AMOREPACIFIC (President and CEO, Kyung-Bae Suh) has forecast that ‘SMART’ will emerge as a major force in the cosmetics market next year, through its announcement of the 2011 cosmetics market review and 2012 forecast. The company predicted that the domestic cosmetics market is continuing to grow, despite the unstable external environment such as the economic slump, and also in 2012 it will be in the spotlight due to Sustained Growth, Multi Channel, Acquisition (M&A), Relationship with Customer, and Trade down+Trade up trends. In 2012, in particular the domestic cosmetics market will break through the 9.7 trillion won market, by achieving 9.1% growth led by the growth of one-brand shop and department store channels. The company predicted with regard to the domestic cosmetics market in 2012: “Competition between corporations to satisfy diverse customer needs will unfold as diversified products and distribution, and it seems the overall cosmetics industry will sustain growth.”

2011 Cosmetics Market Review & 2012 Market Outlook
The domestic cosmetics market has been sustaining high growth with annual average of 10.4% since 2006. As well as in 2011 it was analyzed that the domestic cosmetics market was worth 8.9 trillion won (based on consumer price), achieving a high growth rate of 12.3%. It was found that despite the domestic economic downturn, high growth was attained being centered around one-brand shops and department stores, and high growth was recorded through healthy competition between companies as newcomers successfully settled down in the market. In addition, there was active M&A in the cosmetics industry, and cosmetics corporations vigorously secured independent distribution networks and entered the global market.

In 2012, the size of the domestic cosmetics market is forecast to achieve 9.7 trillion won (based on consumer price), 9.1% growth. The steady inflow of newcomers into the market will lead to competition between cosmetics corporations per distribution channels, and it is predicted that overall market size will expand through creating new consumer needs. Furthermore, it seems M&A in the cosmetics industry will also become active and due to this, the competitive landscape in the industry will be reorganized.

Channel
The biggest issue on the cosmetics market in 2011 was ‘the rebound of One-brand shop’, which recorded 32.1% growth and showed the highest growth of all cosmetics market channels. Especially Etude, Innisfree, and Tonymoly had double-digit growth and achieved high sales growth. The overall market size of brand shops including one-brand shop is 2.5 trillion won, representing 28% of the total cosmetics market based on sales figures. The high growth of these brand shops are due to the quick response to consumer needs, increased product types, enhanced quality, and the development of a wide range of items. In the case of the department store channel, with increased customer demand – compared to the middle-class - for expensive cosmetics, it achieved high growth of 10.6%. The door-to-door sales channel expanded market size with 11.5% growth, its highest growth since 2006 as competition heated up due to new companies entering the market. The growth of the mart channel slowed to some extent as the number of proximity in large discount marts was stagnant. Additionally, while one-brand shop achieved high growth of 34.4% in the mart channel, growth by channel showed polarization as the growth of the cosmetics sector in marts apart from one-brand shop dropped 2.5%. The Internet channel achieved high growth of 14.9% due to the increased trend of reasonable spending, and the expansion of the online consumer base. In particular, the AMOREPACIFIC online shopping mall achieved double-digit growth in 2011 as it succeeded in attracting numerous online purchasers.

After 2011, in 2012, it seems that the 'Brand Shops’ will continue to lead the growth of the cosmetics market, as it attracts consumers through the quantitative growth of one-brand shop along with reasonable prices and products. It is analyzed that the overall Road Shop channel will achieve high growth of 11.9% especially due to the sustained growth of one-brand shop. It seems the mart channel will strengthen the attraction of one-brand shop within marts, in line with the high growth trend of one-brand shop and will accelerate changes to the form of shops differentiated from nearby brand shops. The home shopping channel is forecasted to achieve 8.5% growth as a result of sustained growth from the reasonable spending trend. There will be increased customer brand experience using the home shopping channel due to price benefits, and product lines will also be expanded through reflecting consumer demand for new product types. Furthermore, existing make-up artists’ brands in home shopping will be weak, and newly launched make-up artists’ brands are expected to grow. It is analyzed that the online purchaser base of the Internet channel will continue to expand, as the percentage of online purchases by people in their 30s and 40s and their purchase experience increases, and it will mark high growth of 11.9%.

Customers
Following 2010, value consumption continued to increase in 2011. Due to high inflation, the disposable income of consumers decreased and they demonstrated cautious purchasing behavior, with customers using multi-channels and multi-brands increasing significantly. As such value consumption increased, they tended to switch to other channels according to hit products, and there was more consumption laying stress on products rather than brands. Moreover, consumers showed a tendency to prefer products with reasonable prices - such as high-capacity and special offer products. In response to such consumer needs for functional products, cosmetics companies released multi-function products. Demand for safe eco-friendly products continues to grow, and cases where cosmetics are purchased and information is acquired through social networks are also steadily on the rise. In addition, there is heighted engagement in cosmetics of young males in their 20s and 30s as demands for men's cosmetics are increasing, and the range of men’s products is also diversifying.

The ‘Value Consumption’ trend is forecast to continue for the time being. The polarization of consumption according to income level is worsening, and it seems that it will be accompanied by polarized consumption according to product types. It is predicted that consumers using multi-channels between channels will further increase, and according to the diversified needs of customers, changes in products and distribution channels will accelerate, which in turn will diversify the overall competition. Moreover, it is forecast that cosmetics consumption will also diversify as the competitive landscape in the industry reorganizes and enhances distribution continues.

[Note 1] Duty-free Shop Market & Men's Cosmetics Market
There has been a sharp growth in the duty-free shop market with annual average growth of 25.3% since 2008. In 2011, the duty-free shop market had market size of 1.5 trillion won, as it achieved 19.4% growth compared to the previous year. As well as in 2012, the duty-free shop market is forecast to grow by 18.7%, and achieve market size of 1.8 trillion won.

Men's cosmetics market has been seeing annual average growth of 13.2% since 2007, and its market size is steadily growing. The size of the men's market in 2011 was 6.7 trillion won, which was 13.4% growth in contrast to the previous year. As men have grown more interested in their outward appearance, men's cosmetics ranging from basic toner and lotion as well as essence and B.B. cream are growing more diverse and subdivided like women’s cosmetics.  It was analyzed that the percentage of direct purchase of cosmetics by male customers has risen significantly. The number of times male consumers used one-brand shop, department stores, and Internet channels, where it is relatively easy to purchase cosmetics, also increased. 
Products especially developed for Korean men’s skin are also doing their share of growth on the domestic cosmetics market. ‘’HERA HOMME Magic Skin Essence,’ a moisturizing essence product for men, was developed by taking into account the nature of Korean men’s skin with ‘high sebum production and less moisture.’ This is a steady-seller, recording over 10% growth annually as a unique item among men's cosmetics. It proves that men’s cosmetics are no longer simply limited to basic toner and lotion. 

[Note 2] 2012 Cosmetics Market Keyword, “SMART”
‘SMART’ will further emerge as a major cosmetics market issue in 2012.