Korea: TheFaceShop

Cosmetics get a makeover

Jung Woon Ho will never forget his 1999 trip to New York, when his eye was caught by a poster of supermodel Naomi Campbell promoting The Gap. Why, he thought, could he not build a brand as strong as Gap Inc (GPS ).'s -- marrying a cool, even classy, image with relatively low prices -- in makeup in Korea? "The cosmetics business is all about images," says Jung. Back at home, he worked up a business plan, and in 2003 he launched TheFaceShop.

Korea was ripe for the idea. The first FaceShop store, in Seoul's bustling Myongdong district, opened in December, 2003. The company now has 360 stores in Korea and 61 overseas. This year, TheFaceShop expects profits to jump 219%, to $28.6 million, as sales climb 176%, to $162 million.

To give the brand an aura of cool, Jung insisted that all his products be made from botanical extracts. Then he slashed costs and offered lotions, creams, and lipstick at less than half the price of local suppliers. "TheFaceShop brought about a revolution in Korea's cosmetics industry," says Cho Yoon Jung, an analyst at Hyundai Securities in Seoul.


Jung also hit his competitors where they were vulnerable. Korean cosmetics had previously been dominated by large retailers supplied by wholesalers. Jung cut out the middlemen, directly supplying franchised FaceShop stores selling only his brand. He outsourced production to a pair of Korean manufacturers that work for international brands such as L'Oréal, Johnson & Johnson (JNJ ), and Boots. And to owners of existing cosmetics shops willing to retool their stores and join his FaceShop chain, he offered higher margins than established manufacturers did.

Jung didn't forget the power of that Naomi Campbell poster, either. But instead of finding a supermodel to stump for TheFaceShop, he hired Kwon Sang Woo, a top actor popular with young women. Jung blanketed the airwaves with ads featuring Kwon admiring a young woman with beautiful skin as she plays the violin in a leafy garden, followed by the tag line "Natural story. TheFaceShop." To hammer home the company's green image, Jung also insists that each store have a live zelkova tree inside.

Now, TheFaceShop hopes to take its formula abroad. By 2010, the company aims to get 60% of its sales from up to 600 stores outside Korea, mostly in Japan, China, and the U.S. Anyone know where to find a good zelkova tree in Peoria?

By Moon Ihlwan in Seoul

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