What Kim Jong-un Has to Do With Your Skincare

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South Korea’s beauty products are caught in the crossfire of the battle for who will dominate East Asia. First up, there’s Kim Jong-un, leader of North Korea, currently owner of a stash of worryingly functional nuclear weapons. As of 2016, he pushed for North Korean cosmetics quality to improve so it could compete with international brands, and just this week he toured a remodeled cosmetics factory. While it’s unlikely on many levels that North Korea's Unhasu brand will supplant Fenty at the local Sephora (a thriving DPRK cosmetics export industry would likely get hit with trade sanctions), Kim Jong-un apparently cares about making good waterproof mascara. Everyone keeps turning to North Korea’s neighbor China to exert some muscle when Kim Jong-un pops off, but they’re in a bind: China probably needs Jong-un to remain in power.

Although it might seem counterintuitive to want things to stay as they are, collapse or unrest in North Korea would likely mean that many ethnic Koreans would flee to China, and South Korea would control both Koreas — possibly after immeasurable damage to Seoul and its inhabitants. If South Korea took over, it would do so with the vigorous support of the US military. The US military getting more hooked into the Korean peninsula is exactly what China does not want to happen. What China does want to happen is the growth of its own beauty brands, including some, such as Proya, that feature Korean celebrity endorsers, manufacturing partnerships with experienced K-beauty companies, and mostly imported ingredients.

Meanwhile, after winning election in May 2017, South Korean President Moon Jae-in inherited a diplomatic problem known as THAAD that has been a nightmare for Korea’s beauty industry. The acronym stands for Terminal High Altitude Area Defense, an anti-ballistic missile defense system built by Lockheed Martin for the US Department of Defense. THAAD is meant to protect against an attack by North Korea, but China has seen THAAD as a threat because it believes the radar system could be used to monitor China well beyond the border and shoot down Chinese weapons (a claim the US and South Korea deny).

The unexpected victim in this has been K-beauty — and by extension, South Korea's soft power strategy.

In the last decade, K-beauty sales have risen dramatically worldwide. For most Korean beauty brands, the biggest international sales come from East and Southeast Asian countries such as China, Vietnam, Singapore, Malaysia, Taiwan, and Hong Kong. The promotion and sale of K-beauty abroad is part of a soft power strategy employed by the South Korean government and large companies since 1997, designed to export not just South Korean-made products, but Korean culture itself. While North Korea has focused on self-reliance to the point of isolationism, South Korea has actively promoted Hallyu — the Korean Wave — in the wake of the 1997 financial collapse in Asia. Even after the crash, the success of South Korean TV shows throughout Asia paved the way for K-pop music, beauty products, and food, according to professor Hannah Jun of Ewha Womans University, Seoul.

Here in the US, K-beauty-focused shops and Western retailers such as Sephora have pushed South Korean beauty products as a new trend since 2012. But the US is still a comparatively small slice of the K-beauty pie, long considered by K-beauty brands a “hobby” market, according to K-beauty consultant Ju Rhyu.

In China during 2015, the sale of Korean beauty products doubled in a single year, reaching $1.08 billion, or 40 percent of K-beauty’s international sales. In comparison, the US bought $233 million in K-beauty products in the same year. The perceived cultural differences and size of the K-beauty economy has made America a less attractive bet than China. Even K-beauty powerhouse Amorepacific has employed what could be considered a careful strategy, launching a sure-thing Innisfree flagship in New York City this year but not yet raising an Etude House princess castle flagship — all at the same time as Forever 21 appears to be poised to steal the pink thunder with its Riley Rose shops.

The soft power cultural diplomacy of South Korea has been tested by hard power moves by the North.

China opted to squeeze South Korea in late 2016 and earlier this year in retaliation for accepting THAAD, and that’s where things got ugly for the K-beauty industry. Graphic design for THAAD-related stories on Korean-language cosmetic trade websites went wild as warheads, lipstick, and national flags were Photoshopped together to convey the gravity of the situation. “The ‘China effect’ on K-Beauty this year came mostly from the sharp decrease in Chinese tourism to Korea,” writes Rhyu via email. “Duty-free sales plummeted and local Korean beauty road shops in areas like Myeongdong (popular tourist shopping area) suffered as well.” Sales losses linked to the drop in Chinese tourism were as much as 70 percent versus 2016. But that doesn’t mean that K-beauty was dead to Chinese consumers.

