Chinese beauty tourists stabilise Japanese market

Tourist spend offsets impact of Japan’s shrinking population

Japan’s struggles with an ageing and declining population have been frequent sources of angst for many sectors of the national economy in recent years, not least the cosmetics and personal care products industry. And while its domestic sales maintained moderate growth in the three years from 2012, there has been concern about the plateau that Japanese consumers would inevitably reach and the decline that would follow. The reason is simple – Japan’s population is now 126 million; in 2000 it was 126.9 million; and by 2050 it is projected to have plummeted to 97 million.

If this trend continues, it is hard to imagine Japan’s personal care product sector maintaining sales. 

Chinese tourism

For the time being, however, it is being boosted by sales to foreign tourists, who are visiting Japan in increasing numbers. Chinese shoppers are particularly important. Indeed, in 2015 the number of Chinese visiting Japan soared 90% on the previous year to 4.65 million, according to the Japan National Tourism Organisation.

Four years ago, few would have predicted the importance that foreign tourists would have on their overall sales at home, but 2015 is looking like it will be another good year for Japan’s personal care companies.

Preliminary statistics from Japan’s Ministry of Economy, Trade and Industry suggest that domestic sales of all personal care products were up 1.3% in terms of value in 2015, year-on-year. And in volume terms, the 2.911 million personal care product items sold domestically rose 1.1% on the previous year. When compared with figures from Japan’s Ministry of Internal Affairs and Communications, showing that spending on cosmetics in 2014 by domestic consumers shrank 3.3%, the importance of tourists’ purchasing power becomes even more evident.

Rising tourism numbers have been one of the few economic bright spots for the government of Prime Minister Shinzo Abe, who in 2014 set a target of 20 million foreign arrivals in 2020, the year that Tokyo will host the Olympic Games.

Thanks to easier visa regulations, cheaper and more frequent flights by low-cost carriers and a weakening Japanese yen, that target was nearly surpassed in calendar 2015, prompting the Japanese government to set its sights even higher. It set a new target in March (2015) of 40 million visitors in 2020, with a total spend of around ¥8 trillion (US$73.2bn).

The Japanese government hopes this spending will grow. It wants to see Japan welcoming 60 million visitors and attract spending of ¥15 trillion ($137.2bn) by 2030.

Japan beauty & personal care market, US$m, constant 2015 prices, year-on-year % change

Categories 2015 %+/-
Beauty & personal care 32,149.7 -0.4
Baby & child-specific products 367.8 -2.8
Bath & shower 1,792.5 0.0
Colour cosmetics 5,733.8 -0.2
Deodorants 415.6 -1.1
Depilatories 204.9 -0.5
Fragrances 413.4 0.0
Hair care 5,339.3 -1.4
Men’s grooming 1,670.7 -0.7
Oral care 2,276.1 1.6
Oral care excl power toothbrushes 2,039.4 1.7
Skin care 14,102.6 -0.5
Sun care 374.8 1.2
Sets/kits 2,098.3 -0.1
Premium beauty &personal care 12,354.6 -0.2
Mass beauty & personal care 16,846.6 -0.8

Source: Euromonitor International

How does beauty benefit?

Of that spend, a significant portion goes on personal care sector products, thanks to the reputation for high quality that Japanese manufacturers have built over the years, in particular among visitors from other parts of Asia.

And companies are, inevitably, looking to make the most of this new market opportunity.

“Inbound [tourist] sales are expected to come to ¥16bn ($146.3m) in our 2016 fiscal year [1 April-31 March], which will provide a significant boost to our overall sales and profit,” says Minako Hata, a spokeswoman for Kosé Corp. “We aim to make this trend continue in order to acquire more inbound customers and to expand our market share,” she tells SPC.

Kosé’s 2015 fiscal year total beauty sales are estimated to come to just under ¥237bn ($2.16bn), up an impressive 17.3% year-on-year, she says, with brands such as Cosme Decorté, Visée, Esprique, Jill Stuart and the Stephen Knoll Collection all faring well. Meanwhile, Kosé’s Sekkisei has evolved into the global brand that the company envisioned, while its Liposome Treatment Liquid skin lotion, part of the Cosme Decorté brand, has earned a number of awards.

