As the Double 11 shopping festival is about to come to an end, a brand has announced the closure of its store.
Recently, the high-end skincare brand EST, owned by a Japanese group, announced the “Store Closure Notice” on its Tmall overseas flagship store, and within a short span of a day, all product links in the store were taken down. It is worth mentioning that this store was the last sales channel retained by the EST brand in China.
As a result, there have been speculations from the public: “EST is leaving China, the brand is going to exit the Chinese market,” “EST can’t survive in China” … So, why did EST close its store? Is it really planning to exit the Chinese market? In response to this, the Japanese Kao Group exclusively told CHAILEEDO, “The EST has not exited the Chinese market.”
EST to Change to its Selling Channel to Douyin
Recently (November 7), EST announced the closure of its overseas flagship store on Tmall, stating that “the EST overseas flagship store will officially cease operations starting November 30, 2024,” with orders placed before this date still being fulfilled.
Following this announcement, all product links in the store were taken down. In response to inquiries, the customer service of EST’s Tmall overseas flagship store informed CHAILEEDO, “All products have been sold out, the brand is upgrading the store in preparation for closure, and currently, there are no other sales channels in China.”
Soon after, voices suggesting “EST is leaving China” and “EST will exit China” began circulating on social media platforms. Many netizens on Xiaohongshu expressed their sentiments: “I feel very sorry for the discontinuation of brands under Kao Group and KANEBO, they all have unique designs,” “EST barely advertised in China, poor sales, exiting the Chinese market is natural.”
Regarding why EST closed its store and whether it’s indeed planning to exit China as rumored, CHAILEEDO immediately reached out to Kao Group’s headquarters in Japan for verification. Today, Kao Group’s headquarters in Japan exclusively responded to CHAILEEDO, stating, “The EST brand has not exited the Chinese market.”
In response to the closure of EST’s store, Kao Group stated, “This does not mean the brand is exiting the Chinese market but is based on adjustments to our own sales strategy. In the future, EST will shift to the Douyin channel and collaborate with KOLs for product promotion.” However, regarding whether EST will re-establish a flagship store on the Tmall channel in the future, Kao Group mentioned, “It is currently undecided.”
Additionally, Kao Group informed CHAILEEDO, “The company’s cosmetics sector aims to meet consumer needs to the fullest by providing products with unique added value. Based on this principle, brands such as SENSAI, KANEBO, SUQQU, and KATE have been selected as international brands for concentrated investment and focus. EST is also one of them.”
Public records show that EST was established in 2000, with its full English name being “essence of sofina technology,” and it is one of the high-end skincare brands under Kao Group. Guotai Junan Securities Research Institute once stated, “In an era that advocates functional skincare, people are obsessed with ingredient research, additives, and product safety.” Seizing this opportunity, Kao Group established the EST brand, investing in top-level skin science research, focusing on developing functional products, and advocating personalized skincare.
In 2007, Kao Group set its sights on the Chinese market and opened the first EST brand counter at the Hangzhou Tower. In July 2009, EST officially entered the Isetan Department Store in Shanghai’s Meilong Town, opening its second counter in China. However, due to mediocre market response, the brand quickly withdrew from China without much fanfare.
In September 2017, EST introduced its first hydrating lotion, later known as the popular “Elf Water” by the public. This product was well-received upon its release, dominating the reader polls of Japan’s top three skincare magazines in the second half of 2017. As a result, EST gained significant popularity in Japan. In 2019, Kao Group redefined the EST brand and announced plans to strengthen its presence in the Asian market the following year.
CHAILEEDO observed that in recent years, Kao Group has been implementing market strategy adjustments beyond the EST brand. This year, Kao Group discontinued its AUBE and COFFRET D’OR brands. By the end of 2023, Kao Group also announced the closure of three brands under KireiLabo – skincare brand Freshel, whitening brand Blanchir Superior, and hair care brand SALA.
Why is EST Change to its Selling Channel to Douyin?
So, why is Kao Group’s EST shifting its online focus in the Chinese market to the Douyin channel?
Firstly, this may be related to Douyin becoming a significant channel for driving new growth in the beauty industry in recent years. Taking the highly anticipated Double 11 promotion as an example, according to CHAILEEDO intelligence data, during the early stage of Douyin’s shopping festival (October 8 to October 17), the estimated GMV for skincare products ranged between 60 to 80 billion yuan, while the GMV for makeup products ranged between 15 to 30 billion yuan. Compared to the same period last year, both categories saw significant double-digit growth.
“Currently, the sales growth rate on the Douyin platform is very rapid, showing double-digit growth. Additionally, the number of foreign beauty brands appearing on the Douyin platform’s rankings continues to increase,” Nod, founder of Jiubian Beauty, told CHAILEEDO. This is one of the reasons for Kao Group’s brand adjusting its channel strategy.
