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The gloss is coming off the world of Asian beauty.
Shares of Asia’s largest beauty groups, usually a steady-as-she-goes sector, have been plunging this week. Japan’s Shiseido on Thursday fell the most in almost 37 years. South Korea’s Amorepacific this week had its worst day on the market since its listing 14 years ago. Global peers should take note: these moves are a sign of what is to come in the beauty world.
Shiseido’s record-breaking drop, with shares plummeting 16 per cent before trading was halted, came after the company this week reported a first-half operating loss of ¥2.7bn ($18.4mn), compared with a profit of ¥13.6bn a year earlier. It took a ¥22bn restructuring charge after sales suffered following weak demand from China, its most important market outside Japan. Shiseido started earlier this year on drastic cost-cutting plans and efforts to improve profitability, including offering early retirement for 1,500 staff. The market clearly concluded this won’t be enough.
Shiseido’s chief financial officer Ayako Hirofuji offered one reason for the slump: Chinese consumers are reluctant to buy Japanese products due to continuing concerns about the discharge of treated water from the damaged Fukushima nuclear power plant.
But that would not explain the parallel stock moves in shares of the largest beauty group in South Korea. Shares of Amorepacific fell by a quarter on Wednesday after it reported second-quarter earnings that missed expectations.
China’s cosmetics market over the past decade has become the second-largest in the world after the US. Meanwhile, China’s per capita disposable income rose 6.2 per cent in the first quarter in nominal terms, according to official data, on top of a 6.3 per cent increase last year. That would normally have been good news for global cosmetic groups.
But what is changing is where that extra cash is going. Patriotic shopping habits are going mainstream, especially among China’s youth. The improving quality of domestic cosmetic brands has meant that consumers are not just choosing local products for affordability any more. That suggests this trend will be a lasting one.
Another common theme between Shiseido and Amorepacific is that both have premium skincare and make-up brands in their portfolio. These high-end lines — also the most profitable — had benefited from growing demand in Asia, thanks to premiumisation over the past decade. L’Oréal is one of the global rivals that has benefited from that trend, with China becoming its second-largest market.
As consumers’ push upmarket starts to reverse, the sales and shares of global beauty groups — especially those with high-end lines and exposure to China — may start to follow a similar trajectory.
june.yoon@ft.com
