Retail in Korea #04: Olive Young: Myeongdong Flagship Store Reopening: Growth, Observations, and Opportunities

Welcome to Retail in Korea, the newsletter that provides valuable insights into the ever-evolving Korean retail landscape. From emerging trends to ecommerce and branding, this newsletter aims to be a go-to source for English-language content on the subject. While I may not claim expertise, I aspire to be a window for foreigners seeking insights into this vibrant industry. This edition shines a spotlight on the recently reopened Olive Young flagship store, exploring its growth strategies, global outlook, and my firsthand observations.

Following a two-month renovation, the revitalized Olive Young flagship store unveiled its new look in Myeongdong a fortnight ago. Over these past two weeks, I've had the chance to visit multiple times – spanning mornings and afternoons. In this fourth edition of the newsletter, I'm eager to share insights on the chain's historical journey, the store's impressions, and potential avenues for enhancement.

Olive Young: A Brief Background

For those unfamiliar with K-Beauty, CJ OLIVE YOUNG might be a hidden gem. Founded over two decades ago by the CJ Corporation , with lineage tied to 三星电子 , the brand has become a cornerstone in the beauty and health retail sphere. In their latest quarterly report, released just four days ago, Olive Young defines itself as a new distribution business resembling a fusion of convenience stores and cosmetics. Their aim? Offering customers novel products and shopping experiences. With women constituting around 85% of its clientele, primarily in their 20s and 30s, Olive Young has carved its niche by offering diverse products and unique shopping experiences.

In 1999, Olive Young opened its first store, pioneering the concept of a drugstore, a novel idea in the Korean market. Focusing primarily on health and beauty products due to restrictions on pharmaceutical sales, the landscape saw the emergence of various chains catering to affordable cosmetics in road shops, such as MISSHA (2000), Innisfree (2000, owned by the giant AMOREPACIFIC ), and THE FACE SHOP (2003, now under LG Household & Health Care, Ltd. ). These chains experienced significant growth until 2016. However, with the ban on travel from China and a shift in consumer preferences from one-brand to multi-brand shops, their number of stores dwindled considerably.

Interestingly, amidst this market flux, Olive Young ascended, steadily capturing market share and customers. Setting itself apart by positioning between department stores and traditional road shops, Olive Young chose not to offer highly personalized services (one-to-one) but focused on providing a vast array of products—approximately 20,000 in total—mostly sourced from medium-sized enterprises and startups (comprising 80% of their product range).

Witnessing Olive Young's growth, other chaebols like (?)GS???(GS Retail Inc.) and Lotte Shopping Co., Ltd. attempted to enter the market by launching Lalavla (originally Watson in 2005, rebranded as Lalavla in 2018) and LOHB in 2013, respectively. However, despite aggressive expansions with over 100 outlets, both chains closed last year due to substantial losses, unable to compete with Olive Young's stronghold. Presently, Olive Young commands a 14.5% share of the beauty market in Korea, a leap of 4 percentage points from two years ago.

The secret behind Olive Youngs ascent lies in several key factors:

?1?. Economies of Scale: Operating 1,336 stores (17% franchised) as of September 30, 2023, Olive Young leverages operational efficiency, purchasing power, and a robust database. Their early adoption of this business model granted them a competitive edge (first mover advantage).

2?. Omnichannel Approach: Leveraging Korea's high online sales penetration (around 40% in H&B), Olive Young capitalized on a robust online strategy, with 23% of sales generated through this channel. Their "Today Dream" service, promising delivery within three hours (with an astonishing average time of 55 minutes), strategically utilizes numerous stores as mini-logistics hubs, supplemented by Micro Fulfillment Centers in pivotal locations.

3?. Product Diversity: A curated selection of 20,000 products, meticulously chosen by their merchandisers and curators, fuels Olive Young's appeal. Their continuous pursuit of new brands and products attracts customers seeking innovation and novel experiences.

4?. K-Beauty Platform: Riding the wave of Korean culture's global recognition, Olive Young emerges as a beauty leader. Though gradually pivoting towards a lifestyle platform, the brand remains strongly associated with the Korean Wave.

5?. EB (Exclusive Brand) Strategy: Olive Young has come to dominate over 90% of this type of distribution market. They have utilized this strategy to restrict brands selling on their platform (both offline and online) from vending through other retailers. This is considered one of the reasons why Lalavla and LOHB closed down. The Korean Trade Fair Commission is investigating Olive Young, and a penalty, potentially amounting to 580 billion won, is expected to be announced by the end of the month.

The beauty and health market in Korea is already very mature, and now they are focusing on internationalization, which is a challenging task. Not only is it a mature market in many countries, but there are also numerous products, and exporting them is not an easy feat. Therefore, they have made a strong move by launching their GLOBAL WEB in multiple languages, targeting global customers.

