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KAIST Graduate School of Management

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KGSM-TMC-05-01

MISSHA: The Cosmetic Revolution How to Penetrate the Cosmetic Market and Survive?

Copyright © 2005 KAIST

Graduate School of Management.

All rights reserved.

This case was written by Seung-Sik

Lee, Jung-Hwa Shim, Dong-Joon

Kim and Sung-Hoon Suh (MBA

students at KGSM), and supervised

by Professor Se-Bum Park and

Professor Joe Dewberry at KGSM

Some of the information is

disguised to protect confidentiality

of the company and its employees.

MISSHA, a cosmetic brand of Able C&C Company, has exploded in the Korean cosmetic industry with low prices and exclusive brand shops since 2000.

In the Korean domestic market, MISSHA has bravely removed

the bubble price from cosmetics, formerly recognized as a high priced product. Basically MISSHA approached the market with its own fundamental style. There were four characteristics of MISSHA. First, it was based on the customer needs, especially quality, which other low price products have neglected. Second, it used the power of the growing online market. Third, it removed many intermediaries by cutting unnecessary costs. Finally, it created brand shops which were quite different distribution channels compared to its competitors. In the global market, MISSHA is presently marching abroad with a similar strategy – franchises brand shops in Hong Kong, Singapore, Australia, and the United States like a fast train. It also has a plan to open brand shops in other foreign countries, as well, including Japan, China, and Taiwan.

MISSHA’s success has completely taken place in the last four

years, but many people worry whether MISSHA can continue succeeding.

“Our competitors are following us very fast. The low cost

market volume is limited, but new me-too-brand competitors and existing cosmetic giants are coming into this market. We may be losing our unique strength.”

As the marketing manager, Pansik Ham says, MISSHA

specialties are copied and modified by followers. A strong competitor, THEFACESHOP, adopted almost the same price strategy and brand shop strategy. Moreover, THEFACESHOP has a unique brand position as a ‘well-being’1— young and healthy— product successfully, and it is an image that MISSHA does not have. Consumers regard MISSHA simply as a low cost product, and that MISSHA is only for young consumers who don’t have much money. Including THEFACESHOP, there are several me-too-brands, and major giants are penetrating into this market. The first mover’s advantage of MISSHA has been enough for four years, but now followers have begun to make inroads in its target market. The low price market is going to be become a keenly competitive market.

1 In Korea, the term ‘well-being’ was widely used as the meaning of young and healthy.


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MISSHA’s marketing director, Bodong Kim says that several stock analysts are worrying that the low price market will shrink drastically if the recession ends and the economy recover. Industry analysts seem to have learned from the past Japanese cosmetic market, which also had a low price market boom and scale-down. In Korea, the low price market was created quickly and has spread widely after MISSHA‘s advent. However, the growth rate started to decline in 2004 and seemed to go into a stagnation stage in 2005. If the market doesn’t expand, strong competition will accelerate.

MISSHA had its IPO in spring 2005 successfully, but its skyrocketing stock price is now falling as

the future is uncertain2. Revenue is increasing slowly but operating income is decreasing3, and MISSHA has lost its position as the number one brand due to THEFACESHOP.

MISSHA is obviously facing a turning point. How can it continue its early success? Ham asks,

“Although we should try to hold our leading position in this market, how can we recreate our unique image? How can we further differentiate MISSHA from others?”

The Cosmetics Market in Korea

The cosmetics industry in Korea4 has grown rapidly since the 1970’s as the national income rose and the number of working women increased. By early 2000, the Korean cosmetics market size was up to about five billion dollars, and the major consumers were women in their twenties and thirties. The cosmetics market had been supported by a protective policy of the Korean government, but as the industry became an open market, foreign companies were beginning to manufacture and sell their own products.

The cosmetics industry is one of the precision chemical industries and it is characterized as a high

value-added business that places importance of R&D and technology innovation. Compared with the whole manufacturing industry, the cosmetics industry is much more profitable. Because cosmetics companies can be established with only a small investment in plant and equipment, the entry barrier to the market was low, and even small- to medium-sized companies were able to specialize in the industry. Presently, there are more than 300 companies competing fiercely in the Korean cosmetics market.

