Asian beauty: how a Korean businessman earns billions on fabric face masks | TELNEWS

Asian beauty: how a Korean businessman earns billions on fabric face masks

Billionaire Kim Jong-un was one of the first to notice a new fashion for Korean cosmetics in China. With zero advertising costs, his fabric face masks became a bestseller - even when Beijing announced a boycott of Korean goods due to the political crisis. How did he manage to increase profit by 3000% over the year and what did the Chinese shuttles help him with?

32-year-old Liu Jing arrived in Seoul on the Eastern coast of China. Other tourists can spend days sightseeing the Korean capital, but not Liu. Along with at least ten of their compatriots standing in the queue in the duty free shop, where to buy fabric for face mask JM Solution. Each pack of ten will cost $30. But Liu does not need one pack or even two. For the equivalent of $18 000, they and other visitors acquire three boxes the size of refrigerators — so large that they should be taken away on the cart.

Liu buys the mask itself. She — "daygo". So in China called dealers, of bringing from abroad popular products for sale. To say that the mask JM Solution are popular, do not say anything. GP Club, the owner of JM Solution, sold more than a billion masks for skin care face — with Royal jelly and propolis, Lactobacillus extract, Golden rice, the active components of pink snails. The business was launched in mid-2017, and most of the production goes to China. "In China it is the most popular goods, says Jing Liu, noting that masks JM Solution in his home province of Shandong, she can earn up to 20% of their value. — I go here every month for six months."

Partly thanks to such "Daigo" as Liu, the founder and CEO of GP Club, Kim Jong-UN took off on the 30-th place in the rating of 50 richest businessmen in South Korea. His fortune is estimated at $1.15 billion Kim 44. In high school he opened his own video game store, and in ten years earned enough to enter the Chinese market gaming accessories. Ten years later he moved into the Chinese cosmetics market. In 2016, when it broke diplomatic scandal and Beijing have urged people to boycott Korean products, Kim found a loophole in the face of the most popular Chinese bloggers who made masks GP Club fashion in China and prompted a "Shuttle traders" feel compelled to put them to bypass the boycott.

Private traders do not just have softened the impact of the boycott for the company, but also helped to grab significant market share from the famous Korean cosmetic brands like Amorepacific and LG Household & Health Care. Thanks to the incredible popularity among Chinese consumers sale GP Club over the past year increased ten times up to 514 billion won ($460 million), and net profit — more than 30 times, up to 170 billion won. In his first interview in the status of the dollar billionaire Kim admits: "I was able to ride the wave. But if you were to do this again, I probably would have failed".

To cope with the pace of growth in the past year he expanded the company to five times up to 170 people.The astounding growth rate of the GP business attracted the attention of Goldman Sachs, which last October acquired 5% of the company for 75 billion won. So Kim, who owns the remaining 95% together with his wife and daughter, became a dollar billionaire. The management of GP Club is confident that they will be able to maintain the momentum of development in the future, and therefore they are already preparing for an IPO on the Seoul stock exchange, which may take place before the end of this year. “Despite the fact that initially our attention was attracted by the impressive growth in sales of innovative JM Solution products, we were really inspired by a deep understanding of the tastes of the Chinese consumer, which are constantly changing under the influence of the Internet, as well as unique experience in debugging distribution channels online and offline,” says Jonathan Vanika, Managing Director at Goldman Sachs, who oversaw the investment in GP.

Business from school

The way Kim the Chinese market of beauty masks, estimated at $15 billion annually, was long and winding. The youngest of three children, he enjoyed a normal childhood until one day his father, a successful Director of the Bank branch has not lost his job and all his savings because of unsuccessful attempts to enter politics. The father had to abandon a white-collar and put on a construction helmet. Kim recalls that it was a difficult time. Luxury was even rice instead had to be content with barley.