Olive Young Myeongdong: A New Chapter

My recent visits to Olive Young's Myeongdong location unveiled a transformation in the beauty retail landscape. Positioned as the leading multi-brand store amidst the bustling beauty district of Myeongdong, Olive Young has made noteworthy strides in catering to an international clientele. With a recent revamp aimed at captivating tourists, the store has witnessed a significant surge in foot traffic since its reopening on November 1st.

Highlights of my observations include:

1. Foreign(tourist)-centered Approach: English prevails over Korean on signage, advertisements, price tags, LED screens, and more. Among the staff of over 150, many are fluent in English, Chinese, and Japanese. Additionally, there's an area specifically designated to assist with tax refunds, staffed by employees solely dedicated to this service. It's evident that the target customers are foreigners, given their substantial presence in the store.

2. Immersive LED Displays: Lively screens both inside and outside, enhancing the store's visual appeal. It's unfortunate that the outer screen needs to be viewed through glass, impacting its visibility.

3. Mega Store: a retail trend across all categories. With the store expansion (which absorbed the second-floor café, Twosome Place, also owned by CJ), the total area now amounts to 1,150 m2, providing ample space to showcase the majority of their product range.

4. Shopping bags: These bags are transparent and spacious, allowing visibility of others' purchases, which encourages additional shopping among customers.

5. Color Concept: Entirely metallic and gray. It didn't quite appeal to me, as it gives an impression of insufficient light and a lack of vibrancy.

6. Checkout Experience: On the first floor alone, there are 14 registers. Queues form similar to those in a supermarket. It could be termed as the "fast fashion of beauty" (fast beauty?).

7. Photozone: It has evolved from a trend to becoming a staple—designated areas for photo opportunities, featuring mirrors, inspiring quotes, or the company's logo.

8. The food zone surprised me. It's expansive and serves as a showcase for Korean products, ranging from traditional makgeolli to various types of teas and infusions. The "bagel chip" particularly caught my attention, a product developed by the store's own brand that sells remarkably well (many customers leave with at least one package).

9. Smart Price Tag: Hand-altering prices is a thing of the past. Every tag here is connected to the central system, displaying the price, name in various languages, whether it's on sale, out of stock, and more.

10. Rest area: On the second floor, there's a space overlooking the central street of Myeongdong where visitors can sit and relax. Moreover, the store provides WiFi, enabling customers to access and read various QR codes.

Yet, a few aspects call for enhancement:

1. Lack of Availability: Unlike other stores where assistance is readily provided, there was a notable absence of available staff here. There was no acknowledgment or greeting when customers entered or passed by.

2. Product Scarcity: Due to high sales volume, many shelves were empty, indicating a challenge in restocking promptly, leading to some items being out of stock.

3. Merchandising Gap: Despite aiming to be a lifestyle platform, there was a noticeable absence of items essential for creating that lifestyle, such as stickers, bags, or postcards. While they might exist, I couldn't find any after four visits.

4. Uniform Standards: Employees wore a rather basic and indistinguishable uniform—simple navy sweatshirts and jeans—lacking distinction.

5. Material Quality and Mobility Constraints: Considering its status as the flagship store, the construction materials used could have been of higher quality. Additionally, there were several areas marked by dust and some uncleanliness. At the same time, the absence of an elevator (reserved only for employees) was notable. Installing escalators could have improved accessibility within the store.

While Olive Young undeniably succeeds in its sales endeavor, witnessing queues at checkout filled with shoppers procuring not just a product or two but substantial quantities, often from curated lists originating from their home countries, my expectations post-remodeling might have been higher. This experience, while commendable, requires refinement to become an ultimate destination. Undoubtedly a must-visit for its ambiance and product variety, yet for a more personalized shopping encounter, visiting other nearby stores might be worthwhile.

Let's wait a few months to see how the store evolves. Congratulations to all who have been part of this project!

I hope you enjoyed the newsletter. It took me the longest time to write it because I wasn't completely familiar with the brand and its history, which required extra research. If there's anything that's not entirely correct, I hope you understand. I tried my best. And if you want to comment, contribute something to the topic, or add your opinion, you are more than welcome. Thank you very much!

Allow me to share with you two previous posts I wrote about Myeongdong:

Nike Rise Seoul: https://www.dhirubhai.net/posts/juanpablopostigopich-aguilera_today-we-open-nike-seoul-this-is-our-latest-activity-6832958271301779457-CYIN/

adidas Brand Flagship Seoul: https://www.dhirubhai.net/posts/juanpablopostigopich-aguilera_myeongdong-corea-flagship-activity-7030478780028653568-f01p/