The leading companies in the industry are AMOREPACIFIC, LG Household & Health Care, and

COREANA. In 2002, AMOREPACIFIC was the largest domestic cosmetics producer in terms of market share accounting for 15.36%, followed by 6.44% from LG Household & Health Care, and 5.05 % from COREANA. These top three companies covered almost 30% of the entire cosmetics market with their financial capabilities and marketing powers. This market structure was also due to the domestic consumers’ perception of cosmetics as high-priced, with famous brands, and as high-quality and prestigious.

The Korean domestic market was gradually opened as foreign companies entered into the

wholesale business in 1990, and the retail market in 1992, and they directly invested in distribution channels. International cosmetics corporations such as L’Oreal, Procter & Gamble, UNILEVER, and SHISEIDO played a dominant role in the upper-end market and caused the competition in the cosmetics industry to become stronger. Korean women’s preference for imported cosmetics has significantly grown as shown in the number of distribution channels5 such as online shopping malls, department stores and television home shopping channels. These retail channels, some non-traditional, have become the prime channels for imported cosmetic products.

2 Refer to EXIBIT 3. 3 Refer to EXIBIT 2. 4 Refer to EXIBIT 4, 5. 5 Refer to EXIBIT 5.


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Traditional types of distribution channels for cosmetics were direct selling, door-to-door selling, specialty stores, department stores, and discount stores. Specialty stores used to be the major distribution channel in the domestic cosmetics market. Presently, however, door-to-door selling is on the rising although it was once on the decline. Foreign brands covered the department stores, and continued growing for a number of years. The distribution channels have been diversified into large discount stores, television and internet shopping malls, and drugstores, as consumer requirements became varied, and the consumers became segmented.

Company Overview

Able C&C, the company producing the MISSHA brand, was started by Mr. Young-pil Seo, current CEO. Its original name was L-TRI. Young-pil Seo entered the cosmetics industry in the early 1990s as a research engineer in a cosmetics company. He quit his job in 1996 to establish L-TRI, a sales and distribution company. During this time, he was able to learn how the cosmetics products were delivered to customers and what kinds of problems existed in the cosmetics distribution market. He recalled,

“While customers want to buy a product that is famous for its quality and brand name, sellers

want to sell the products that bring them higher margins. However, the cosmetics with higher margins usually have less brand recognition. Moreover, the prices of the products are not the same store by store. This confuses the consumer, and eventually they can’t trust the products.”

While contacting consumers in a shop, Mr. Seo got the idea about making low-priced, high-quality

cosmetics by getting rid of the bubble price of products. He regarded cosmetics as living necessities, not luxuries. If there were low-priced goods with high-quality, he thought, ‘reasonable’ consumers would like to buy them. In addition, he was confident that he could make good-quality products because he had enough work experience in the cosmetics industry.

In 1998, L-TRI began to sell its products under brand name of IPSE, the first brand before

MISSHA, at existing merchandising stores. However, the storekeepers were not willing to recommend the IPSE products to customers because they thought low-priced products would not be profitable to their stores. Moreover, customers also doubted IPSE’s quality, because cosmetics consumers had the preconception that high price meant high quality. In addition, in spite of IPSE’s sales volume growth reaching eight million dollars in a year, the company suffered from a lack of cash because of the deep-rooted custom in the cosmetic distribution market – payment was made after three or six months. Due to these problems, Mr. Seo had to decide whether to give up manufacturing IPSE products.

After being frustrated with the failure of sales of IPSE through offline stores, he noticed the

internet boom in late 1990s. He figured that the internet could provide a breakthrough in the cosmetics business against the traditional practice of the distribution market. He made a homepage for IPSE in advance and tried to make the internet community into a conversation place with customers. He examined and answered each question and complaint everyday himself. The cyber community became a live hall of communication, and the company could listen to the customer requirements and better understand the consumer behavior.

