This week, I explore how and why prestige and luxury beauty brands are diverting their concentration to Southeast Asia.
All eyes are on Southeast Asia.
Throughout 2023, more prestige and luxury beauty brands have turned their attention to Southeast Asia to tap into an opportunity for additional, substantial growth. Southeast Asia includes 11 countries, including Indonesia, the Philippines, Singapore, Thailand and Vietnam. While plenty of prestige and luxury brands already have a presence in Southeast Asia, few have made significant investments. But that appears to be changing.
On its fourth-quarter earnings call in August, Coty executives called out the success of opening the Marc Jacobs digital flagship store in April on the Lazada-owned e-commerce platform LazMall, the leading e-commerce retailer in the “highly promising” Southeast Asia region. LazMall has 90 million consumers, and Marc Jacobs became the No. 1 best-selling fragrance on the site in April. Korean luxury brand Sulwhasoo also partnered with LazMall in April to launch its First Care Activating Serum VI.
For its part, Sulwhasoo has expanded its global e-commerce business by providing unique and localized digital content and shopping experiences. Sulwhasoo sells in five major ASEAN countries, including Singapore, Malaysia, Thailand, Vietnam and Indonesia. There, the brand distributes through various channels, including department stores, boutiques and e-commerce platforms.
“The ASEAN market has been experiencing significant growth, and its large population offers great potential for business expansion,” said Hansook Lee, svp of Sulwhasoo Global Commerce Division. “Over the past three years, Sulwhasoo has achieved consistent double-digit growth, including particularly notable growth in its e-commerce business — triple-digit CAGR growth, thanks to strong partnerships with major e-tailers like Lazada and Shopee.”
Sulwhasoo aims to become a “global iconic brand,” and ASEAN markets will be one of its ongoing focuses for growth, said the representative.
In recent months, other brands and companies like P&G, Aveda hair care, Armani Beauty and Lancôme have made various investments in the region. One year ago, Unilever’s venture capital arm, Unilever Ventures, made its first investment in Southeast Asia, leading a $6 million Series A for Indonesian vegan beauty brand Esqa.
There are a few reasons why Southeast Asia is starting to capture the prestige and luxury beauty industry’s attention. The Japanese, South Korean and Chinese markets have matured, meaning fewer standout opportunities exist to capture significant market share. Meanwhile, Southeast Asia represents a growing working population and emerging higher household incomes, which point to an uptick in consumption over the next several years. Southeast Asia will add about 140 million new consumers by 2030, representing 16% of the world’s consumers, said a World Economic Forum report on the Association of Southeast Asian Nations (ASEAN). This intergovernmental organization comprises 10 member states.
“These markets are likely to face double-digit growth, which makes Southeast Asia that much more exciting if you’re looking for significant growth,” said Siddharth Pathak, a partner at management consultancy Kearney. “The market is still nascent so that more companies will enter the market, so who will be the leader in several years is not known today.”
Aside from economic growth, e-commerce growth is also a burgeoning area of opportunity. Kearney estimates that e-commerce penetration is 15-20% in Southeast Asia, despite widespread internet and social media access. For comparison, the U.S. hovers around 16% e-commerce penetration, while China had approximately 47% penetration. One of the reasons for the lower Southeast Asian penetration is the lack of sophisticated beauty shoppers who are comfortable purchasing online. A Sept. report by Meta and Bain & Co. on Southeast Asia surveyed 16,000 people across six countries and found that 60% of local digital consumers do not know what they want to purchase when they start an online shopping session. According to Kearney’s research, e-commerce penetration in the region is expected to grow to 30-50% over the next five years.
Social media and social commerce are also big opportunities for Southeast Asia over the next few years. Instagram and Facebook have a strong presence, as does the messaging app Line. TikTok announced a significant investment in Southeast Asia in June, stating that it would make a $12.2 million investment aimed at helping more than 120,000 small- to medium-size businesses transition their businesses online and participate in the digital economy.
“Across Southeast Asia, more than 325 million people come to TikTok every month, and 15 million businesses use the platform,” said Shou Chew, CEO of TikTok, in the June press release. “The role we’ve played in expanding economic opportunities, education, and community-building in this region and worldwide is immense. We are … committed to continuing the work of helping individuals, communities, and businesses grow and thrive.”
Jenny Cheah, managing director of Southeast Asia, Oceania and Korea at Sephora, said the retailer is optimistic about external macro trends like stable economic growth, rising consumer spending, sophisticated and discerning beauty consumers, and growing middle-class affluence. Sephora has 100 points of sale across Southeast Asia, including in Singapore, Thailand, Indonesia and Malaysia. Sephora’s presence in the Philippines is e-commerce only.
“Enabled by digital and tech, a keen sense of beauty trends, and unparalleled curation capabilities, we are well-poised to hyper-personalize the Sephora experience in [Southeast Asian] retail [stores], omnichannel touchpoints, localized [merchandising] assortments and localized marketing campaigns during key consumption periods,” said Cheah.
Overall, the Southeast Asian beauty market is expected to grow 3x over the next 10 years, representing one of the beauty industry’s biggest untapped opportunities for significant growth, according to Kearney data.
While there is plenty of opportunity, there is also a fair share of challenges and complications. In a new report from Kearney and Luxasia published in October, Kearney outlined six challenges brands will have in building their businesses in Southeast Asia. The first is establishing an omnichannel strategy, which is complicated by the second and separate challenge of a complicated regulatory framework. The third is the diversity and nuances of the region, which will require brands to offer highly curated products for sale that address the unique preferences of a country. The fourth dovetails off this diversity, as effective sales and engagement strategies vary widely across 11 countries. For example, Kearney’s report finds that unique and limited-edition gifts with purchase drive the average transaction sale in Singapore. Meanwhile, consumers in the Philippines purchase in smaller basket sizes because of their lower expendable income, so small products and complimentary gifts drive better sales. The fifth issue is the costly and idiosyncratic supply chains. Lastly, determining the right regional partners, whether distribution or retail, is difficult.
“Many companies have gotten it wrong when they thought about Southeast Asia. You can think of Southeast Asia or emerging Asia purely as growth markets, which means: ‘Let’s keep putting in money, and growth will keep happening, and somebody someday will make money,’” said Pathak. “We don’t think that’s the right way to go because then businesses have no reason to [prioritize] profitability.”
Instead, Kearney suggests that companies prioritize significantly investing in 2-3 Southeast Asian countries to establish scale before moving into additional markets.
“You will see a lot of companies losing money and blood in this battle. And a few will emerge as massive winners who we will discuss in 10-15 years as we look back on what they did well,” said Pathak.
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