In fact, this perspective makes sense. According to the Douyin e-commerce Double 11 promotion skincare brand overall rankings (October 8-31), the top 20 list includes 10 domestic brands and 10 foreign brands, showing a balanced representation. Contrasting with data from the same period last year, in October 2023, only 7 foreign brands made it to the top 20 list of Douyin’s beauty rankings, whereas in October of this year, the number increased to 13. This indicates that foreign brands are also beginning to focus on driving sales and content marketing on the Douyin platform, with positive results.
“The content e-commerce platform on Douyin has been maturing.” Nod further stated that for high-end cosmetics, they require more time for content cultivation, and Douyin happens to provide consumers with medium to long-term education. Its algorithm can offer consumers potential content progression in terms of first-time education, repeated education, in-depth education, allowing consumers to have multiple touchpoints with more profound content about high-end skincare products.
In his view, this deeper content is where the difference lies between mid-to-high-end brands and white-label cosmetics. “High-end skincare products not only stir consumer emotions but more importantly, they can deeply engage consumers through content seeding, in-depth product analysis, and maximum dissemination of product features. Through content education, consumer affinity can be enhanced,” he stated.
The head of a well-known brand also believes that in the future, more mid-to-high-end brands will focus on the Douyin channel. This is because Douyin’s sales volume is rapidly increasing and because Douyin possesses the uniqueness of deep content operations, providing mid-to-high-end brands with enough profit margin to develop their marketing systems. This may be precisely the reason why EST has chosen to focus on the Douyin platform.
Cosmetics Business Facing Challenges, Soft Performance in the Chinese Market
Coincidentally, on the same day that the EST brand announced store closures (November 7th), Kao Group released its financial data for the first three quarters of 2024. According to the financial report, Kao Group’s net sales increased by 5.7% compared to the same period last year, reaching 1.19 trillion yen($7.76 billion); operating profit was 101.1 billion yen ($659 million), a year-on-year increase of 50.4 billion yen ($328.7 million).
Looking at the divisions, Kao Group consists of the Consumer Products Business and the Chemicals Business. The Consumer Products Business is its main operating segment, including four major business areas: Health and Personal Care, Health and Beauty Care, Home Care, and Cosmetics.
According to Kao Group’s financial report, the sales of the Consumer Products Business increased by 4.3% in the first three quarters of this year, reaching 921.5 billion yen ($6 billion). However, the business faces a mixed market environment. Kao Group stated in the financial report that on one hand, consumer demand in the Japanese market is rebounding, and inbound tourists are increasing; on the other hand, due to global economic slowdown, consumer momentum in the Chinese market continues to decline.
In response, Kao Group has implemented corresponding measures to enhance profitability: upgrading marketing measures through digital transformation, adjusting sales prices to reflect added value, and offering high-value-added products.
Specifically, in the first three quarters of this year, the sales of Kao Group’s Health and Personal Care business were 393.0 billion yen ($2.56 billion), a 3.7% increase year-on-year. Among them, sales of Fabric and Home Care products increased by 8% to 268.4 billion yen ($1.75 billion).
At the same time, the Health and Beauty Care business of Kao Group showed the highest growth rate, with sales increasing by 9.1% to 314.7 billion yen ($2 billion). Skincare products recorded the fastest sales growth; Hair Care products benefited from strong sales of the Essential and the new Hair Care brand, Melt, also achieving growth.
In comparison, the Cosmetics business where EST is located is the only segment of Kao Group’s sales that experienced a decline, and it is the only segment that recorded negative operating profit. In the first three quarters of this year, the sales of Kao Group’s Cosmetics business decreased by 1.1% year-on-year, to 173.2 billion yen ($1.13 billion); operating profit was negative 7.9 billion yen ($51 million), a decrease of 5.1 billion yen ($33.26 million) compared to the same period last year.
According to the financial report, the development of Kao Group’s Cosmetics business in the Japanese market remains stable. Brands like Kanebo’s high-end skincare and makeup, Allie sun care, and Sofina continue to perform strongly; the new products of the high-end skincare brand Sensai also achieved excellent sales in the European market. However, in the Chinese market, sales of the Cosmetics business saw a significant decline.
Kao Group stated in the financial report that this is mainly due to a slowdown in market growth, increased competition, and restrictions on shipments to optimize distribution inventory.
Looking back over the past five years, the sales of Kao Group’s Cosmetics business have fluctuated. Although there was year-on-year growth in 2021 and 2022, starting from 2023, sales of this business began to decline again. This is largely due to the soft performance in the Chinese market.
Therefore, Kao Group stated in the latest financial report that assuming the Chinese economy continues to slow down in the next three months and the business environment remains unstable, they will invest in marketing and take other actions to achieve future growth.
With two years remaining until Kao Group achieves its 2027 Mid-term Plan (K27), this 137-year-old cosmetics group is constantly adjusting its development strategy to meet challenges in the ever-changing market. The effectiveness of these reforms remains to be seen.
