Billionaire Rides K-Beauty Boom That Began in Grandma’s Kitchen

Harnessing Korea's cultural momentum, Suh Kyung Bae has turned his family’s cosmetics company into a Pan-Asian powerhouse—and a favorite of investors.

Courtesy of Amorepacific

Back in the 1930s, Yun Dok Jeong’s ability to provide for her six children came down to the camellia plant. To extract its prized oil—which fashionable Korean women used in their hair—Yun would spend hours pulverizing and pressing the flowers’ delicate seeds in the kitchen of her home in Gaeseong, a center of commerce—now part of North Korea—that was best known for merchants who pioneered the cultivation and trading of ginseng.

More than eight decades later, Bloomberg Markets magazine will report in its May 2015 issue, Yun’s grandson Suh Kyung Bae has turned those humble beginnings into one of Asia’s most powerful cosmetics empires. “The root of Amorepacific is my grandmother,” says Suh, seated in front of a replica of her original kitchen inside his company’s museum in Osan, South Korea. The aromas of camellia, ginseng, and other Asian plants greet visitors in the all-white showroom, part of the company’s sprawling 22-hectare (55-acre) campus, which includes a bustling factory churning out 15,000 metric tons of cosmetics a year, as well as an art museum and botanical garden. About 50 kilometers (30 miles) away, in central Seoul, construction crews are building a new $470 million headquarters designed by British architect David Chipperfield that’s scheduled to open in 2017.

Amorepacific and its chairman, Suh Kyung Bae, defy many of the clichés associated with Korea's chaebol.
Amorepacific and its chairman, Suh Kyung Bae, defy many of the clichés associated with Korea's chaebol.
Jae-Hyun Kim/Bloomberg Markets

Under Suh, Amorepacific has blossomed into the world’s 11th-largest skin-care-products maker by market share, according to Euromonitor International. In 2014, Amorepacific Group’s net income climbed 36 percent to a record 222.4 billion won ($204 million), with total sales rising 21 percent to a record 4.7 trillion won, a sevenfold increase from 1997, when Suh took over from his father, Suh Sung Whan. Among Asian firms, only the Japanese companies Shiseido and Kao produce bigger numbers in Asia—and Amorepacific has rapidly narrowed the gap in the past decade, thanks in part to its success in China, where sales have grown at an annual average rate of 47 percent since 2002. “Our goal is to become a great global brand company,” says Suh, who aims to more than double revenue to 12 trillion won during the next five years.

At 52, Suh has few lines on his face and credits his youthful skin to the quality of his products—all of which, including those designed for women, he tests and many of which he wears daily. (He says he doesn’t try out the mascara because it’s difficult to apply.) Suh and Amorepacific defy many of the clichés associated with Korea’s large family-owned businesses, or chaebol. Investors have blamed their complex ownership structures, with interests in myriad unrelated industries, as a reason why some Korean stocks trade at lower price multiples than those of their global peers, a phenomenon known as the Korea discount.

Amorepacific is the antithesis of that. Suh owns 56 percent of Amorepacific Group, the holding company, which has 10 units involved in the health and beauty business. The anchor of the group is Amorepacific Corp., the cosmetics maker, in which Suh owns 11 percent, in addition to shares he owns through the holding group. Both stocks have been a hit among investors. In the 12 months through April 8, shares of Amorepacific Group surged 182 percent to 1,429,000 won, compared with a 3.3 percent gain in the benchmark Kospi Index. Shares of Amorepacific Corp. climbed 161 percent to 3,320,000 won over that same period. In the process, Suh has become Korea’s second-richest person, with a net worth of $7.8 billion as of April 8, according to the Bloomberg Billionaires Index.

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“When it comes to corporate governance and transparency, Amorepacific stands out,” says Park Ju Gun, president of corporate watchdog CEOScore in Seoul. “This kind of diligent devotion to one field is difficult to come across in most of South Korea’s large businesses.”

