Sephora, the renowned French cosmetics retailer, will gradually terminate operations after less than five years of presence in South Korea. Sephora is set to withdraw from the Korean market due to sustained financial losses.
This decision marks the end of an era for the beauty giant, which had initially launched with high hopes and fanfare in the upscale Gangnam District of Seoul in 2019. It opened five additional stores, including retail locations in Myeong-dong, central Seoul; Sinchon in western Seoul and Suwon, Gyeonggi.
“With heavy hearts, Sephora has decided to terminate its operations in Korea,” the French cosmetics retailer announced in an Instagram post, written in Korean, on Tuesday.
Despite the initial excitement that greeted Sephora's entry into South Korea, with long queues marking the opening of its flagship store, the retailer's journey has been fraught with challenges. The COVID-19 pandemic severely impacted Sephora's experiential retail strategy, a cornerstone of its global success.
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Sephora Korea's financial struggles were evident, with a 12.7 percent drop in sales to $9.7 million in 2021 compared to 2020. In 2022, plans to expand to 14 stores by 2022 were curtailed as although revenue increased by 10 percent to $10 million (13.7 billion won), operating losses widened by 21 percent to 17.6 billion won operating losses, escalating from 12.4 billion won in 2020 to 17.6 billion won in 2022. By February 2024, Sephora operated only five stores in South Korea, fewer than anticipated, and had closed two stores in the last two years.
The competitive landscape of Korea's beauty retail sector also contributed to Sephora's difficulties. Despite Sephora's global success, with LVMH's selective retailing branch reporting $19.2 billion in revenue in 2023, up 25% from 2022, and profits from recurring operations jumping 76%, the brand struggled to replicate this success in South Korea.
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In contrast, CJ Olive Young, a dominant force in the Korean health and beauty market, which commands nearly 90 percent of the market share and operates over 1,200 stores, the Korean market proved to be a tough nut to crack. Olive Young, which introduced the first Korean health and beauty store in 1999, has led the market ever since.
As of 2023, Olive Young boasted 1,339 offline stores and reported record sales in both 2022 and 2023. Its annual sales rose 31.7% to $2.1 billion (2.77 trillion won) in 2022, with operating profits surging 97% to 271.4 billion won. The company's cumulative sales through the third quarter of 2023 reached 2.79 trillion won, surpassing its total sales for the previous year, and operating profits rose 44.3% during the same period.
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Olive Young's success can be attributed to its wide range of affordable beauty products, aggressive same-day delivery service, and strong online presence. It has effectively attracted young consumers with curated low-to-mid-priced brands and frequent sales events.
Jeanel Alvarado, a Retail Expert, suggests that "Sephora's position as a high-end beauty luxury retailer was at a disadvantage in the Korean market, where consumers prefer shopping at department stores or duty-free shops for expensive cosmetics."
She added, "Consumer loyalty to established retailers such as Olive Young and a preference for familiar shopping experiences also hindered Sephora's ability to gain a significant foothold."
As a result, on May 6, 2024, Sephora will commence the gradual cessation of its operations across the nation. This includes shutting down its online platforms, mobile applications, and all physical stores. The company will fulfill pending orders within six days from the specified date and maintain customer service operations until mid-August. The membership-based Beauty Pass points service will expire concurrently with the start of the wind-down.
Sephora's exit from Korea follows a broader trend of international beauty retailers struggling to maintain their presence there. Other brands like GS Retail's Lalavla and Boots have closed their doors within a similar timeframe, while Shinsegae's Chicor remains one of the few survivors in the beauty retail space.
