cosmetics market japan 2008

Japan Market Outline 2007

Japan’s Retail Market Is The 2nd Biggest Worldwide

Nine Year Market Increase Due To Ease Of Regulations

Distribution System

New Opportunities For Cosmetics Makers

Increased Popularity Of Imported Products

Seido-Hin And Ippan-Hin

Main Market Trends

Solutions On Entering Japan’s Market

Report References & Editors

Cosmetics

© G&S International Japan 2007. All rights reserved.

Japan Market Reports

Cosmetics in Japan

2 © G&S International Japan 2007. All rights reserved.

Japan Market Outline 2007

current market

conditions

Japan’s cosmetic market ...

is the 2nd

biggest worldwide

increased by 170% on imported cosmetics since 2000

changed PAL (Pharmaceutical Affairs Law) in April 2005

is strict on importation and labelling guidelines

has its main market in skin-care-items (~45%): cleansers, crèmes, lotions, bath

items, gels, serums (effective substances), increasingly popular: beauty

machinery, skin patches, spa & massage products, organic & natural cosmetics

market in general

Japan’s cosmetic market is ...

highly potential - but highly competitive

slightly higher in its retail prices than other markets (US, EU)

different in its distribution and retail system (than US, EU)

different in ways to market and advertise a product or a brand

tastes & trends of

Japanese

Japanese cosmetic consumers prefer ...

products of foreign manufacturers (to local, except the big 5)

products with very high quality (to lower mass market items)

products of smaller product sizes than in US or EU (size, weight)

products from well-sounding brands (name, image)

products with skin-caring ingredients (Japanese consumers do have

well understanding about ingredients, preservatives, etc)

product contents that are jelly, soft, mild and smooth

products with little smell (less use of fragrances)

products with bright and light packaging (colours, weight, size)

products with natural ingredients (to chemical ingredients based items)

brands that steadily introduce new products

brands with excellent customer services (store, after-sales-services, etc)

Cosmetics in Japan


Decision makers from Japanese esthetic, nail, and chain salons,

import trading companies, distributors, retailers and manufacturers are

always on the search for innovative products, latest techniques, and

newly-introduced services to be introduced to Japan.

Japan’s retail market is the 2nd biggest worldwide

Japan is the second-largest cosmetics market in the world after only the

U.S.A. According to statistics released by the Ministry of Economy, Trade

and Industry, the size of the Japanese cosmetics market reached US$12.5

billion/Euro 9.4 billion (ex-factory) in 2006.

Today, treatments and services offered by esthetic salons are proactively

introduced into other related facilities such as medical institutions,

fitness clubs, and amusement facilities.

Meanwhile the recent booming Spa market and the introduction of the

market for men's beauty-related goods and services are making Japanese

beauty market further enticing and expanding.

In 2006, the number of esthetic salons in Japan counted about 18,000

and still the Japanese beauty market keeps showing steady growth.

Successful introduction of your products and services to Japan

additionally offers you the chance to expand your business beyond the

Japanese beauty market.

Cosmetics in Japan


According to the Cosmetic Importers Association of Japan,

Japanese imports of cosmetic products reached around JPY 165.4 billion /

US$1.38 billion / Euro1.03 billion (ex-factory) in 2006. This is an increase

of 1.1% compared with 2005.

The volume of import cosmetic products has been increasing for nine

consecutive years since 1998.

Nine year market increase due to ease of regulations

One major factor behind the rising value of import cosmetic is the

deregulation of cosmetics imports in 2001. Another factor is that more

retailers than before outside cosmetics specialty stores are carrying

import cosmetic products, such as large drugstores, convenience stores,

general merchandise stores, variety shops and select shops.

In order to make use of various channels, over 1,000 import-cosmetics

companies are keenly looking for new products and sophisticated foreign

brands.

Due to strict import regulations, the Japanese market has long been

considered a difficult one for foreign suppliers. Starting from 2001, new

rules for import cosmetics are consistent with international standards.

Prior approval for each individual product is not required, so that

products containing ingredients already approved in Japan can be

imported by just making a filing with the local prefectural government.

Cosmetics in Japan


Japanese cosmetics manufacturers can be classified into those that sell directly through their shops,

those that sell through wholesalers, and those that sell door-to-door.

Distribution System

Importers & Wholesalers

Consumer cosmetics preferences are showing a clear polarization to products that offer clear functional benefits (e.g.,

lipsticks that do not rub off easily, skin care products that fights aging and provide protection against ultraviolet rays)

on one hand and products that are inexpensive but may not provide noticeable benefits on the other hand. Such clear

needs or price orientation with no middle ground is leading to changes in the traditional retail and distribution setup.

