and get used to it [mindset] that everyone is different and everyone has their own characteristics,” Jung explained.

And despite the sophistication of branding, packaging and visual identity in Korea – and the notoriously high standards of local shoppers – things have started to come together in terms of skincare and makeup. “If I erased the brand names, you wouldn’t be able to tell which is which,” Jung said, adding that there is more room for creativity and subtlety when branding lifestyle categories such as fragrances and personal care.

This involves moving away from celebrity endorsements as the standard, something Jung strongly advocates because “everyone [celebrity image] in terms of make-up, pose and concept, they were very similar” and also because many emerging brands do not have the resources to harness the best talent.

Not only did large ambassadorial deals drain budgets and encourage companies to adhere to a well-trodden marketing strategy, but celebrities also jumped from one brand to another after their deals expired, thus diminishing brand identity.

“However, there are still brands that do this and they continue to suffer,” said Lim of Arencia. “I estimate brands spend about 30, 40 percent of their profits on branding, but it could easily go up to 50, 60 percent.”

In both newer and established categories, environmental awareness is fast becoming the “top factor” shaping Korean industry in the wake of the pandemic, said Hwa Jun Lee, senior beauty and personal care analyst at Seoul-based Mintel.

Generation Z is driving a greater demand for responsible business practices, but not everyone sees it as a deciding factor for these or other consumer cohorts in the country. “I think that for people living in the so-called [Korean] capital, the ecology of the brand is a key factor in the decision to buy a product,” said Lim. “I don’t think it’s the first or second reason, but it could be the third or fourth.”

Independent uprising

The emergence of independent brands is perhaps the biggest change the Korean beauty industry has seen in recent years. The closure of brick-and-mortar stores during the pandemic – including major contact points for Chinese visitors such as department stores and duty-free shops – has helped to level the playing field for smaller and homegrown digital indie players.

The Amorepacific and LG H&H Group brands were already feeling the heat, in some cases over-expanding their physical footprint in mainland China, where complex geopolitics and controversy led to boycotts and bolstered demand for Chinese alternatives to Korean brands.

However, experts suggest that even Korean independent brands with high growth potential can fall prey to short lifecycles or attract the wrong attention.

“Once you create a product, take pictures and put it online, other brands will notice and do something similar,” says Lim. “It’s saturating the market, so you’ve got to get to the next chapter really fast.”

Most of the time, they are also watched by larger and better funded companies. It is common practice for Korean conglomerates to acquire independent brands to catch up with demand in this niche – or to launch a similar brand if their bids are rejected. Lim says it has already received three takeover bids since Arencia started operations in 2019.

This climate encourages entrepreneurs to inflate and sell their brands quickly instead of running and owning them for the long haul. “Or you’ll leave [through a sale] or die and [very few indie brands] make it to the end,” said Lim.

For those who do and decide to make the leap overseas, the K-beauty moniker has enough mileage for some to find success with individual products. But in order to make a more holistic international breakthrough, Korean brands will need to start exceeding consumer expectations without alienating too many customers who were previously interested in all things Korean.