Kosé – which celebrated its 70th anniversary of operations on 2 March – sold around 60,000 170ml bottles of Liposome Treatment Liquid in the six months after it was released in September 2015. The lotion is a blend of the root of butcher’s broom and extracts from the leaf of the loquat, which interacts with the cells in the outermost layer of the skin to improve moisture and transparency.

Another Japanese major, Kanebo Cosmetics, has also reported that sales to foreign tourists “have remained strong for the second year in a row”, according to Shinji Yamada, a spokesman for the Tokyo-based company.

Products like Kosé’s Cosme Decorté Liposome Treatment Liquid and Kanebo’s Suisai Beauty Clear Powder are popular among tourists to Japan

“Suisai Beauty Clear Powder [a cleanser] is still very popular, with monthly production sometimes three times the amount we were producing in 2014, and sales for the entire Suisai brand jumping to three times that of 2014,” he says.

Kanebo is also leveraging its cosmetics success with visitors by selling branded tights – with its Kanebo Excellence range “selling strongly among foreign tourists”, Yamada says, along with its Freeplus and Kate personal care products.

Duty free takes off

A major incentive for foreign consumers has been the introduction, in October 2014, of new rules on buying duty free products that extended the designation to beauty and personal care items. This has changed the tourist market. While previously it was the premium brands that had attracted the big-spending visitors, this has now expanded to other price points in the market, with outlets ranging from drugstores and pharmacists to convenience stores all looking to meet the needs of inbound tourists.

To make tourists’ lives even easier, airport-style duty free shops are being established in Japanese cities, which allow customers to buy items without the 8% consumption tax and other duties usually charged, and then collect their purchases at the airport as they depart Japan.

The Mitsukoshi department store in Tokyo’s upmarket Ginza district opened a duty free outlet in late January, while Takashimaya Co is working with All Nippon Airways Trading Co and South Korea’s Hotel Shilla Co to set up a similar boutique in early 2017. Takashimaya is also planning another duty free outlet at its Osaka department store.

Meanwhile, some of Japan’s largest brands are being even more proactive as they reach out to a new customer base.

Shiseido, for example, has equipped its staff at many specialist outlets with tablets that can provide descriptions of its products in multiple languages, while a new app developed in conjunction with IBM permits its nearly 10,000 beauty consultants in Japan to provide new customer services, inform them of product improvements and social media innovations.

One module on the app sets up a virtual community for beauty consultants, enabling them to share tips and tricks as well as commenting on each other’s ideas.

Pola Orbis Holdings started English-language classes for staff working with its premium Three skin care and cosmetic brand, while Fancl Corp, which manufactures cosmetics and dietary supplements, has increased numbers of sales staff who speak foreign languages at its flagship Ginza store.

The silver yen

Of course, while foreign tourists are accounting for an increasing proportion of sales, Japan’s cosmetics and personal care companies know they need to keep their core customers happy with new and improved products and services. And given Japan’s ageing population, that means providing products for an older demographic.

“Consumers in this age group have relatively high disposable incomes and it is commonly believed that they have a positive and forward-looking attitude, resulting in active consumption as they want to invest in high quality products in order to maintain a youthful appearance,” concluded market research group Euromonitor International in its most recent report on the condition of the Japanese beauty and personal care market.

Analysts believe consumers aged over 60 will account for more than half of all Japanese beauty and personal care sales within a few years

Consequently, this group of consumers is “the main driving force” in the sector, in particular in the areas of skin care, colour cosmetics, hair care, sun care and oral care.

Companies sensed the opportunities in meeting the needs of the older generation here some years ago, with new launches targeted at this age sector accelerating in 2014.

Shiseido launched its Prior brand range of skin care, hair care and make-up products in January 2015, following the introduction by Kao of its Primavista Dia make-up collection range, Kanebo unveiling Coffret D’or make-up and lipstick and Kosé releasing its Elsia skin care, hair care and make-up collection.

Analysts believe consumers aged over 60 will account for more than half of all Japanese beauty and personal care sales within a few years, so many manufacturers have carved out a new niche – known as ‘pre-senior’ – in an effort to develop a long term relationship with the consumer.