He decided to make a new cosmetics web portal geared toward women, and opened BeautyNet6

(http://www.beautynet.co.kr) in January 2000. To advertise BeautyNet more broadly, Mr. Seo held an event to provide cosmetics as a free gift if a customer joined BeautyNet as a new member or posted information on the board of BeautyNet. He expected this promotion to bring many consumers into BeautyNet by word of mouth, and once new customers got the chance to use the ‘samples’, they would show some interest in the ‘products’. Mr. Seo said about the event:

6 Refer to EXIBIT 6.


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“There were two problems in offering samples as free gifts. First, the delivery fee was not free,

so BeautyNet had to bear the expense. Fortunately, this could be solved as the customers accepted paying for the transportation fee. However, the second problem was the manufacturing cost of the products. We had to find out how to reduce the costs. “How can we make a profit only with the delivery fee?” “How about cutting down manufacturing costs?” Then, all of a sudden, it crossed my mind that the idea of removing packing materials and simplifying the containers. Here comes MISSHA – it was born in the form of online cosmetics products in BeautyNet.”

As BeautyNet’s customers began to use the products that they received as free gifts, they pointed

out the problems of the products, and made a number of suggestions and ideas about the design and quality of the products. Reflecting the feedback into products, Mr. Seo could gradually improve the quality, and more and more customers wanted to ‘buy’ the products.

Mr. Seo changed the name of the company to Able C&C, and launched the new brand MISSHA

instead of IPSE, and sold them as ‘real’ products instead of providing samples. He decided to price the products at 3,300 KRW7 which included a delivery fee 3,000 KRW and a small manufacturing fee. By the end of 2004, BeautyNet had more than 1.6 million members8 who bought the MISSHA products online, gave advice to BeautyNet continuously, and spread a buzz about BeautyNet.

To broaden its customer base, MISSHA opened its first offline brand shop near Ewha Women’s

University9 in 2002. At the first time, MISSHA focused on informing consumers about the low price of 3,300 KRW, rather than brand name of MISSHA itself. In addition, MISSHA allowed consumers to try and test any products freely at the shop, so consumers could experience the quality of products before buying them. MISSHA brand shop was filled with young women asking how the price of such good products could be so cheap. After another great success of second offline brand shop in Myungdong10, the number of MISSHA brand shops11 grew to 295 in Korea, and 33 in global as of May 2005.

MISSHA grew explosively in the domestic market, recording annual sales of 3.3 billion KRW in

2002, 13 billion KRW in 2003 and 111.4 billion KRW in 2004. Besides the explosive growth in annual sales, MISSHA has succeeded in attracting a great many customers with high loyalty.

Able C&C was registered with KOSDAQ (Korea Securities Dealers Automated Quotation) in Feb,

2004, and started transaction in Feb, 2005. Its Initial Public Offering was a great success; therefore MISSHA could get a good reputation in the market and accumulate retained capital to operate its business.

Marketing Strategy

As the main slogan ‘Quality Base MISSHA’ states, the basic marketing strategy of MISSHA is to provide better quality products at a low price to the mass market. People in MISSHA had to deeply consider this objective from two points of view, one is how to reduce the cost of products, and the other is how to ensure their products fit consumer needs. Actually, the real cost for the content inside bottle is less than 10% of total production price. Management understood what makes the cosmetics prices so high was packaging, advertisement, and inefficient distribution channel structures. MISSHA tried to replace luxury and high cost packaging, for example, using plastic containers instead of glass, and they even removed the packaging box which was not useful after opening. Mr. Seo said:

7 1,000 KRW was equivalent to about 1 USD in early 2000. 8 Refer to EXIBIT 7. 9 People think that Ewha Women’s University area leads young ladies’ fashion trend in Seoul. 10 Myungdong is the main downtown area of Seoul. Myungdong is famous for shopping town with crowded people. 11 Refer to EXIBIT 8.


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“When we investigated the price in specialty stores and on-line shopping malls, we frequently saw large sales with over 35% discounts. And we had a question — “is there any margin?” — But we would come to the conclusion that there should be some margin even at such a big discount. If so, how high is the marginal rate in cosmetics companies? The cost for raw material of the content in the bottle is less than 10% of the wholesale price. It must be a bubble without any doubts. Some people had a cheap image of MISSHA product only because of its low retail price. We realized though, that, the content costs for all other company’s products are the same as those of MISSHA. They are also low price cosmetics of which the retail price is just high.”