While Amorepacific has a strong understanding of Asian customers, Suh faces some challenges as he pursues his global vision. For one, the company has struggled to crack the European market, which accounted for just 2.4 percent of Amorepacific Corp.’s total sales in 2013. “It would be great if the company could do well in Europe, but that appears to be challenging so far,” says Heo Pil Seok, CEO of Midas International Asset Management in Seoul, who counts Amorepacific shares among the $10 billion he helps manage.

Suh also faces new competition at home, including the online startup Memebox, which sells rival Korean beauty products at competitive prices. In March, the company announced that it had raised $29 million from investors such as venture capital firm Formation 8 and would expand its e-commerce efforts in China and the U.S.

Amorepacific’s 70-year journey parallels the turbulent history of Korea itself. The Koreans were under Japanese rule when Yun Dok Jeong began making hair oil in her Gaeseong kitchen in 1932; her second son, Sung Whan, who ran all her errands, was conscripted into the Japanese military and served in China. Soon after returning home in 1946, he took over the business and adopted the company name Taepyungyang, meaning Pacific Ocean in Korean. When the Korean War broke out in 1950, the family hid in an underground tunnel in Gaeseong for several months before escaping to the southern port city of Busan via cargo train. There, Sung Whan restarted the business. Gaeseong merchants were known for trading on trust; between them, handshakes typically sealed deals. In the south, Sung Whan found suppliers who provided materials on credit, and he paid his employees with food.

In 1952, money began pouring in with the company’s introduction of ABC Pomade for men, which became a best-seller. But women remained Sung Whan’s focus. When the company began door-to-door sales in 1964, its primary recruitment target was mothers who had lost their husbands during the Korean War. In turn, 40,000 “Amore Ladies,” as they were then known, helped increase sales sevenfold by 1970. (The company’s first intern, Oh Won-Shik, who went on to become vice president, suggested the name Amore after listening to a popular Italian song. The company officially changed its name to Amorepacific in 2002.)

Buoyed by robust sales, the company went public in 1973. Suh, the second-oldest son of Sung Whan, earned an MBA from Cornell University and joined the company in 1987, working in sales and finance divisions and building a factory from the ground up. While cosmetics remained the elder Suh’s passion, he decided to branch out into different industries, fearing that the anticipated opening of the domestic market to global beauty brands would threaten his company. Yet by the early 1990s, the business had swelled into a debt-ridden, midsize chaebol with interests in everything from construction to stockbrokerage.

Following a bitter labor strike that paralyzed production for almost two months in 1992, the company ran out of products to sell and cash to meet its debts. To avert bankruptcy, the younger Suh—who was now effectively running the firm because of his father’s failing health—decided to radically transform the business.

“I thought very hard, ‘What is it that I can do best? What do I love the most?’” says Suh. His father had always discussed business with his six children; Suh, who had already married and had the first of his two daughters, hoped to do the same. (They are now 23 and 19.) Cosmetics, he realized, was a constant in his life—as it had been for his father. “Then everything became very clear,” Suh says. He embarked on several strategies: selling off divisions that were not about beauty and health, expanding in China, and developing breakthrough products.

Since Amorepacific’s founding, the company has never ceded its No. 1 domestic market position. (South Koreans are the world’s third-biggest spenders on skin care, after residents of Japan and Hong Kong. Their per capita spending on skin care in 2014 was $99.40, compared with $64.40 in France and $43 in the U.S., according to Euromonitor International.) Suh credits that dominance, in part, to Amorepacific’s tradition of creating new products. In 1966, it became the first company to use ginseng in facial cream and, in 1988, the first to use extract from green tea leaves, known for their high antioxidant levels, in moisturizer.

In 1997, the same year Suh formally took over the business as CEO, Amorepacific launched a new product, IOPE Retinol 2500, the first anti-aging facial cream in Korea. It had been an ambitious project, which took about four years of research and development. “That one innovative product turned around the company,” he says.

Today, Amorepacific caters to consumers across all income levels and distribution channels. Its top global brands are Sulwhasoo, a luxury line based on ginseng and other medicinal herbs; Laneige, a premium brand with a whitening line that promotes translucent skin; Mamonde, flower-based products for the mass market; green tea–based Innisfree; and bubble-gum pink Etude House, an inexpensive makeup for teenagers.