When Kim was 15, his father died of liver cancer, and raise his brother and sister had mother and grandmother. But the hardships of life kindled in him the spark of entrepreneurship. "I was faced with the need to earn money at a very early age," says the businessman. In those years he, like many of his peers, adored computer games. Kim got a job at a small video game store that held an elderly couple. Gaming has quickly become a talent to sell them. Earn money ($4000 earned independently, and $3000 borrowed from family), Kim opened her own shop video games and consoles. It was located in an ordinary apartment and called the Game Paradise — hence comes the name GP Club.

A beginner trader opened shop after school and sold the game to 11 PM. He came up with a loyalty program where after purchasing ten games you can choose another free of charge. Accumulating enough money, he opened a second place in the apartment nearby. To the 20 years Kim has already collected a small fortune of 300 million won ($500,000 in today's money).

After a four year hiatus — two years of compulsory military service and two years studying interior design at the professional school he has allowed savings in turn. Kim opened a new store in the Mall of electronics and ultimately added to the network five there.

Customers left the stores GP not only with video games. Kim noticed that clients like nylon and polyester covers to protect your favorite PlayStation, Nintendo. So in 2003, Kim first came to China (later he became to go there very often) to negotiate with manufacturers of bags and cases on the supply. Business on games and game accessories increased significantly and in the most successful era contributed up to 50 million won per year.

Korean wave

From China Kim took the bags. He learned the Chinese language and, in his own words, learned "a lot about Chinese culture and habits of the people." Businessman one of the first to notice that China is born again the fashion for all things Korean. After the so-called Korean wave which swept Asia in the 90s, it was a new round of popularity, largely thanks to growing social networks and the Internet.

Together with the craze for Korean pop groups and soap operas the Chinese want to have the same light and smooth skin like Korean actors and musicians. This trend is called the K-Beauty. By the time the biggest Korean beauty brands have for years exported its products to China, and even small producers can sell goods online to consumers in China or the increasingly numerous Chinese tourists in South Korea. The second wave gave Kim a chance to use the accumulated knowledge about China. In 2013, GP became a distributor of Korean brands still trying to get the most out of demand for Korean cosmetics in China.

"At first, everything was going perfectly," recalls Kim. But the mediation at any time could come to an end: it customers in Korea as sales growth refused the services of the distributor and started to supply products to China themselves. In the end Kim in April 2016 has launched its own brand shower gels and lotions JM Solution, which were produced by a small Korean cosmetic plant. JM stands for Journey to Miracle (eng. "the way to wonder").

The first line of products JM quickly began to gain popularity, but this growth ended abruptly in the summer of 2016, when South Korea agreed with the United States on the deployment on its territory of anti-missile complex THAAD to intercept missiles from the DPRK. Beijing, concerned about the proximity of the American plants took this as a threat to national security and swiftly retaliated — banned its citizens from group tours to South Korea. "Before the crisis, bilateral relations Korea monthly visits to 800,000 Chinese. Since then, the number of tourists decreased to 200 000," says P

AK Hyun-Jin, an analyst at Seoul company DB Financial Investment. In addition, Chinese state media has urged people to boycott Korean goods. In the two years of the boycott the sales of Korea's largest cosmetics manufacturer Amorepacific fell more than 9%, while net profit fell by more than half. "The demand for Korean cosmetics has been huge. But because of the ban of travel for Chinese consumers became much less ways to buy it directly," says Lee sung-Hwa, a Seoul expert of the analytical Agency Eugene Investments and Securities.

Company GP is also not spared. "I lost a billion won, which failed to pay one partner retailer, says Kim. — We had cancelled orders for 3 billion won. Many people advised me to curtail production". Businessman no one listened. Instead, he invested all his money — 1.5 billion won in the new product — fabric face mask. Unlike conventional masks, which have been spread, wait to dry, and then roll or wash away, the fabric of the mask was a solid piece of matter suitable for face size, with slits for eyes and mouth, impregnated with a cosmetic product to hydrate and rejuvenate the skin. According to the consulting firm Bain & Co, every year Chinese consumers spend on these masks $15 billion.