MISSHA strongly focused on getting rid of other costs except for good quality contents. MISSHA

also had 80% of production done outside company through OEM, but it also managed its own factory to control the detailed process. This outsourcing strategy could help lower the price of production. Presently, all MISSHA productions are through OEM companies by outsourcing. It also was well-known that the origin of the bubble price in the cosmetics market was caused mainly by the high cost of promotions. So, it was possible to cut down the price by removing TV advertisement. By this logic, MISSHA also persuaded the people who had a question about low price and consumers gained the confidence in ‘good quality’. At the beginning, MISSHA also promoted a famous teenage idol, BOA on TV advertisement. But afterwards, its promotion12 was focused not on the TV but on the on-line promotion, such as memberships and a point system for rewards. MISSHA also took action for off-line promotion with experience marketing, for example, street promotion campaigns, blind tests to let consumers experience product quality.

It kept the on-line site BeautyNet not only to sell cosmetics, but also to acquire information from

internet users. Once online users gave feedback, for example, what functions they need, which color they like, MISSHA was willing to rapidly reflect the suggestions back into the products. Thanks to online users’ help, before mass production13 which was especially concentrated on basic makeup and color cosmetics, management could have many test results.

One of the different strategies from existing companies was that MISSHA operated its main

retailers as franchises14 in the form of ‘brand shops’ where only its products could be sold. Before MISSHA joined the cosmetics market, the distribution channels were composed mainly of specialty stores that sold all possible cosmetics products from many companies. One problem is that price and quality in this distributional structure could not be kept as properly as MISSHA wanted, and another is that most specialty stores were accustomed to using a billing system instead of cash. -The latter was more serious. Even though the existing major companies knew well about these structural problems, it was too difficult to alter the system due to the fact that this was a long-standing traditional practice. MISSHA selected the sole alternative, brand-shops. MISSHA provided brand shops that are equipped with a large floor space and a well-designed interior in spite of initial risks. MISSHA tried to change the old conventional settlement system, that is, a billing based system to increase the company’s cash flow. So, MISSHA adhered to a cash-based settlement system for all brand shops. Finally, this system resulted in profits to both the retailers (brand-shops) and the supplier (MISSHA). Through this newly gained popularity, MISSHA could open new shops successfully in Home-plus, one of the largest discount stores in Jan, 2004.

MISSHA became a pioneer in the low-price cosmetics market, and it broke the common idea

“cheaper is worse” The product price of MISSHA, 3,300 KRW, is not just concept of cost, but it means a symbol of a new rising market. For fixing this price, it tried to get advice from customers. That is, members on the on-line site, and off-line customers as well, were asked to vote, “what price would be affordable to you for the product?” and the price was fixed at 3,300 KRW based on the result. The customers participated in the end as buyers and in the beginning as price setters of the low price cosmetics market. It was possible, by holding down costs of product containers, advertisement and 12 Refer to EXIBIT 15. 13 Refer to EXIBIT 9. 14 Refer to EXIBIT 10.


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distribution channels. So, when MISSHA began to launch a product, it tried to advertise its price rather than its brand. This strategy appealed more effectively to the deliberate consumers who wanted both maximum utility and a low price. Almost all first visitors asked the same question “Unbelievable, how is it possible to get this price?” Mr. Seo said:

“Cosmetics products should become a daily commodity, like shampoo, soap and lotion as we can

see the age group of the cosmetics buyers expanded from the young generation to the elderly and from women to men. So, what is important in the cosmetics industry is how to make cosmetics effectively and productively with the same materials. The MISSHA objective is to make the good quality product targeting all generations. Anyone can do this, but MISSHA is the first to do it. The company’s spirit is here in it and this frontier mind is the core strategy in the market.”