“We renewed our Evita brand in September 2015, targeting women over 50 who spent their 20s in Japan’s ‘bubble era’ and are seen as a generation that actively embraces consumption,” says Kanebo’s Yamada.

The brand’s communication and package design have undergone a makeover and now convey a “brighter and more glamorous brand image”, Yamada adds.

Kanebo’s new Twany Glow skin care line is similarly targeting women in their 60s, who need assistance in replenishing the essential oils in skin that has a low sebum content. The range is comprised of a cleansing cream, facial soap, lotion, emulsifier and cream, ranging in price from ¥1,000 ($9.15) to ¥5,000 ($45.73) and utilising pure, naturally-derived oils.

The company’s prestige and mass brands have also fared well this year, with the Lunasol Chocolate Selection cosmetics range, launched in September 2015, swiftly becoming a bestseller. Lipsticks in its Chicca range have also been impressive, prompting the company to increase the availability to 12 stores by 2018. Similarly, Kanebo’s Kate colour cosmetics range has experienced double digit expansion – both at home and abroad, making it a ‘borderless brand’ that is available throughout East Asia.

Working women

Another sector that manufacturers are trying hard to retain as loyal customers are working women, points out Nicole Fall, Founder of Asian Consumer Intelligence, a trend analysis service that specialises in Asian markets.

“Statistics demonstrate that more women in Japan are staying on in the workforce than previous generations to pursue careers,” she says. “This now means lifestyles are increasingly time-pressed, creating more demand for skin care products that fulfill more than one function.”

Fall recalls how multifunctional skin care products became an entrenched part of Japan’s personal care product market, having first come to the forefront with the success of the now classic BB cream in 2007.

South Korean companies led the way, with “Korean skin care… experiencing its first boom in Japan and an item that could double as scar cover, serum, UV protection and concealer, among other functions, [being] a novelty that passed muster among then price-conscious consumers looking for functional elements at low cost”.

All-in-one skin care products have developed in efficacy in the intervening years, Fall says, and such multifunctional products are very popular among Japan’s time-poor workforce. They are known as ‘jitan-cosme’, with ‘jitan’ an abbreviation of ‘jikan-tanshuku’, which translates as time-shortening in Japanese.

This segment is now worth ¥50bn ($457.18m) a year, with annual sales increasing in double digits every year since 2014, says Fall.

“The ‘jitan-cosme’ market is driven by two factors; busier lifestyles led by women who welcome time-saving skin care solutions without sacrificing product efficacy and, secondly, cost effectiveness,” Fall adds. “In the past, multifunctional products mostly targeted housewives, but now these products are being sought by young working females in their 20s and 30s.”

Male grooming

And it is not just female consumers who are seeking easy and quick-to-use personal care solutions.

“Male-targeted multifunctional products have also begun to grow as a category in Japan over the past few years and for the foreseeable future skin care innovations will centre on time-saving and cost-saving functions, creating new opportunities for companies that can create original multifunctional propositions that are backed by efficacy,” Fall says.

Indeed, the men’s grooming sector is arguably the best performing sector of the Japanese market at present, if tourist consumption is removed from the equation. Purchases are increasing at a steady 3% a year and total sales came to ¥193bn ($1.76bn) in 2014 as Japanese men increasingly adopt more sophisticated grooming regimes.

Mandom remains the leading player in the male grooming and toiletry sector, with a 26% market share; it is particularly tapping into the growing concern among middle-aged men about body odour.

As well as deodorants to make themselves smell fresher, men are also spending on bath and shower products, with sales up 7% in 2014 – this is particularly the case among men aged 30 and above, according to Euromonitor.

Free-from gains momentum

Another emerging trend in Japan is the popularity of natural, free-from and organic products in what Euromonitor suggests is a reaction to concerns over product safety and the environment.

Manufacturers have responded with silicone-free hair care products, such as Unilever’s Lux Luminique and Procter & Gamble’s Hair Recipe.

Interest in this area has also led to the emergence of retailers specialising in natural beauty products and personal care, such as Cosme Kitchen, operated by Mash Beauty Lab Co Ltd, while

Seven & I Holdings, Japan’s largest retailing conglomerate, has launched a new private label skin care brand named Botanical Force, which is free from chemical additives and utilises botanical extracts.

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