In Trends

Etude House becomes capital impaired

Etude House

AmorePacific’s cosmetics brand Etude House once aspired to become a global brand. However, after years of accumulating losses, Etude became capital impaired and AmorePacific is agonizing as it looks for a way to save the brand.

SEE ALSO : How are Korea’s largest beauty giants LG H&H and Amorepacific doing amidst Covid-19?

Capital impairment means a company is worth less than the par value of its issued stock. Etude is in urgent need of capital, but most of AmorePacific’s subsidiaries are not faring much better.

According to AmorePacific, Etude’s total equity stood at minus US$5.7 million after its total liabilities of US$49.6 million exceeded its total assets of US$43.8 million. It faced consecutive asset impairment losses in both 2019 and 2020. Its cumulative net losses over the last four years and costs of restructuring road shops caused the brand to suffer capital impairment.

AmorePacific said it checked for capital impairment after Etude’s operating losses widened along with its business in Hong Kong last year.

“We recognized losses including US$1.9 million in tangible assets, US$8 million in intangible assets and US$10.5 million in licensed assets,” an AmorePacific official said.

Among 37 subsidiaries of AmorePacific, Etude House is the only domestic corporation that has reached the point of capital impairment.

This leaves few options for AmorePacific other than liquidating the brand after years of struggling. But AmorePacific said it has not discussed the possibility of closing down Etude.

Etude needs its parent company to weather the crisis. However, AmorePacific would be in an awkward situation to aid only Etude when other subsidiaries are all experiencing problems amid the COVID-19 pandemic.

AmorePacific launched the Etude House brand in 1997 and opened its first store in 2005. The brand led the K-beauty trend until the early 2010s. There were 525 Etude House shops in Korea and 232 stores abroad in 2016.

SEE ALSO : Korea’s Hyundai Department Store offers new shopping experience

However, the brand’s earnings started to decline after peaking in 2014. Etude shut down a number of shops to downsize its business, but the move was not enough to stem worsening earnings.

Etude’s sales plunged from around US$263.4 million to around US$175.6 million in 2017. Two years later, sales shrank further to around US$87.8 million.

(Source: The Korea Times)

Follow Retail in Asia on Facebook, Twitter and LinkedIn.

Get our top stories delivered to your inbox:

 

Stay ahead
Subscribe for free!
Register now
Stay ahead