Retailers are forced to choose personal counseling and other value-added services to justify the higher prices or to

shift to a self-service system for providing lower prices.

Some importers distribute products through wholesalers, while others sell directly to retailers (e.g., department stores,

supermarkets, drugstores). Few wholesalers also conduct business directly with overseas manufacturers, and some

overseas manufacturers sell limited-edition products only to select department stores to target upscale customers.

Cosmetics are rarely handled by the major trading houses.

Cosmetics in Japan


Door-to-Door Distribution

Overseas manufacturers selling door-to-door operate in much the same manner as their Japanese counterparts.

Offices across Japan distribute the merchandise to salespersons, usually women, who sell the products from their

homes.

Most overseas manufacturers start by distributing the products through an authorized Japanese agent to specialty

shops and department stores. After making some headway, the manufacturers then set up branch offices or Japanese

subsidiaries.

The removal of the resale price maintenance system and increased demand coming from younger consumers have led

to the decline in consulting sales. Consumers now exercise their own judgment in choosing the products. This has

resulted in increased cosmetics sales through mass retailers and direct mail.

Cosmetics in Japan


New Opportunities For Cosmetics Makers

It is reputed to be very difficult for foreign cosmetics manufacturers to

access the Japanese market. Indeed, Japanese companies hold almost 70

percent of their home market, with the leading five manufacturers

(Shiseido, Kao, Kanebo Cosmetics, Kose and Pola), accounting for almost

49 percent of total value sales.

However, cosmetics imports have steadily progressed during the last

decade and a detailed analysis of the Japanese market shows new

opportunities for cosmetics makers.

Japan is the third largest cosmetics market after the European Union and

the United States. According to the European Cosmetic, Toiletry and

Perfumery Association, the Japanese market reached a volume of JPY 2,239

billion in 2004 at manufacturing/ex-factory sale prices (MSP). At retail sale

prices (RSP), total cosmetics and toiletries sales grew by 1% to JPY 3,323

billion in 2004, according to estimates.

Cosmetics and toiletries have an important penetration rate. Japan is

ranked only behind Norway globally in terms of per capita annual sales,

with an average of USD 241 spent per person on these products in 2004.

Certain cosmetics and toiletries are considered as essential, and

consumers remain willing to spend on them even when the economic

outlook is poor. Women consider some items as a must during their daily

skin care regime, and wearing at least a little make-up when going out

remains part of the culture in Japan.

The importance of cosmetics in the daily beauty regime of Japanese

http://www.shiseido.com/

http://www.kao.co.jp/

http://www.kanebo-cosmetics.co.jp/

http://www.kose.co.jp/

http://www.pola.co.jp/

Cosmetics in Japan


women, as well as the growing interest of men in grooming

products specially formulated for their needs, may explain

that although the Japanese economy is experiencing only a rather

slow recovery following a lengthy recession, cosmetics and toiletries

sales have not been unduly affected by this weak performance.

Face and body care products form the main and the most dynamic

segment. Skin care products have been growing at an average of 5% each

year since 2002. It is also the segment where competition is at the

highest levels. The make-up segment has been relatively stable over the

recent years, despite a succession of negative and positive years. Hair

care products, the third main market segment, have been decreasing

constantly since 2000 but just recovered last year.

Foreign manufacturers may note with interest that despite their relatively

small market share (2 percent of the total) fragrances may constitute a

good opportunity for them. Contrary to other segments, the competition

from domestic manufacturers is relatively lower. "Major domestic

cosmetics companies have historically invested limited effort in

fragrances, instead concentrating on other sectors.

Japanese manufacturers usually do not have a wide range of fragrances

in their portfolio and they usually propose them at prices slightly

cheaper than foreign fragrances. Many Japanese consumers strongly

associate fragrances to the Western way of life and therefore prefer top

foreign fragrance brands. Since the size of the Japanese fragrances

market is still very small compared to the domestic cosmetics market, it

is costly to create new fragrances exclusively for the Japanese market.

More than 95 percent of premium fragrances sold in Japan would be

non-domestic brands.

Cosmetics in Japan


Increased popularity of imported products

Since the implementation of the new cosmetics law in 2005 (PAL), the

accessibility to the Japanese cosmetic market has greatly improved. Even

if incomplete, the regulatory harmonisation with cosmetic rules

governing cosmetic products in the European Union allowed to reduce

red tape and to decrease administrative costs.

