LG Household acquires The Crème Shop for US expansion

LG Household & Health Care Ltd. has acquired a controlling stake in The Crème Shop Inc. as it seeks to expand its presence in the US beauty and cosmetics market while reducing its heavy reliance on China, its primary revenue source.

LG Household said in a regulatory filing on Wednesday that it has signed a deal to buy a 65% stake in the Los Angeles-based beauty brand with South Korean heritage for 148.5 billion won ($120.2 million).

The all-cash deal, aimed at strengthening LG’s beauty business in the North American market, will be closed on May 31, according to the filing.

LG will also have a call option to buy the remaining 35% stake in the US beauty company five years after the closing of the current deal.

Established in 1988, The Crème Shop specializes in the manufacture and marketing of Korean cosmetics and related accessories, known as the K-beauty.

Posting annual sales growth of 30% on average over the past three years, the company is particularly targeting young customers, or millennials and Gen Zers, collectively known as MZers, in the US.

Among The Crème Shop’s popular products are eyeshadow palettes and other beauty goods with BT21 characters created by the members of the Korean boyband BTS.

AWAY FROM CHINA

The acquisition comes as LG Household is striving to lower its reliance on China, the world’s largest consumer market, after suffering from weak sales there.

Having basked in the global boom of Korean cosmetics, the company had reaped handsome profits, particularly from China, until mid-2021.

However, its Chinese sales began to fall in the second half of last year as Chinese consumers gradually turned to favor home-grown brands such as Florasis, an Hangzhou-based firm known for its traditional Chinese aesthetics.

Analysts warned LG’s heavy reliance on China could backfire if Chinese consumers turn their back on the Korean company or bilateral relations between the two neighbors turn sour.

LG’s beauty products under its flagship brand Whoo posted 2.92 trillion won in global sales in 2021, of which China accounted for almost half. The brand took 75% of its total China sales.

LOOK TO THE US FOR GROWTH

The latest deal also marks LG Household’s biggest acquisition since its shareholders last month allowed Vice Chairman and Chief Executive Cha Suk-yong to serve his sixth term as the company’s top executive.

The CEO, more commonly known by his English name, Suk Cha, has actively pursued mergers and acquisitions in overseas markets outside China.

In May of last year, LG finalized a deal with global pharmaceutical company GlaxoSmithKline to acquire the business rights for Physiogel in the Asian and North American markets for 125 million pounds, or $192.3 billion.

Physiogel is a derma cosmetics and personal care brand that started in Germany and sells in Asia, Europe and South America. It enjoys great popularity in Korea in particular

Earlier last year, LG also acquired the British premium toothpaste brand Euthymol and later purchased the US vegan haircare brand Arctic Fox, which is popular among millennial and Gen Z consumers.

In February, the company joined hands with Farouk Systems Inc., a Houston-based company of hairdressers for hairdressers, known for manufacturing high-quality professional hair care products under the industry-leading brands CHI, BioSilk and SunGlitz.

The two companies jointly developed LG CHI Color Master, a high-tech digital color customization system that creates precise color for hair.

Write to Soo-Jung Ha at Agatha77@hankyung.com
In-Soo Nam edited this article.