Competition

Because of the cosmetics market has a low entry barrier, followers such as THEFACESHOP and DODO Club have entered and started to threaten MISSHA. Many large corporations such as AMOREPACIFIC, LG Household & Health Care, and Somang Cosmetics have come into the brand shop market15 with advanced technology and brand power. These brand shops of large corporations have been operated with 30~50% of their own products in contrast to MISSHA and THEFACESHOP, which operate by selling 100% of their own products.

THEFACESHOP

THEFACESHOP with the brand concept, ‘Natural Story’, entered the market in Dec, 2003 with a

strategy similar to MISSHA’s, especially in terms of distribution channels and the lowest price. However, its special aspect was that it achieved a brand image of being higher quality than MISSHA for using a ‘natural, well-being’ brand concept.

WoonHo Jung, the CEO of THEFACESHOP, said, “Customers’ needs coincided between a well-

being lifestyle and the lowest price cosmetics, which is the differentiation strategy of THEFACESHOP.” THEFACESHOP is equipped with a total beauty care system from basic products to hair care, and

body care products with main natural ingredients such as fruits and plants. All the shops have attracted customers with luxury interior plants. There is a Zelkova tree in the middle of each shop and the shops display fruits and Chinese herbs. An advertisement featuring Sangwoo Kwon, who is one of the healthiest Korean actors, has also attracted customers pursing ‘well-being’ life.

Although THEFACESHOP entered this market late, its annual sales was 90billion KRW in 2004,

it had 200 offline shops in Dec, 2004, and is planning to extend its brand shops globally.

DODO Club A DODO cosmetic, which is famous for tone color, has newly launched the DODO Club with the

brand concept, ‘Fun & Feel’ in Mar, 2004. DODO Club also has special brand shops, and uses the same distribution channel as other low price cosmetic companies. DODO Club is targeting 13~30 year old customers, and is following the business model of providing products at a reasonable price.

JongBoong Park, the CEO of DODO Club, said, “What DODO Club is focusing on as a follower

in this market is not cutthroat competition with the leader, but a foundation with stable affiliated business



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to guarantee maximum profit.” DODO Club is providing customers with fun through experience marketing by encouraging

customers to use its products. DODO Club is also carrying out various marketing activities and events online through mini-homepages of Cyworld (http://cyworld.nate.com), the No.1 mini-homepage and community site in Korea, and it also uses blogs of Naver (http://www.naver.com), the No.1 portal site in Korea.

Hue Place

AMOREPACIFIC cosmetics, the No.1 cosmetics giant in Korea, opened its special brand shop,

Hue Place, in Jul, 2004. ‘Hue’ means resting in Chinese, and tone, color, and make-up in English. Hue Place provides customers with a new space where they can experience skin rest and trendy colors. Since the first shop in BongCheon in Jul, 2004, the number of shops has grown to over 100 as of Sep, 2004 and it plans to open over 300 shops in 2005.

The differentiation strategy of Hue place has three main points. 1. Hue Place provides a comfortable space to shop conveniently. 2. Hue Place is a special cosmetics shop for pursuing service with kindness. 3. Hue Place is a reliable brand and gives different counseling with respect to different

commercial regions.

Beautiplex LG Household & Health Care, the No.2 cosmetics giant in Korea, opened the elegant and

beautiful Beautiplex brand shop in front of SungShin Women’s University in Sep, 2004. Beautiplex is a new multi-brand shop that mixes various home and foreign products. Beautiplex includes ISA KNOX, HERCYNA, Elastine, and LacVert, as LG Household & Health Care’s products, and includes H2O+, HARD CANDY, and SMASHBOX as famous overseas brand.

Customers can test all products without charge. Special consultants provide nail care, make-up

and skin diagnosis suggestions through one-to-one consulting service.

Beauty Credit Beauty Credit with its ‘in-out double care’ slogan entered the market in Nov, 2004. Beauty Credit

is different from the low price brand and previous brand shops. Beauty Credit focuses on products’ quality not only by using the best OEM manufacturing companies, but also by operating a refund system in accordance with customer needs for any reason. Beauty Credit operates a special room to provide customers with skin massages and it provides tailored service by offering consulting on their hair.