As mentioned above, cosmetics imports have steadily progressed during

the last decade. According to the U.S. Commercial Service, Japan's

imports of cosmetics products increased by 9.4 percent in 2004. The

share of imports compared to domestic production, which also includes

the production by local subsidies of foreign multinationals, reached 11.3

percent in 2004. According to the Cosmetic Importers Association of

Japan, imports of cosmetics products have been progressing at an

average rate of 9.5 percent since 2001. Skin care, make-up and hair care

products account for 70 percent of these imports.

France and the United States are the main foreign suppliers of cosmetic

products in Japan. The two countries contribute 60 percent of the total of

imports. Other main suppliers are China, Italy, the United Kingdom and

Germany.

The most recent figures show that the total of imports slightly decreased

during the first semester of 2005 compared to 2004. Main suppliers

were affected very differently; imports from the US and the UK have

decreased by 6.5 percent and 22.4 percent respectively, while France and

China progressed.

http://www.buyusa.gov/

http://www.ciaj.gr.jp/

http://www.ciaj.gr.jp/

Cosmetics in Japan


Despite the progress of foreign brands on the Japanese

market, it is important to note that while exporting to Japan,

foreign cosmetic makers have to cope with the complexity of the

Japanese market. Even if the regulations have been simplified, the

difference between products classified as cosmetics and those classified

as quasi-drugs may turn into a headache for those falling in the latter

category. It is also very important not to underestimate the importance of

the language and cultural barriers. For instance, Japanese women, as

most Asiatic women, consider their skin to be of a very different type

than European ones. This is a very important fact to take into

consideration, from product development to communication and

advertising.

seido-hin and ippan-hin

Another impediment is the complexity of distribution channels and

business practices in Japan. Retail channels in Japan are usually divided

in two main categories: seido-hin (selective/prestige channel) and ippan-

hin (mass channel).

The first category, which includes department stores, voluntary chain

stores (franchised stores) and certain high-end chain drugstores, is

supplied directly from domestic manufacturers, the subsidiaries of

foreign manufacturers or the importer. There are neither wholesalers nor

distributors involved and this implies trained local staff to manage sales

and logistics. As far as department stores are concerned, they usually

only take care of providing space to selected brands.

When they install a sales area in a department store, cosmetics companies incur substantial costs. In addition to

decoration and other expenses, they also have to shoulder sales staff and advertising costs. These costs and business

habits are usually considered an obstacle to the entry of new brands in this channel.

Cosmetics in Japan


On the other hand, the mass channel (ippan-hin) is usually supplied from independent wholesalers. Other

retail channels include door-to-door selling, direct selling and sales to professionals.

As far as sales results are considered, drugstores perform well and are now the most important distribution channel in

the country. Except for make-up, fragrances and skin care, they are leading the distribution of all products in the

sector. Large multi-storey drugstores selling complementary products, such as health and diet foods, as well as

cosmetics and toiletries and OTC medicines have been replacing small local pharmacies and the fierce competition

between the various chains leads to a strong pressure on retail prices. These Japanese chained drugstores are usually

located in very convenient places such as next to railway stations and inside large shopping malls. Alternatively, they

are located in out-of-town developments with large car parks.

Direct sales and door-to-door channels, which used to be the most popular distribution channels for cosmetics and

toiletries, continue to see a decline in value share. According to JETRO this is to be explained by a change in social

structures. "More women are staying in work after marriage, which is limiting recruitment of the sales personnel

needed for door-to-door sales, as well as the number of consumers who are at home when such personnel call.

Consumers also prefer to shop at retail outlets such as convenience stores and drugstores, where a wider range of

products is available."

Department stores have been strongly affected by the competition of chain drugstores, which have extended their

offer of certain skin care and make-up items and have benefited from the increasing consumer preference for self-

service, rather than counter-service. "The increasing strength of competing channels makes it unlikely that department

stores will increase their share dramatically in the future. The only sector in which department stores will continue to

dominate will be fragrances, where there remain very few alternative channels for purchasing premium fragrance

brands," forecasts the CIAJ.

http://www.euromonitor.com/Cosmetics

Cosmetics in Japan


Main market trends

Within the very specific Japanese environment, there are several trends and opportunities to take advantage of for

cosmetics makers. Ageing is certainly the strongest characteristic of the Japanese society today. More than 30 percent

of the population is over 60 years old already, and the country has one of the most rapidly ageing populations in the

world.

