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The year 2005 marks a reverse in the slowdown of the second largest cosmetics and toiletries market in the world—Japan. Euromonitor International’s latest view forecasts sales growth of 12% to 2010.
Japan’s total cosmetics and toiletries sales eclipsed $31.7 billion in 2005, reflecting almost 3% growth over the previous year in fixed exchange terms. Per capita spending on cosmetics and toiletries in Japan is among the highest in the world, with the average consumer spending in excess of $250 per year. Although this indicates the significance of Japan in the global market, it also hints at its saturated nature, which is a challenge for industry players. In view of this, achievement of the growth witnessed in 2005 should be heralded as a success. In this feature, Euromonitor pinpoints developments in key sectors and comments on who and what to watch for to sustain growth.
Skin care, with sales in excess of $13.5 billion, accounts for more than 40% of Japan’s sales in cosmetics and toiletries. With year-on-year growth averaging almost 4% since 2000, it also is among the fastest moving sectors in the market. Although skin care has been entrenched in the beauty regime of Japanese women for many years—especially the three-step routine of cleansing, toning and moisturizing— manufacturers have employed numerous strategies to eke out growth.
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In 2005, manufacturers responded to consumers needs by taking antiaging to the next level. Moving away from traditional concerns of fine lines and wrinkle prevention, both Shu Uemura and Kao took notes when respondents of a survey cited pore enlargement as a result of aging as a major worry. Both companies launched moisturizers to minimize this issue, and then expanded the properties to facial cleansers. Perhaps skin care companies could exploit the demand for antiaging products by introducing home peeling kits that promise professional results at a fraction of the time and cost required to undergo specialist treatment at the salon. These took the South Korean market by storm in 2005, and have potential for success in Japan—especially in terms of capturing the attention of the lucrative over-40 segment with its increased disposable income.
All players across cosmetics and toiletries need to take cultural factors into consideration in Japan. A well-known Japanese proverb states that “a fair complexion makes up seven deficits,” and although the growth of whitening products is starting to stabilize since the boom at the end of the 1990s, there is still a strong demand for whitening properties in skin care. Although body care in Japan is tiny relative to skin care, the launch of body care products that have a whitening function, such as Beiersdorf’s Nivea Body Vital Whitening, could be a key to driving growth.
Alongside hair care, color cosmetics is the second largest category after skin care. Sales in 2005 picked up by 3.6% to exceed $6 billion, making it the most dynamic in cosmetics and toiletries. Facial makeup comprises more than half of color cosmetics sales in Japan due to the emphasis placed on daily application of foundation/ concealer. The majority of foundations must now contain added value benefits, such as moisturizing or sun protection, to attract consumers. Indeed, this has seen players that are dominant in skin care, such as P&G’s SKII, leverage their knowledge to make the crossover to color cosmetics, and is likely to be a tactic that is employed more frequently in the future.
In order to expand their consumer base, makers of color cosmetics are attracting young consumers by launching products suitable for their delicate skin. Teens and ’tweens could become a lucrative consumer group—fewer children in each family means that grandparents, as well as parents, are likely to lavish them with gifts and pocket money. A tie-in between toy manufacturer Bandai Co. and children’s clothing firm Narumiya International Co. has seen girls as young as 8 targeted with lip glosses, facial powders and cologne. Color cosmetic companies could tap into this segment with specific ranges that would enable them to cement brand loyalty at an early age.
Although it is the largest sectors that are exhibiting the fastest growth rates in the Japanese market, smaller categories such as sun care and deodorants offer future potential, with forecast average annual growth rates of 4% and 2% respectively to 2010. Sun protection is registering heightened demand from women seeking to maintain pale skin to comply with the aforementioned trend for whitening. Therefore, sun protection will continue to be the driver of overall sun care sales. Manufacturers looking to drive growth should continue to educate consumers to use products on a daily basis to inhibit blemishes and freckles. Segmenting to meet the needs of different genders is also likely to be successful, as research has illustrated that each sex has different levels of tolerance to the sun.
Similar tactics have been employed in deodorants. Lion Corp., in particular, stands out for its efforts to better understand its target groups. In January 2005, the company launched Men’s Ban Deodorant Spray, designed to eliminate the odor from men that women find offensive, and it will redevelop its Ban Powder Spray (designed to leave a dry feeling on women’s skin) in 2006. In addition to segmenting by gender and age, manufacturers in more niche sectors could tap into trends that are driving product innovation in the more mature sectors. The need for convenience and consumers’ desires for natural products are among these trends.
