Continuing Losses, Sephora Leaves South Korea

Jakarta, CNBC Indonesia – French beauty retailer, Sephora, announced that it will close all of its stores in South Korea.

In a statement posted on Sephora Korea's social media accounts, the company said it would phase out all of its operations, including its app, online stores and physical stores.

“With a heavy heart, we have decided to cease operations in Korea. Starting May 6, we will gradually reduce our presence on online platforms, mobile applications, and physical stores, eventually withdrawing from the market completely,” the post said. Sephora Korea social media, quoted from Korea HeraldTuesday (19/3/2024).

Sephora launched in Korea in 2019 in Gangnam District, in southern Seoul. They currently have five stores in Korea, after closing two stores in the last two years.

Sephora said it will fulfill pending orders within six days of the specified date and maintain customer service operations until mid-August.

Photo: Sephora. (Photo: REUTERS/Carlo Allegri/File Photo)

Although the opening of its first store in the posh Gangnam area of ​​Seoul in October 2019 was a huge success, with long queues on the first day, Sephora's presence in Korea only lasted less than five years.

The pandemic is said to have greatly affected their operations in Korea, making the store's strategy ineffective.

Sephora originally planned to expand its business to 14 stores by 2022, but unfortunately they are facing increasing operating losses. Sephora's losses increased from 12.4 billion won in 2020 to 17.6 billion won in 2022.

Although Sephora ranks among the top three brands behind LVMH in terms of global sales, operating more than 3,000 stores in 35 countries, it has failed to surpass the dominance of CJ Olive Young, the beauty retail unit of CJ Group that controls nearly 90 percent of stores across Korea.

Industry experts view the Korean cosmetics retail sector as presenting significant challenges to competitors, due to consumer behavior patterns that rely heavily on loyalty to established retail brands.

“For a decade, the popularity of cosmetic products among Korean consumers has led to a situation where choices are based not only on the brand of the product itself, but more on the reputation of the retail store,” said Lee Hong-joo, a professor of consumer economics at Sookmyung Women's University .

Lee analyzed that Olive Young's familiarity with consumers creates a habit for them to revisit and purchase preferred brands, thereby offering convenience and efficiency compared to experimenting with new stores.

Foreign beauty retailers have collapsed in Korea

Sephora's exit from the Korean market follows a trend of other beauty retailers closing over the past few years.

GS Retail's Lalavla will cease operations in November 2022, while Lotte Shopping's LOHB will be significantly downsized. They only maintain 10 in-store outlets located in Lotte Mart stores.

Likewise, Boots, a leading health and beauty brand in the UK introduced by the Shinsegae Group, closed in Korea within five years. Shinsegae-owned Chicor remains one of the few surviving beauty retailers, with about 20 outlets in Korea.

Meanwhile, CJ Olive Young's performance continues to strengthen. Estimated annual sales are likely to jump by 40 percent year-on-year to 3.9 trillion won in 2023, while the company's value has quadrupled in three years and includes 1,339 stores.

Olive Young is expected to achieve an operating margin of about 10.7 percent last year, which is its highest figure ever.

[Gambas:Video CNBC]

(hsy/hsy)