Beauty Credit adopted PPL(Product Placement) marketing to advertise its brand widely. The

advertisement was a sponsor of popular drama ‘A New Employee’, and the main character worked in a cosmetics company. Inside the drama itself, Beauty Credit revealed its brand and products successfully.

Globalization

MISSHA has entered the global market to provide all the customers around the world with top-quality and reasonably priced beauty products. This is based on the success of the low price cosmetics in the domestic market since 2004. After the beginning of the first overseas shop in Sydney, MISSHA


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opened shops in Hong Kong and Mongolia in Dec. 2004. MISSHA could export its business model without an intermediate channel into the global market by extending their overseas shops in Mexico, Vietnam, and U.S. in 2005.

Able C&C Corporation, which manufactures and sells MISSHA brand, has cooperated with

“Livedoor” (a major Japanese online group) and they started to sell MISSHA products in an online shopping mall, MISSHA Japan16 (www.misshajp.com). MISSHA Japan is mainly targeting women in their 20s and 30s and is selling about 200 products such as foundation, color tone, and body care products. MISSHA Japan, which is similar to BeautyNet (www.beautynet.co.kr) in Korea, has been used not only as an online shopping mall but also a community to female netizens. Able C&C is planning to open offline shops in Nagoya and Tokyo in Nov, 2005.

With the wave of Korean entertainment, Able C&C Corporation has cooperated with A.S. Watson

Corporation which is the largest special channel corporation and opened three brand shops in 2005 located in a central commercial area with plenty of traffic. Able C&C Corporation is planning to enter in Taiwan, Malaysia and England, through Watson’s infra networks.

In U.S, Able C&C opened a MISSHA brand shop on 5th Avenue in New York, a representative

place of U.S cultures. Many people worried about this opening because the image of NY, richness and abundance, might not be conducive with the MISSHA brand concept. But Mr. Ham, marketing manager said that U.S customers were more reasonable compared to Korean customers, and if MISSHA could find reasonable consumers anywhere, it would not be in conflict with the original MISSHA policy.

Able C&C currently operates 34 offline shops in nine countries, the U.S., Australia, Singapore,

Hong Kong, Mongolia, TAIWAN, Vietnam, Mexico and Thailand, and one online shopping mall in Japan. MISSHA is planning to extend to at least 80 global offline shops by the end of 200517.

Going Forward

Although sales are growing in the global market, the global sales volume grows relatively slow compared to domestic sales, and there are no meaningful net earnings. Yoonjung Cho, analyst of Hyundai Securities, said that “The most important thing is the domestic market base. Even AMOREPACIFIC, the No.1 market leader in Korea, isn’t greatly successful in the global market. Investors cannot help but ask themselves whether MISSHA could successfully enter the global market after overcoming little brand exposure.” Success in the international market seems to be shrouded in mystery. As MISSHA specialties were copied in the domestic market, they also can be copied in foreign countries by their domestic competitors.

Due to fierce competition, especially by THEFACESHOP, Able C&C launched another brand,

‘Cosmetic.Net’, and to changed its brand name to ‘Swiss Pure’. The brand concept of Swiss Pure is similar to THEFACESHOP. It is based on well-being and a natural image. However, because of strong positioning in this segment by THEFACESHOP, Able C&C cannot help but hesitate in taking aggressive action through Swiss Pure. Able C&C hopes Swiss Pure can be an alternative solution to customers of THEFACESHOP. Unfortunately Swiss Pure brand is not yet a string product because customers are not familiar with it, as they are with THEFACESHOP or other many brands. The price of Swiss Pure products ranges from 1,000 KRW to 15,000 KRW.

Although there have been several trials including launching the Swiss Pure brand, Able C&C is

gradually losing its leading position, especially to THEFACESHOP. In 2005, total sales and the number

16 Refer to EXIBIT 14. 17 Refer to EXIBIT 13.


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of brand shops of THEFACESHOP beat MISSHA. Total sales of MISSHA brand shops are similar to last year, but sales per brand shop are shrinking as the number of brand shops increases. The eyes of investors are watching MISSHA with wonder, and its stock price continues to go down. Some investors think that ‘Quality Base MISSHA’ concept fails to appeal to consumers, because most people regard emotional aspect as the most important factor when they choose cosmetic products. Other investors think that only low price products set limits to MISSHA.