The company’s R&D center in Yongin, outside Seoul, bustles with researchers and chemists in white gowns. (Amorepacific spends about 3 percent of its revenue on research and development and has 500 researchers around the world.) Designed by Portuguese architect Álvaro Siza, the minimalistic building feels more like an art museum than a lab. The center is at the heart of Suh’s ambition to transform the company into a global presence.

The firm’s most successful recent innovation, introduced in 2008, is called Cushion. Developed by a researcher who was inspired by stamp pads, Cushion combines anti-aging moisturizer, sunblock, and foundation inside a portable compact with an applicator. It’s become a runaway hit for providing the light, sheer coverage preferred by Korean women, as well as for its convenience. Last year, Amorepacific sold more than 26 million units—one every 1.2 seconds. L’Oréal’s Lancôme was the first Western brand to follow suit, launching its own version, Lancôme Miracle Cushion, this February. Suh says one of his most immediate challenges is appealing to global customers with his Cushion products as competition intensifies.

Korea’s emergence as a cultural trendsetter has also helped Suh. Since the late 1990s, the country’s pop music and television dramas have taken off in Asia, lending cachet to everything from Samsung Galaxy phones to Lotte Chilsung soft drinks. The same goes for “K-beauty” and Amorepacific’s products.

Sam Le Cornu, who manages about $3 billion in Asian equities at Macquarie Investment Management in Hong Kong, witnessed the phenomenon when he stayed at the Hotel Shilla in Seoul last September. Ten minutes before a duty-free shop opened, 18 tour buses stopped out front and offloaded some 900 mainland Chinese tourists—who later emerged with shopping bags filled with Korean cosmetics. Le Cornu, who had bought a “significant” number of shares in Amorepacific at the end of 2013, started adding more when he returned to Hong Kong. The price has gone up more than 36 percent since then. “Amorepacific is one of the best companies in Korea, with incredibly strong management,” he says.

The company’s success in China—where larger rivals such as Shiseido and Procter & Gamble have seen their market shares decline since 2010—is one reason investors like what they see in Amorepacific. Having visited China more than 100 times, Suh says he’s learned to see the country as five distinct regions—or even 15 clusters—rather than as a single entity. When Amorepacific entered China in 1992, for example, Suh’s father made a strategic decision to bypass top-tier cities such as Shanghai and Beijing in favor of Shenyang, an industrial city in the northeast. The cold, dry winters there were harsh on skin, and after extensive research, Amorepacific developed a range of offerings to help the locals endure the area’s extreme weather. That early lesson propelled Amorepacific to market different types of skin-care products according to seasons and regions. Just because something moves in a single store doesn’t mean you “can sell it to a billion people,” Suh says with a smile.

Asia’s burgeoning middle class bodes well for business, Suh says, because disposable income and the number of women using makeup for the first time will increase “exponentially.” Amorepacific, which had 2,335 stores in China as of February, plans to increase that number by 15 percent in 2015. By 2020, China will probably account for as much as 30 percent of total sales, he says.

If the trend continues, the company could become the No. 2 cosmetics brand, after L’Oréal, in China by 2016, according to Cara Song, a consumer products analyst at Nomura Securities in Seoul. (It’s currently No. 5 based on market share, which includes duty-free products purchased by the Chinese in Korea.) Song says Chinese consumers have embraced Amorepacific products because they view them as being innovative, genuine, and providing value. “One question I get most from my clients is, ‘How did a single company manage to do in China what most multinationals have struggled to accomplish?’” she says. Her answer: Korea is a hypercompetitive market where it’s very hard to please trend-conscious consumers. “This has prepared Amorepacific to become a global force,” she says.

Looking at the replica of his grandmother’s kitchen, where Amorepacific began, Suh says that becoming one of the world’s elite beauty brands is indeed his ambition. “Our goal is to turn my grandmother’s kitchen into the global kitchen to create new beauty,” he says.

This story appears in the May 2015 issue of Bloomberg Markets

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