Why Missha is falling behind in Korea cosmetics race

In 2003, Missha caused a sensation in the Korean cosmetics market, single-handedly creating a budget segment from scratch in a domestic market traditionally dominated by the luxury, high-end brands. Just one year after its introduction, Missha, with its low-price, own-brand offering, had built up US$120 million in sales.

It wasn’t long before competitors such as The Face Shop, Skin Food and Innisfree joined in and by 2007 the new segment had exploded, with total sales reaching close to $1.5 billion, or a 25 per cent share of the country’s cosmetics market.

Since then, Missha’s pioneering hold on the low-price market has diminished. While latest data shows that Missha made sales worth $100 million during 2008, this healthy balance sheet can be in part attributed to the overall expansion of the low-price segment during that period. In 2007, for example, Missha’s revenues had dropped to $78 million. Even more pressing for Missha has been the consistent performance of its main rival: The Face Shop has witnessed its revenues rise from a competitive $150 million in 2005 to a market-leading $235 million by the end of 2008.

So how has Missha managed to lose its grip on a market segment it established? Sang-Won Shin (pictured), corporate culture director, Amore Pacific, the company behind Innisfree, believes the lack of brand image has been key. “There has been no brand mission as a beauty provider to women,” he says. “The product could be anything because the business was started to make money rather than to deliver beautiful skin or make-up to consumers.”

Missha’s marketing efforts have traditionally gone into franchise expansion and in-store display, he says, which has served to influence consumer perceptions about the Missha brand: cheap and low quality.

“Missha was launched without any advertising and introduced simple cosmetic packaging to reduce manufacturing costs,” adds Ho Park (pictured), executive creative director, HS Ad Inc, a filial of LG group. “After seven years of business, we only have the cheap cosmetic brand image for Missha but nothing else.”

In contrast, The Face Shop has acted differently. With its clear concept of ‘Beautiful by nature’, its marketing has focused more on the intrinsic quality of its skin care products. The brand has also utilised a consistent endorsement strategy, using the same brand spokesperson - Korean movie star, Kwon Sang-Woo - from its launch.

“There are very clear reasons to choose a low price brand over a premium brand, but Missha missed the chance to give consumers the convincing reason to choose Missha over other low-price brands,” says Park. “The company has recently tried to reinvigorate its brand advertising, using top female star Kim Hye-Soo, but so far it has failed to change the brand image.”

And while Missha’s market position is weakening, the low-price segment itself continues to boom. Growth in the segment in 2009 was 12 per cent, comparable to the growth rate for the total cosmetic sector. This is projected to rise to 12.9 per cent in 2010, higher than a total market growth rate of 11.1 per cent.

But as the domestic market weakens for Missha, relief could lie in the overseas market. The brand had seen its store numbers in Korea drop from 320 in 2005 to 250 by the start of 2009. However, overseas expansion has continued at pace and the brand now has over 300 stores - up from just four in 2004 - in markets as diverse as Hong Kong, Mexico, Romania, the United Arab Emirates and the US. Its low-cost proposition has so far proven to be a hit with local consumers, with sales in Japan alone accounting for $25 million in 2009, a growth of more than 500 per cent in just three years.

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This article was originally published in the 11 February 2010 issue of Media.