According to a customer survey18, low price products will be continually preferred by customers

for a few years. MISSHA should take some action to overcome this struggle. What action is the best solution for MISSHA? Can MISSHA lead the low cost market and survive in strong competition?

Question

1. Should Able C&C support or change the ‘Quality Base MISSHA’ brand concept? 2. Should MISSHA sustain the low price product line or add mid/high price produce line? 3. Should Able C&C focus on MISSHA or empower Swiss Pure? 4. Should MISSHA focus on the domestic market or on the international market? 5. What action should MISSHA take now?



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EXIBIT 1. Company Chronology

Date Main Event

2000. Jan. Able Communication Founded

2001. Jan. Women’s Portal ‘BeautyNet.co.kr’ opened

MISSHA Brand Launched on BeautyNet

2002. Mar. 1st MISSHA off-line shop opened in the Ewha Women’s University area

2003. Jul. Company Name Changed to Able C&C

2003. Aug. 1st MISSHA Franchise Shop Opened

2003. Dec. Over 1 million BeautyNet Membership Registered

2004. Jan. 1st MISSHA Membership Card issuing

2004. Mar. 100th MISSHA Franchise Store Opened

2004. May. MISSHA Received HanKyung Marketing Award

2004. Aug. Over 2 million BeautyNet Membership Registered

200th MISSHA Franchise Store Opened

Established ABLE C&C USA Corp.

2004. Sep. 1st MISSHA Overseas Shop Opened in Sydney

2004. Nov. 2nd MISSHA Overseas Shop Opened in Singapore

Awarded Grand Prize in Korea E-Commerce Awards

2004. Dec. 3rd MISSHA Overseas Shop Opened in Hong Kong

MISSHA Membership Card 1.6 million issuing

Cosmetic.Net Membership 45,000 people

MISSHA 111 billion KRW revenue

2005. Jan. Launch of Three Shop in Taiwan

2005. Feb. Starting Transaction in KOSDAQ market

2005. Apr. Launch of Three Shop in Mexico

Awarded Global Marketing Prize (The Korea Economic Daily)

2005. May. Launch of MISSHA Brand Shop in New York, USA

2005. Jun. Launched in “E-Mart” hypermarket.

2005. Aug. Launched a shop in Thailand

Launched MISSHA Online Shopping mall in Japan

Cooperation with “Livedoor”, Japanese major online group

(Source: Able C&C web site (http://www.able-cnc.com), 2005)


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EXIBIT 2. Summary of Financial Statement

Summary Income Statement(KRW Million)

2002 2003 2004 2005 1Q 2005 2Q

Sales 3,314 12,959 111,423 33,041 32,381

Cost of Goods Sold 1,373 4,888 48,078 13,732 14,071

Gross Profit 1,940 8,071 63,344 18,649 18,970

SG&A Expenses 1,769 5,035 43,690 16,083 14,361

Operating Profit 172 3,036 19,654 2,566 4,609

Pre-tax Profit 115 2,871 20,697 2,166 5,311

Net Profit 92 2,193 14,701 1,697 3,927

Sales occurs 10% by on-line purchase, 90% by off-line brand shops.

(Source: Able C&C financial statement disclosure, 2005)

EXIBIT 3. Stock Price of Able C&C

(Source: Good Morning Securities, 2006)


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EXIBIT 4. Cosmetic Market Volume in Korea (Domestic Company)

2002 2003 2004

Revenue Share Revenue Share Revenue Share

Amore

Pacific 8,906 15.36% 9,254 17.14% 10,720 19.24%

LG

Household &

Health Care

3,734 6.44% 3,206 5.94% 3,632 6.52%

Coreana 2,949 5.05% 1,726 3.20% 1,800 3.23%

Able C&C 33 0.06% 130 0.24% 1,100 1.97%

Hanbul 1,474 2.54% 1,001 1.85% 1,001 1.80%

Hankook 1,376 2.37% 858 1.59% 893 1.60%

Charmzone 654 1.13% 629 1.16% 629 1.13%

Kolmar 581 1.00% 512 0.95% 594 1.07%

Cosmax 280 0.48% 259 0.48% 275 0.49%

(KRW: 100 Million)

