LG Household & Health Care turns to 'external DNA' to overcome crisis: can it recreate Cha Seok-yong success story?

[Korea Financial Times, Park seulgi] LG Household & Health Care returns to 'external CEO' system after three years. Industry attention focuses on whether the company will recreate the success story of former CEO Cha Seok-yong, an external hire who led LG Household & Health Care's golden era.

On the 29th of last month, LG Household & Health Care appointed President Lee Sun-joo, a veteran of global cosmetics company L'Oréal, as new CEO. Considering LG Group's regular executive appointments typically occur in November-December, this represents an early replacement approximately two months ahead of schedule. This is interpreted as reflecting LG Household & Health Care's sense of crisis and commitment to strategic change.

Since its spin-off in 2001, LG Household & Health Care has been led by four CEOs. Following 'traditional LG men' Cho Myung-jae (2001-2003) and Choi Seok-won (2003-2005), external hire Cha Seok-yong took the helm of LG Household & Health Care in 2005.
Former Vice Chairman Cha, though an outsider, is recognised as having significantly grown the company while holding his position for 18 years. Lee Jung-ae, who took office in 2022, was an orthodox 'LG man' who joined in 1986 and worked only at LG for 38 years, leading the company for three years.

However, newly appointed CEO Lee Sun-joo has no work experience at LG. She is a marketing specialist from global cosmetics brand L'Oréal who has worked across various brands including Kiehl's, Yves Saint Laurent, Mediheal, and AHC. CEO Lee is particularly renowned as the person who grew Kiehl's in the domestic market, elevating Korea to the global second-largest market after the US in Kiehl's sales.

Building on this, she rose to senior vice president of Kiehl's International Business Development. Subsequently, she propelled Kiehl's to become the second-largest brand within L'Oréal's luxury division, more than doubling global sales.


She gained experience not only in beauty but also in beverages. Until recently, she served as CEO of domestic coffee brand Terarosa, overseeing overall business operations. Considering LG Household & Health Care's business structure encompassing both cosmetics and beverages, his background can be characterised as 'customised personnel selection'.

The direct background for LG Household & Health Care's bold recruitment of external talent is deteriorating performance. This is interpreted as LG Household & Health Care judging it can no longer rely solely on internal personnel for brand rebuilding and global strategy formulation.

External hire Cha Seok-yong, who led LG Household & Health Care for 18 years, implemented approval process simplification, executive meeting reduction, and brand restructuring through 'selection and concentration' following his appointment.

He reduced household products brands from 39 to 32 and cosmetics brands from 16 to 13, intensively nurturing premium brands such as O HUI and The Whoo to increase market share and sales. After CEO Cha's appointment, LG Household & Health Care's overall operating profit returned to an upward trend within eight quarters.

LG Household & Health Care's second-quarter consolidated sales this year were KRW 1.6048 trillion, down 8.8 percent from the same period last year, and operating profit fell 65.4 percent to KRW 54.8 billion.
Particularly, the core beauty business recorded only KRW 604.6 billion in sales, down 19.4 percent, and posted an operating loss of KRW 16.3 billion, turning to deficit. This marks the first quarterly loss for LG Household & Health Care's beauty division in approximately 20 years.

According to FnGuide statistics, LG Household & Health Care's third-quarter performance estimates show sales down 4.9 percent year-on-year to KRW 1.6294 trillion and operating profit down 41.8 percent to KRW 61.8 billion. Performance deterioration causes include excessive dependence on premium brand 'Whoo', Chinese market concentration, and insufficient pace of global diversification strategy.

Indeed, competitor Amorepacific has already entered recovery mode by reducing Chinese dependence and strengthening North American and Southeast Asian strategies.

An industry insider stated: "In the past, LG Household & Health Care was evaluated as a more stable company than Amore, but now Amore is narrowing the gap by expanding global business more aggressively."

Key challenges CEO Lee must address are clear: global rebranding of The Whoo and SU:M37°, reducing Chinese dependence and strengthening North American and Southeast Asian competitiveness, expanding new categories such as beauty devices, and aggressive mergers and acquisitions (M&A) strategy. Above all, the key question is whether he can lead The Whoo's resurgence based on his experience growing Kiehl's into the global second-largest brand.

Key challenges CEO Lee must address are clear: global rebranding of The Whoo and SU:M37°, reducing Chinese dependence and strengthening North American and Southeast Asian competitiveness, expanding new categories such as beauty devices, and aggressive mergers and acquisitions (M&A) strategy. Above all, the key question is whether he can lead The Whoo's resurgence based on his experience growing Kiehl's into the global second-largest brand.

Share price movement remains sluggish due to performance anxiety.

The share price, which stood at KRW 305,000 (closing basis) at year-end last year, fluctuated this year before sliding to a 52-week low of KRW 281,000 on September 26, remaining at KRW 281,500 as of October 17. This places additional pressure on CEO Lee's shoulders.

Kim Myung-joo, researcher at Korea Investment & Securities, projected: "LG Household & Health Care is now undergoing the process Amorepacific previously experienced when adjusting duty-free channels for price normalisation in China. Duty-free sales weakness is likely to continue through the first half of next year, and the pace of structural improvement is also likely to be maintained."

However, if performance recovery succeeds through successful brand rebuilding and global market diversification, share price reassessment probability is high. Variables include internal organisational resistance and intensifying global competition, but success or failure will be determined by how quickly the CEO with external DNA can transform organisational culture and secure execution capability.

Regarding the background for recruiting President Lee, LG Household & Health Care explained: "We judge him as the right person to lead a step-up of Household & Health Care's cosmetics business by demonstrating excellent marketing acumen derived from diverse brand marketing and business experience as a L'Oréal veteran, a global cosmetics company."

Park seulgi (seulgi@fntimes.com)