The past few years we saw explosive growth in K-Beauty in the US. Starting in 2015 or so, K-Beauty rode the wave of its popularity and had become ubiquitous. Department stores, specialty stores, start ups, media publications - everyone was talking about it and it was everywhere.
Taken at face value, it's impressive what K-Beauty has accomplished in these short few years. However, this explosive growth did not come without some repercussions. Here are a few that I learned of recently:
Korean Manufacturers Can't Pass US FDA Audits
Apparently as more and more Korean beauty items have been entering the country, the US FDA decided to do some random audits of these K-beauty manufacturers. Unfortunately, many of these Korean cosmetic manufacturers are failing their audits. This is impacting everyone from big brands to small brands who produce their products at these manufacturers.
It's no surprise that Korean manufacturers are being found non-compliant with US FDA standards. Part of their success at innovation has been the speed of innovation. Many people have asked me how Korea can innovate so quickly despite regulations and it is true that Korean cosmetics brands have somewhat looser regulation thresholds than the US. The need to move fast and the sudden explosion in global interest in K-Beauty has caught many folks flat-footed and unprepared to meet more stringent global regulatory bodies.
Can they bounce back once issues are addressed? I'm told it's not that easy. Some of the problems are rooted in fundamental system processes that can't just be easily fixed. This may have reverberating consequences in the industry.
CVS' K-Beauty Program IS not all rosey
Last year, it was big news when CVS announced they would roll out a K-Beauty activation with Peach & Lily acting as their curator. It's been about 10 months since it rolled out but apparently the sell through has not met expectations.
I had written about the risks of the CVS activation and warned brands about this in my post last year. Apparently, brands are now facing the exact problem I wrote about - they produced large quantities for CVS but are not seeing the sell through everyone hoped for and are left holding the bag with large amounts due that possibly have not been paid. I hate to say I told you so but...I told you so.
I know this was heralded has a big K-Beauty moment but the bottomline is that K-Beauty at CVS is a flop.
Amazon Doubling Down on K-Beauty
As K-Beauty growth exploded, where do many customers buy their products? Amazon, of course. Better pricing, fast-shipping, ease of purchase - there are many reasons why one would buy at Amazon. Now Amazon wants in on the game so resellers and brands should watch out. Rumor has it they will increasingly turn to an Amazon selling model where brands sell directly to Amazon and Amazon retails on their site.
Tony Moly already took this strategy and apparently it's not working well. In an attempt to control their distribution and presence on Amazon and shut down unauthorized resellers on Amazon, Tony Moly agreed to be part of Amazon's Luxury Brands program. Are you thinking, "that doesn't make sense. Tony Moly isn't a luxury brand". Yes, you are right. The program was more a way for Tony Moly to start controlling the selling of the product rather than branding themselves as a luxury brand.
However, this move did not reboot their Amazon business. When they took down their previous listings and started fresh (one person called this going "nuclear"), they killed all previous sales history, reviews, etc, on Amazon and started anew. The problem with this is that Amazon bases their algorithms on sales history, reviews, etc. Apparently, Tony Moly is selling a fraction of what other resellers were selling before.
Of these three issues, the manufacturers not passing audits worries me the most. The key to K-Beauty is all about innovation and speed and if strangled by regulatory problems and shut down, what will the impact to creation be? It's time for brands and for Korean manufacturers to operate in a new normal. This is no longer 2015. In a way, K-Beauty just go too popular for its own britches and is an example of what can happen if you grow too quickly.