Ageing is likely to boost sales in certain sectors such as hair dyes (75% of hair colours value sales were accounted for

by products to cover grey hair in 2003) or premium skin care products. As in many other countries, Japanese women

and a growing proportion of men are ready to pay premium prices for products that can visibly reduce the external

signs of ageing. "Developing specialised products targeting middle-aged and older consumers and branding that

elevates companies and products above the competition will likely yield successful results, since middle-aged and

older consumers in Japan are generally loyal customers who do not easily change from one brand to another."

Spas, hot springs and sea therapies are also take advantage from the ageing of the Japanese population. There is a

strong traditional habit of sea baths in Japan and baths in volcanic hot water springs are also appreciated for their

health benefits. The Japanese government recently proposed financial incentives for the

development of activities that could both address health needs of the population and

contribute to the development of certain regional areas: hot springs and sea therapies are

included in the scheme.

In one of its latest reports, also identified as the following trends:

- continuing interest for whitening products, as a fair complexion is still perceived as an

important aspect of beauty;

- decreasing use of lighter tones for bleaching hair;

- polarisation of products, with the increased popularity of upper premium at one end,

and other consumers (or the same consumers but for other products) more inclined to opt

for mass products.

Cosmetics in Japan


Solutions on entering Japan’s market

Despite the high potentials of the Japanese cosmetic market, carefully planned and well-chosen strategies to

enter the market are obligatory to gain sustainable sales and market shares. In one hand, Japanese cosmetic

consumers are known to be quite choosy when selecting a purchase – on the other hand consumers are always

heading out for new products and brands, and are constantly on the search for the most innovative, fashionable and

new cosmetic item.

Entering Japan successfully is mainly an issue of the ability and willingness of the foreign brand and manufacturer to

adjust to the Japanese market requirements. Herewith it is important to estimate own strength and ability to perform

as required by consumers in Japan. If a clear strategy is set (product range, sales channels, marketing tools e.g.) and

the right partners to perform are found, potentially high sales can be achieved importing and marketing a foreign

cosmetic brand to Japan on a long-term basis.

Main questions before starting to enter Japan:

Ingredients

Business Type

Sales Channels

1. Are all products conform to the Japanese legal requirements (PAL)?

2. Set up Japan branch -or- cooperate with a Japan distribution partner?

3. Which channels are most suitable for sales in Japan (retail, hotels,

spas, salons, mail order, TV-shopping, internet, door-to-door, others)?

After running checks on the import ability of the products (concerning the Pharmaceutical Affairs Law Japan – issued

April 2005) to verify eligibility of imports, main issue should be to understand the importance of selecting a strategy

on entering the Japan market. Foreign brands usually select within one of the two main possibilities: (A) importing

through an importer / distributor or (B) establishing a Japan branch with Japanese staff. Both strategies include pro

and contra points.

Cosmetics in Japan


Japan Branch/ Flagship-Store Japan Distribution Partner

Pro

ability to lead brand strategy in Japan

higher profit margins Japan business

Pro

lower initial business cost

use of existing client base of JP partner

Contra

higher initial business cost

longer market development period

Contra

copyright protection issue

JP partner’s in-house competing brands

After selecting the most suitable strategy for the foreign

manufacturer, a sales-channel and sales-performance-goal plan

for the first 3 years time of Japan distribution should be

developed and discussed intern / with the Japan partner. Here

again, strong and less strong points of the brand and its

products concerning the ‘Japanese consumer taste’ should be

fundamental within the strategically thinking and project

planning.

After the initial period, the manufacturer will register its

products through its Japan branch / with its Japan partner and

start sales through eligible venues in the Japan market. Also,

media and advertisement agencies will be contacted through the

manufacturers Japan branch / the Japan partner to start

effective campaigns - increasing annual sales in Japan and

developing steadily a well-known brand name and image among

Japanese consumers.

Cosmetics in Japan


Report References & Editors

JETRO

TTC

MHLW

METI

CIAJ

JCIA

JSCA

JPMA

JPWA

Japan External Trade Organization

Tokyo Trade Center

Ministry of Health, Labor and Welfare

Ministry of Economy, Trade and Industry

Cosmetic Importers Association Japan

Japan Cosmetic Industry Association

Japan Cosmetic Supplier Association

Japan Pharmaceutical Manufacturers Association

Japan Pharmaceutical Wholesalers Association

G&S INT. LTD. Mr. Takahashi

6-4-13 Soshigaya

Tokyo Setagaya-ku

157-0072 Japan

G&S International Japan Representation

Phone +81-80-5519-1260

Email [email protected]

Web www.gs-int-ltd.com

cosmetics market japan 2008

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