Desire for Korean consumer goods, including beauty products such as sheet masks, snail mucin essences, horse oil face creams, and color cosmetics, remained high in China. “I don't think Korea's plans to deploy THAAD resulted in Chinese consumers hating Korea, or even Korean products,” writes Jun via email. “K-beauty ... has been quite resilient despite the geopolitical drama.” Rhyu notes that AHC, the leading brand in the Carver Korea stable, which was recently acquired by Unilever for nearly $3 billion, had a five-times increase in sales on Chinese shopping site Tmall this spring.

But that sales explosion hasn’t happened for Amorepacific, the grande dame of K-beauty, or most mid-level companies. Frank Wang, senior sales manager at Sandalwood Advisors, says, “Korean [beauty] companies are still showing healthy growth, but they are underperforming the sector as a whole” in China.

While coverage of the THAAD/K-beauty disturbance tried to detect an overall trend, it’s apparent from talking to experts that there’s no single trajectory for the Korean brands that make your sheet masks. Jun says that most sentiments against Korean consumer companies were directed at the Lotte super conglomerate, which supplied the land on which the THAAD system is parked. “We saw a lot of negative activity (both official and unofficial) in China targeted at Lotte,” she writes, including Lotte Mart stores in China, a number of which were closed by the government for conveniently timed “safety issues” this spring, and Lotte’s Duty Free shopping empire. Online and offline sales in China of products made by Amorepacific and most mid-tier Korean brands have lagged behind sales of K-beauty brand LG’s products, Japanese skincare from brands such as SK-II and Shiseido, and Western brands like Estée Lauder according to Wang.

The consensus is that the THAAD row wasn’t an outright disaster for K-beauty, but it hampered its runaway success in China, potentially creating space for homegrown Chinese beauty brands. While she says that the K-beauty industry wasn’t an intended direct target of China’s THAAD retaliation, Jun thinks “this vacuum may be a convenient time” for China “to test out the market” for its own cultural products inspired by the success of Hallyu, including beauty. It wouldn’t be surprising if we started seeing serious coverage of C-beauty in the coming years as China rebrands “Made in China” as a symbol of modern Asian cool. If that seems far-fetched, keep in mind that parts of Seoul’s Gangnam were farmland until the 1980s.

For Korean brands, tentative signs of a THAAD thaw boosted stock prices in October. “China agreed to extend a currency swap with South Korea that point[ed] to easing tensions,” Rhyu writes, which set off staggering surges in some K-beauty stock prices mid-month. Hankook Cosmetics Manufacturing, an OEM and ODM manufacturer, saw a one-day 29.83 percent boost in its stock price, and Amorepacific saw more modest yet significant gains in recent weeks.

Finally, news broke this week that China and South Korea have decided to talk through the THAAD dispute and probably get back to normal. It looks like South Korea will keep the missile defense system while China will back off its K-boycott, a huge diplomatic win for President Moon that sent K-beauty stocks surging and then falling back from post-news highs. Even before the THAAD breakthrough, a tentative K-beauty recovery was underway, and Chinese tourists are starting to return to Seoul’s main shopping district. But Korean firms are shifting their strategy in the wake of the THAAD dispute. Korean cosmetics trade website Beauty Economy called for the diversification of exports despite the news. “I have clients who feel a strong sense of urgency to get into US retail distribution NOW because they know that many, many other Korean brands will be flooding the US market soon,” says Rhyu. “They are all trying to mitigate risk and have finally realized” that being too dependent on China “is a bad thing.”

Despite the easing of tensions, Rhyu says, “Not all brands are recovering in China as we see in the sales data, so I think they will continue to focus on the US and other markets.” The fight to be the brand that wins K-beauty in the US is about to get a whole lot more competitive. And if you think the K-beauty trend is already big here, it’s only just begun.

One thing is certain in the competitive global beauty market: You probably won’t be buying North Korean Unhasu waterproof mascara anytime soon. Then again, if North Korea’s nuclear and hacking programs are any indication of the surprises in store for those who downplay or mock the country, your local drugstore might need to free up some space for mascara. Even if Unhasu never overtakes Maybelline, Kim Jong-un probably has a surprising lot to do with how you’ll buy beauty in the future.