Chinese staffer introduces LG Household & Health Care products to customers at a Ba Bai Ban Department Store in China in this 2019 file photo. Courtesy of LG H&H

By Kim Jae-heun

The country's top two cosmetics firms, LG Household & Health Care (LG H&H) and AmorePacific, are projected to have displayed lackluster earnings in the fourth quarter of 2021 due to poor sales in China and at duty free shops stemming from the prolonged COVID-19 pandemic.

LG H&H's stock price plunged 13 percent on Jan. 10 compared to the previous session and closed at 956,000 won. AmorePacific's share price also fell 5.3 percent to end at 152,000 won. In fact, it was the first time since October of 2017 that LG H&H's stock price fell below W1 million.

The share price drops reflected soured investor sentiment following downgraded earnings outlooks by local securities firms including NH Investment & Securities, Meritz Securities and Yuanta Securities Korea.

Yuanta Securities expected LG H&H's fourth quarter sales at 2 trillion won and operating profit at 235.3 billion won, falling 11 percent below market consensus. The main reason for the cosmetics company's sluggish performance was a decrease in sales at duty free shops.

Yuanta Securities estimated LG H&H's duty-free sales to have fallen18 percent year-on-year to 400 billion won during the fourth quarter.

"Small traders from China asked for steeply discounted prices of Korean cosmetics products during December last year and LG H&H refused to meet their demand in order to maintain its brand image," Yuanta Securities analyst Park Eun-jung said.

AmorePacific is in no better condition. Yuanta Securities said the cosmetics company's domestic business improved between September to December of 2021, but its overseas operations did not do well. The securities company predicted AmorePacific's international sales to have dropped by 8 percent during that period to 490 billion won, while operating profit is estimated to have nosedived by 85 percent to 7.6 billion won.

The popularity of Korean cosmetic products has waned in China, the biggest overseas market for local firms. At the same time, Chinese cosmetics firms have grown rapidly due to "patriotic marketing," while competition has intensified in China's online market.

"Korean firms need a new marketing strategy or they have to look for new markets outside of China," an industry source said.