South Korean beauty giant Amorepacific is mulling drastically reducing the number of its Chinese stores amid faltering sales, while also ramping up efforts to expand its luxury portfolio and online sales.

President Kim Seung-hwan reportedly hinted at a strategic shift in the company’s China business in a meeting with local analysts this week.

As of 2019, Amorepacific operated 1,280 stores of five budget brands -- Hera, IOPE, Mamonde, Etude and Laneige -- in China. In 2020 that number fell to some 800 due to the coronavirus pandemic.

The Innisfree brand alone saw its number of Chinese stores shrink from 610 to 280 last year.

“We aim to reduce the number of Innisfree stores to some 140 next year,” an Amorepacific spokesperson said on the condition of anonymity.

But the official denied that the latest downsizing is due to sluggish sales in China, saying the measures are being taken as part of its strategic shift focused on its lineups of high-end products and e-commerce sales.

Analysts say the move is in response to more affordable Chinese cosmetic brands gaining hold in the country. Innisfree is no longer an attractive brand for Chinese customers, as the market sees more domestic cosmetics brands pop up with products of the same or better quality.

“C-beauty is showing strength in the color cosmetics sector. Chinese customers tend to purchase budget color cosmetics from homegrown brands, while preferring to buy higher-priced, luxury skin care products from foreign brands,” explained analyst Jeong So-hyeon from Kyobo Securities.

According to data from the Financial Supervisory Service, Amorepacific’s operating profit in the third quarter dipped 10.2 percent from the previous year. Much of the losses were generated from Innisfree‘s more than 50 percent sales drop in China, Jeong explained.

In line with downsizing its retail stores, the firm plans to focus resources on growing the e-commerce front in China. Its goal is to increase the proportion of sales generated from digital platforms like TikTok and short video platform Kuaishou to 30 percent.

Amorepacific will also focus more on its luxury cosmetic brands like Sulwhasoo. The beauty giant said it will display more high-priced skin care products at its remaining Innisfree stores, while reducing the number of cheaper products, such as sheet masks and face cleansers, with lower profit margins.