How This Start-up is Feeding Southeast Asia’s K-Beauty Obsession
Althea raised a Series B with top regional and Korean investors
PHOTO CREDIT: Getty Images
While Korean dramas are much beloved across Southeast Asia, it turns out their shows are not the only in-demand export from the country.
When Korean Frank Kang was living in Malaysia, he would always get requests from friends to bring back Korean beauty products whenever he travelled back home.
It was then he had his eureka moment. He, along with Christopher Cynn and Jae Kim, launched Althea, an e-commerce site focused on Korean beauty products such as cleansers, toners, eye creams, sheet masks, makeup, and the like.
“When we did our research, we discovered that there was huge unmet demand for Korean beauty in the region so we started the business to address that demand,” says David Chang, the head of marketing and business development at Althea.
According to Chang, what makes Korean beauty products stand out is because these companies are forced to innovate, owing to the demanding and fickle nature of Korean consumers. Such innovation manifests in the product development process: Where other countries might take two years to develop a product, a Korean company can do so in months.
“One example of how this innovation manifests itself is in the type of ingredients that are used in Korean beauty which range from snail mucus and horse oil to 24k gold and watermelon,” says Chang, who notes that Korean beauty products are also known for being a great value product, costing a fraction of their Western counterparts.
Chang says Althea generally targets women between the ages of 18 through 35, who are well-educated, urban, working class professionals. Althea targets this market through a combination of influencer marketing and paid digital channels. In Southeast Asia, Althea is active in Malaysia, Singapore, Philippines, Indonesia, and Thailand.
When they enter a market, the company typically engages between 100 and 200 top beauty influencers in the country.
“When we officially launch our website, they act as our advocates and create awareness among their followers, [who are] a highly relevant audience. We then capitalize on this interest with a combination of keyword campaigns, Facebook campaigns, and video campaigns,” says Chang.
When Althea was founded, the team was confident about being able to sell the handful of Korean brands that already had significant international presence. What surprised them was that their customers have also adopted the lesser-known brands.
“Over the last 2 years, we’ve managed to build up our authority and credibility as a Korean beauty expert to the point where over half of our sales are from brands that have no presence outside of Korea,” says Chang.
He shares the biggest challenge has been scaling the team relative to the needs of the business, especially since they’ve tried to stay very lean.
“Fun fact: until fairly recently our CFO used to moonlight as our webmaster,” he says, before noting, “But now that we’ve reached a certain scale and are moving into the next phase of our business we’re actively bringing in more industry experts.”
In the third quarter of 2017, Althea raised a Series B with top regional and Korean investors, including some who invested in previous rounds. Althea also launched its own product called Petal Velvet Powder; its first batch quickly sold out within the first month.
The start-up plans to focus aggressively on producing more of these private brand products, including three additional entries into their skincare line which will launch this quarter.
“We are also actively working with top-tier celebrities in the region to create collaboration lines for color cosmetics. All told, we expect to have comprehensive private brand line by the end of 2018. We also intend to expand into the remaining countries in the region where we currently do not have a presence, specifically Hong Kong and Vietnam,” says Chang.
Focus, localize, and grow sustainably
Althea’s foray into its own branded products reflects the advice Chang offers to e-commerce entrepreneurs in Southeast Asia. One, they should focus. Incumbents are large and well-funded, but there are niche verticals that still do not have a clear market leader. Two, product offerings need to be localized, including everything from country-specific domains, apps and sites in the vernacular, prices benchmarked to competitors, and going to market with local influencers.
Lastly, Chang advises e-commerce entrepreneurs to grow sustainably. He points out that investing significant amounts of capital into digital marketing to acquire customers usually brings in users who have poor lifetime value to the company. He instead recommends building an authentic relationship with your customers.
“For example we rarely pay cash to the influencers we work with. Instead we try to find influencers who are genuinely interested in Korean Beauty and would have been one of our customers anyway. It takes longer to cultivate these relationships but when it comes to beauty authenticity is incredibly important and customers can tell whether an endorsement is genuine or not,” he says.