Shuttles to bloggers

In mid-2017, GP launched a line of JM Solution, starting with a mask with Royal jelly and propolis Royal. Soon the assortment has been expanded by other names — for example, a moisturizing mask with the active components of pigeon milk, a refreshing mask of Medusa and, of course, with the slime of pink snails. Marketing in the GP was not involved at all. Instead, the company sent out the mask the top Chinese beauty bloggers who were doing free reviews and posted them on Sina Weibo (Chinese equivalent Twitter) or TikTok, the service short video, which is owned Bytedance.

Some bloggers have started to buy masks in bulk and resell them online. However, in the present case the manufacturer went to the mountain thanks to the efforts of Shuttle traders. This is not limited to masks GP or even just Korean products. But a government boycott, and the popularity of JM Solution in influencesof provoked the appearance of a gray market in which enterprising "daigou" purchased masks wholesale in Korea and resell them to home buyers for whom appearance is more important than patriotism.

The interest of dealers to mask GP has grown in part because of the actions of the main competitor of the company: Amorepacific has limited the volume of its products sold in one hand. Amorepacific more concerned not with short-term capacity sales, and the protection and promotion of the image of the brand in the long term, explains a company representative.

GP no restrictions are imposed. By the end of 2018, the company sold 800 million masks, and to the current time has already exceeded billion. "Tourism fell, but sales of products JM Solution in the duty free shops grew. All thanks to those who bought it, not for personal use and for resale," says Eugene Lee of Investments and Securities. GP today, starting with the sale of video games and related accessories, makes 90% of the proceeds on the sale of cosmetics, especially in China. Half of the volume sold on Internet sites like Alibaba-owned Tmall. Games and accessories provide only 6% of GP income.

The rise in popularity of the GP Club in China was so rapid that analysts believed that the IPO of the company's valuation will reach 10 trillion won. Since then, they came down to earth and are now evaluating the cost of the manufacturer at the level of 4 trillion won. "Financial indicators of 2018 were impressive, although not as high as originally expected," — said Eugene Investments and Securities.

"Production of JM Solution was a real hit, but the GP Club and without it was successful in the field of video games, says Jane Hahn, Director GP sales and first employee of cosmetic directions, came to the company in 2014. — Unchanged a passion of our CEO to work and sincerity in all that he does, and his sensitivity in every aspect of a product launch to the market and sell them. This is one of his strongest sides."

To defend their positions in China, the GP has to cope with a major threat to many brands at a local market with fakes. "Counterfeit cosmetics has found in China," confirms Florence Bernardin of Information & Inspiration, a firm specializing in the research of the Asian cosmetics market. Counterfeiting does not just reduced the sale of the original — the fakes often contain hazardous substances, which suffer from unsuspecting consumers, and manufacturers of the originals get claim. In Chinese social media is full of complaints of fake Korean cosmetics. GP assures that it is working to curb the supply of counterfeit goods without interruption: first the tracking of online and offline channels, strengthening the protection of packaging and working closely with Internet partners like Alibaba.

Puma vigilance can be for traders of counterfeiting is a serious problem, but market experts believe that further growth will largely depend on diversification into new products and markets. In addition to the headquarters in Seoul, GP has got offices in Guangzhou, Hangzhou, Hong Kong, Tokyo and Weihai in Shandong province. About a quarter of the 170 employees are engaged in research and development. Now GP sells cosmetics not only in China but also in Japan, Malaysia, Singapore, Thailand and of course Korea itself. "Southeast Asia is a promising market for manufacturers of cosmetics. Korean cosmetics are very popular, says Shin su-Yeon, an analyst at Seoul marketing agencies Shinyoung Securities. But this is a very difficult market, fragmented in the country."

Kim hopes that the funding that the company would raise in the IPO, will help to cope with new challenges. By and large, success for him is a relative concept, partly because he lost his father: "My dream is to spend the best part of his life in harmony with his family."

 

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