The question gets asked a lot - is the Korean beauty trend a fad, is it a bubble, or does it have staying power? The Business of Fashion had an article entitled "K-Beauty: From Fad to Fixture?" which talks about the growing proliferation of Korean beauty across the mainstream landscape in Western countries.
If you ask industry veterans, many will say that K-Beauty is 100% a fad and that in a few years American consumers will be onto the next country. They've seen it happen before and they think it will happen again - history will repeat itself.
The problem with a sales first, marketing second strategy
I do think Korean brands are very susceptible to a boom and bust situation because their strategy has always been to focus on sales first and marketing second. Due to this sales first approach they sell to everyone and anyone when entering a market - brokers, agents, licensees, distributors, etc. It's the same in the US. Before, Korean brands would go through distributors and build brick and mortar retail stores which were then franchised. Why? Because sales first. Many brands got burned and found themselves in the hole.
Now, they are going through distributors that place their products online on their e-Commerce sites and who also promise to get them into the doors of retail stores. Same story, different book.
The problem with this sales first, marketing second approach is that the distributors have no real incentive to invest in the Korean beauty brand's actual brand. They will pick up what's hot and focus on what sells. And as I've written about here, this means they usually end up investing in their own brand. This is a trend-focused model and when the trend is over so are Korean beauty brands.
General pricing issues
The other issue with this sales first, marketing second strategy is that Korean brands in Korea HAVE NO CONTROL OVER THEIR PRICING. They sell to every broker, agent, distributor out there and products get on the grey market and sell for significantly below retail price. Just check Amazon and see for yourself.
This can be great for the consumer but it's a huge headache for every brand and even the distributors in the US. This is probably part of the reason Memebox called it quits in e-Commerce. It's tough to fight with Amazon and make money when the same products are selling for 30% cheaper.
The other pricing issue is that there is price deceleration in both supply prices and retail prices. Some distributors of brands offer major retailers ultra cheap supply prices just to get in the door. This ruins it for every other Korean beauty brand because these retailers then demand the same margin structure from other K-Beauty brands. Basically, every Korean brand ends up making nothing.
On the retail price side, the lack of control over pricing leads to price wars. Althea has just launched their US website and across the board their prices are cheap. They can win market share but can they be sustainable as a profitable business? Can other e-tailers stay in the game or will everyone price themselves to $0 to compete and then collapse?
No marketing investment, price deceleration = big risk
The current state of Korean brands not investing in their brand combined with pricing pressures does not forebode well for the future. These dynamics can't be ignored if Korean brands want to have a viable future in the US.
How can Korean beauty brands succeed in the US?
1. Start investing in your brand with an actual marketing budget and strategy.
2. Know what your brand stands for and make sure it has a point of view.
3. Pursue an omni-channel strategy and not just quick wins in XYZ retailer.
4. Take back control of your pricing and supply chain.