“The Japanese makeup industry is heating up again,” “The Japanese makeup industry is on its way out”… Throughout this year, discussions on Japanese makeup have remained high. Industry insiders have varied opinions on the development prospects of Japanese makeup in the Chinese market.
So, how is the performance of Japanese cosmetics in the Chinese market? With Shiseido, Kao, POLA, and Kose, the four major leading Japanese makeup groups, successively announcing their financial performance for the first three quarters of this year, perhaps we can gain insight into the true market performance of Japanese makeup.
Shiseido remains the largest cosmetics group in Japan.
According to public financial reports, in the first three quarters of this year, the total sales of the four major leading Japanese cosmetics groups—Shiseido, Kao, POLA, and Kose—reached $14.6 billion. It is worth mentioning that this marks a return to growth for these companies after experiencing a year-on-year decline in 2023.
Focusing on the cosmetics business, in the first three quarters of this year, Shiseido Group retained its position as the largest cosmetics group in Japan with a total sales of 722.8 billion yen ($4.67 billion). Not only that, Shiseido Group is also the only Japanese beauty group to make it to the global top ten, currently ranking seventh, with LVMH Group and Coty Inc. at sixth and eighth place respectively.
Regarding the results achieved in the first three quarters of this year, Shiseido Group stated in their financial report, “During the reporting period, the group’s sales remained flat compared to the same period last year. However, the core operating profit decreased by 26% year-on-year to 27.4 billion yen ($177.2 million). Due to the drag on core operating profit from tourism retail, the Chinese market, and the Americas market, the group’s other brands experienced negative growth.”
Shiseido Group was not the only one to experience a decline in operating profit. As the second largest cosmetics company in Japan, Kao Group achieved a 9.1% year-on-year growth in its health and beauty care business in the first three quarters of this year, reaching 314.7 billion yen ($2.04 billion); however, its cosmetics business saw a 1.1% year-on-year decrease in sales to 173.2 billion yen ($1.12 billion), with an operating loss of 7.9 billion yen ($51.1 million), a decrease of 5.1 billion yen ($33 million) compared to the same period last year.
Meanwhile, CHAILEEDO found that Kao Group’s cosmetics business sales have been fluctuating over the past five years and have shown a downward trend in the last two years. Kao Group attributed this to the slowing growth in the Chinese market, intensified competition, and shipping restrictions due to optimizing distribution inventory.
In fact, the third largest cosmetics group in Japan, Kose Group, also faced challenges in the Chinese market. In the first three quarters of this year, Kose Group achieved the fastest growth among the four major Japanese cosmetics companies with a net sales of 238.735 billion yen ($1.54 billion), a 17.4% double-digit growth in operating profit to 18.815 billion yen ($121.7 million).
Despite its impressive performance, Kose Group expressed concerns about the Chinese market in its financial report, citing uncertainties in the Chinese economy, reduced consumer spending, and the trend of simplifying skincare routines as challenges. Sales in Asia for Kose Group dropped by 26.5% year-on-year to 30.015 billion yen ($194.1 million).
Additionally, POLA Group remained stagnant in the first three quarters of this year. According to financial reports, during the reporting period, POLA Group’s net sales declined by 1.1% year-on-year to 125.395 billion yen ($810.9 million), and operating profit decreased by 9.2% year-on-year to 10.817 billion yen ($70 million).
CHAILEEDO observed that POLA Group, which experienced a decline in both revenue and profit, is being overtaken by domestic beauty companies. Looking back to 2022, POLA Group had annual sales of 166.3 billion yen ($1.08 billion), with no Chinese beauty company surpassing it. However, by 2024, according to the financial reports of listed domestic beauty companies for the first three quarters, POLA Group has been surpassed by Proya with sales of 6.966 billion yuan ($961.6 million).
The main brands are slowing down in development in China.
Looking at public financial reports, a common challenge facing the four major Japanese cosmetics groups is the slowdown in the Chinese market. Among these challenges, the primary issue is the deceleration of development for main brands in China. CHAILEEDO has noted that the main brands under the four major Japanese cosmetics groups have encountered varying degrees of development bottlenecks in China, leading to a decline in their sales.
For example, within the POLA Group, the main brand POLA has always viewed China as its primary market. However, in the first three quarters of this year, due to the impact of the economic slowdown in the Chinese region, both the net sales and operating income of the brand decreased year-on-year. Another main brand under the POLA Group, ORBIS, saw its overall performance in overseas business lower than the same period last year due to the softness of the Chinese market. JUJUKE suffered from the impact of Chinese department stores and e-commerce channels, with overseas performance declining since April of this year.
Similarly, in the first three quarters of this year, sales of the Decorte brand under the Kose Group also saw a year-on-year decline. According to the financial reports of the Kose Group, this was also due to the impact of weak consumer spending in mainland China and in travel retail. Additionally, the financial report of Shiseido Group also indicates that the sales of its Shiseido brand in China continued to face challenges, further declining compared to the same period last year.
Furthermore, all four major Japanese cosmetics groups coincidentally mentioned the “e-commerce channel” in their financial reports, showing mixed attitudes towards it. For example, in the financial report meeting, CFO Aiko Goto of Shiseido Group mentioned that from the perspective of channels, the performance of the e-commerce channel in the Chinese market has been relatively stable, with a year-on-year growth of about 20% in the third quarter, partly benefiting from the low base effect of last year.