In 2005, value sales of fragrances declined by almost 6% in current value terms, following more than a 2% decline in 2004. The primary reason being that many fragrances, especially imported products, were sold at discounted prices through department stores, drugstores and discount stores. However, sales are under threat from other sectors. In 2004 and 2005, hot weather conditions raised the demand for deodorants and purity. Japanese are more concerned about keeping themselves odorless in hot conditions, rather than using many fragrances to mask odor. To revive the sector, manufacturers should target teens and ’tweens, whose demand for fragrances is greater than the current supply of products specifically targeted at them.
Japan’s population is aging rapidly, and will be significantly older than most other countries in the Asia-Pacific region by 2020. The country has the longest life expectancy among the world’s major economies. Japan’s median age was 32.5 in 1980, but had risen to 41.5 by 2000. The pace of this upward trend should slow in the future, but the median age will nonetheless reach 45.8 by 2020—compared with just 32 for the entire region. Although this dynamic is a cause for individual and government concern, it presents an opportunity for manufacturers to target products designed to protect against aging.
In a hectic and aging society, products designed to offer convenience enable manufacturers to push up unit prices. Packaging, especially that of shampoo and conditioner, was redesigned in smaller sizes to cater to both frequent travelers and with larger openings for aging consumers. Deodorant wipes displayed strong growth of 3% due to their ability to serve consumers on the move. They also are seen as more environmentally friendly by consumers because they can easily biodegrade. Players in Japan could exploit this trend further by observing innovations in format and packing of facial cleansing wipes, body wipes and portable color cosmetics—all of which are commanding higher prices in Western regions.
Japan’s growing commitment to the environment has arisen from an increased awareness of the long-term economic benefits of environmental protection. In the past, Japan considered environmental protection a diversion of resources from economic development; the cost of ignoring environmental problems is now considered unacceptably high. The Japanese government is focused on reducing total resource inputs such as energy and water, reducing output of harmful substances and waste, and increasing the ratio of recycled resources. As in the case of deodorant wipes, increased consumer awareness of the environment is filtering down to influence purchasing decisions in cosmetics and toiletries, and could be leveraged more effectively than it is currently.
The cosmetics and toiletries market in Japan remains dominated by local household names, although changes are afoot in terms of market leadership. Once Japan’s cosmetic queen, Shiseido has been bumped into second place by the Kao/Kanebo alliance, formed and finalized in early 2006. Together, the two firms have more than a 17% share of the Japanese cosmetics and toiletries market. This union allows the combined company to leapfrog Shiseido, Procter & Gamble and Unilever to take a narrow 0.2% percentage point lead in Asia-Pacific.
Shiseido’s attitude to the merger is telling. The beauty giant now views L’Oréal as its largest competitor, indicating its reluctance to rely on its home ground—which, although large and currently in recovery, is sluggish in comparison with more dynamic markets in Asia Pacific and Western Europe. China, in particular, is the object of Shiseido’s desire, and the company hopes to double the number of its retail outlets. Such a strategy of decreasing dependence on the Japanese market is not restricted to large players. Yuskin Pharmaceutical Company, with its one-formula skin care brand Yu-Be, is set to conquer Europe in 2006. Following successful debuts in France and the U.K., the brand is slated to roll out to Portugal, Spain and Italy via Sephora—indicating that it is possible for a Japanese brand to make grounds in Western Europe. Its approach could well be echoed by other players in the not too distant future.
With forecast sales growth of 12% to 2010, the future is brighter for Japanese cosmetics and toiletries due to the recovering economic climate. However, the market remains mature and highly competitive. Euromonitor International believes that innovation is key to sustaining expansion of the market. As consumer confidence increases, premium products with multiple benefits will fare well, and could take share from mass brands. The aging population will be a boon for manufacturers, as many Japanese are due to reach retirement in the next five years. These consumers will be increasingly keen to pay for products that cater specifically for their needs. Cosmetics and toiletries players cannot rely on this group, however, and must continue strategies of widening their consumer base to include ’tweens, teens and men.
Observation of developments in other mature markets, such as the increased demand for natural products, will enable companies to secure sales. Noevir Co. Ltd.’s research department has found that brown sugar has an antiaging effect and increases cell renewal activity. Following this finding, brown sugar could be the new hit ingredient in cosmetics and toiletries in Japan. Market entry for new players will prove a struggle, as cosmetics and toiletries will continue to be dominated by domestic manufacturers over the forecast period. With deep understanding of local consumer behaviors and long-term experiences in Japan, the current leading manufacturers will keep on performing well. Their strong distribution networks and marketing strategies also are advantages with which foreign manufacturers will find it hard to compete.