(Source: Able C&C internal data, 2004)

EXIBIT 5. Cosmetic Market Volume in Korea (by Distribution Channels)

Category 2000 2001 2002 2003 2004 2005E

specialty store 18,920 18,844 18,328 15,183 10,641 9,493

Visit selling 5,280 7,673 9,860 10,800 10,744 10,853

Direct selling 7,040 8,770 8,468 5,292 4,215 4,435

Department Store 5,280 6,890 8,758 9,783 9,495 9,757

Discount Store 2,640 3,236 3,828 4,320 4,421 4,540

On-line market selling 4,840 6,786 8,758 8,586 8,482 8,610

Low cost brand shop - - - - 3,599 4,700

Total Market Volume 44,000 52,199 58,000 53,946 51,561 52,388

Growth rate 22% 19% 11% -7% -4% 2%

(KRW: 100Million, E: Expectation)



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EXIBIT 6. BeautyNet portal

(Source: BeautyNet web site (http://www.beautynet.co.kr), 2005)

EXIBIT 7. On-line Customer Status

under 19 20~23

(college student)

24~28

(employee)

over

29(housekeeper)

purchase amount 6,000 8,500 10,000 11,000

details allowance allowance/

part time jobfull time job living expenses

sales weight 10% 36% 32% 22%

repurchase ratio 15% 37% 32% 16%

(KRW: won)



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EXIBIT 8. MISSHA off-line brand shop

EXIBIT 9. MISSHA products


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EXIBIT 10. Sales per a Franchise of Able C&C

January June November

number of franchise 52 158 228

franchise sales 3,833,270 7,328,537 7,056,630

sales per franchise 73,716 46,383 30,950

sales growth rate per franchise - -37.08% -33.27%

(KRW: 1000 Won)


EXIBIT 11. Brand Shop status in low price market

Numbers of Brand Shops

Brand Shop 2002 2003 2004 2005. 7

MISSHA 3 45 255 290

THEFACESHOP - 1 240 310

Others (Beauty Credit,

DODO Club, etc)

- 4 20 154


EXIBIT 12. Marketing Cost (The first half of 2004)

AMOREPACIFIC LG Household & Health Care Able C&C

advertising costs 67,665 35,005 4,965

sales promotion costs 26,895 23,383 2,587

sample costs 1,503 9,834 320

Total 96,063 68,222 7,872

Revenue 602,151 513,922 47,891

Total / Revenue (%) 15.90% 13.30% 16.40%

(KRW: Million)

(Source: Financial Supervisory Service, electronic disclosure data)


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EXIBIT 13. MISSHA Global Expansion

(Source: Able C&C web site (http://www.able-cnc.com), 2004)


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EXIBIT 14. MISSHA Japan on-line site

(Source: MISSHA Japan web site (http://www.misshajp.com), 2005)


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EXIBIT 15. MISSHA advertisement


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EXIBIT 16. Customer Survey about Cosmetic Preference

Preference in Mid/High price Preference in cosmetic companies

1 AMOREPACIFIC 38.1% 1 AMOREPACIFIC

2 LG Household & Health care 27.1% 2 THEFACESHOP

3 Somang cosmetics 10.9% 3 LG Household & Health care

4 Able C&C

Preference in Low price

1 MISSHA 56.0% Preference in Price characteristics

2 THEFACESHOP 33.0% 1 Low Price Products 54.8%

3 DODO Club 5.2% 2 Mid/High Price Products 34.5%

4 Beauty Credit 0.039

Preference in Choosing Cosmetics

2005. Mar. Data 1 Quality 54.2%

2 Brand 28.1%

3 Reasonable Price 17.0%

2005. Aug. Data

(Source: Brand Stock Top Index, (http://www.brandstock.co.kr) )


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EXIBIT 17. THEFACESHOP and DODO Club

EXIBIT 18. Beauty Credit and Hue Place

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