However, Kose Group believes that the significant decline in sales from the Chinese e-commerce channel and travel retail has had a detrimental impact on its performance. In the third quarter of this year, due to reduced shopping incentives, lower-than-expected online sales, the sales from the e-commerce channel in China for the group saw a 10.6% year-on-year decline.
It is worth mentioning that Kao Group interpreted its understanding of the Chinese e-commerce channel through strategic adjustments. Just recently, the high-end beauty brand est under Kao Group announced the closure of its Tmall overseas flagship store. Regarding the reason for the closure of the est store, Kao Group responded to CHAILEEDO, saying, “In the future, est will shift to Douyin channel and cooperate with KOLs to promote products.”
So, how have Japanese cosmetics companies performed in the Chinese e-commerce channel?
According to CHAILEEDO data, the total GMV of Japanese cosmetics in online channels grew by 22.18% year-on-year from January to August this year. However, among the top 20 Japanese brands by GMV, 70% saw a year-on-year decline, with brands like Freyja, Kose, FANCL, Elixir, Kao, and Fancl experiencing declines of over 30%.
Looking at the recent “Double 11” sales event, in the full-cycle Tmall beauty brand TOP 10 list, only the Japanese brand SK-II made it onto the list. In the Douyin “Double 11” beauty TOP 10 list, only SK-II was featured in the early Douyin “Double 11” rankings, and by the end of the full cycle, there was not even a presence of Japanese cosmetics brands.
The four major Japanese cosmetics groups will focus on other markets.
It is worth mentioning that through statistics, CHAILEEDO found that in the financial reports of the four major Japanese cosmetics groups in the first three quarters of this year, “China” was mentioned a total of 48 times. It is not difficult to see that understanding China, adapting to China, and winning in China have become topics of great concern for these giants. However, it seems that the road to development for Japanese cosmetics in the Chinese market is currently blocked and long.
Nevertheless, the four major Japanese cosmetics groups have formulated corresponding strategies. On one hand, they are focusing on cost control. For example, Aiko Goto, the CFO of Shiseido Group, stated at the financial report meeting that the company is actively promoting cost reduction and profit improvement measures, with a focus on reducing fixed costs in the Chinese market. The goal of cost control will continue for the next two years.
Shiseido Group plans to achieve a cost reduction target of over 40 billion yen ($258.7 million) through a global cost reduction plan during the 2024-2025 period.
At the same time, Kose Group has decided to reduce staff in the Chinese region. In the financial reports for the first three quarters of this year, Kose Group stated that it will merge its subsidiary, Kose Cosmetics Sales (China) Co., Ltd. During this process, store staff and some regular employees will have their labor contracts terminated, and the specific number of employees to be cut is currently being determined.
On November 15th, Kao Group disclosed its financial report Q&A document for the first three quarters of this year, mentioning that the group will increase restrictions on the shipment of cosmetics to China starting from the 2025 fiscal year to optimize distribution inventory.
On the other hand, the Japanese cosmetics groups are no longer solely focusing on China but actively exploring markets in other regions on the foundation of the Chinese market. For example, POLA Group stated in its latest financial report that while expanding its customer reach in China, it will also further develop overseas business and establish a business foundation in new markets.
For Kose Group, the global southern market is set to become its top priority region. In the latest medium- to long-term plan “Milestone2030,” Kose Group mentioned that it will focus on structural reforms in the next two years, shifting its development focus from a heavy reliance on the Greater China market to the global southern market. Additionally, the group will not only increase its investment in the Greater China region and overseas duty-free business but also achieve growth in the global southern market through mergers, acquisitions, and franchising, aiming to have over 50% of sales come from overseas.
The “global southern market” generally refers to developing countries in Africa, Latin America and the Caribbean, Pacific islands, and Asia. The Financial Center for South-South Cooperation defines the “global south” as the Group of 77 countries and China.
Meanwhile, Shiseido Group will strengthen its operations in Japan and Europe. On November 7th, Shiseido President Masahiko Kentaro Fujiwara mentioned in a media interview, “We will not participate in excessive discounts, but will launch high-priced products under the flagship brand ‘SHISEIDO’ to accelerate the brand’s rebuilding.”
Kentaro Fujiwara outlined a policy to strengthen operations in Japan and Europe. In the financial reports for the first three quarters of this year, Shiseido’s operating income in Japan increased by over 30%, and Elixir also grew by over 15%. Foreign tourists visiting Japan have also boosted consumption. In Europe and America, high-priced items like perfumes are showing growth.
In essence, Kao Group has already seen success in the Japanese and European markets. According to the financial report Q&A documents for the first three quarters of this year, the group has launched direct-to-consumer websites in the UK and Germany, driving sales in the European market to grow by about 1.5 times year-on-year in the first three quarters of this year. In Japan, the group has held the top market share position for four consecutive years, thanks to the significant contribution of new high-value-added products to sales growth.
It is evident that in the ever-changing market environment, the four major Japanese cosmetics groups are adjusting their development strategies in different regions. While continuing to focus on the Chinese market, they are also actively exploring new overseas markets. As for the effectiveness of these reforms, we will have to wait and see.
