Kanebo Cosmetics Plots International Strategy

The Japanese beauty player wants to become a global player.

TOKYO — Kanebo Cosmetics Inc. has been a significant beauty player in its home market of Japan for many years, but only now is it making a serious push to become a global contender.

This story first appeared in the November 16, 2012 issue of WWD.  Subscribe Today.

Kanebo Cosmetics president Masumi Natsusaka, who took the company’s helm during the summer, said the firm really has little choice but to think internationally in light of Japan’s mature market.

“I think the cosmetics industry has the potential to grow into one of Japan’s leading industries, which can compete in the international market. Shiseido has already achieved this and, now, as [the second-largest Japanese cosmetics company], we need to do the same.”

A rather traditional Japanese company, Kanebo admits it is late arriving to the international beauty game. The company, which got its start in 1887 as a cotton trader, expanded and diversified into other businesses over the years and decades. The cosmetics business served as a cash cow to offset other underperforming businesses within Kanebo’s corporate structure and never got the necessary investment required to compete seriously on an international scale.

Kanebo spun off its cosmetics business in 2004 and sold it in 2005 to beauty and cosmetics giant Kao Corp. Kao consolidated it as part of its corporate structure the following year but continued to operate its new acquisition as Kanebo Cosmetics. Over the subsequent period, management kept the company very much focused on the domestic market, slugging it out with its bigger rival, Shiseido.

Natsusaka, a lifetime Kao employee with an M.B.A. from the University of Washington and work experience in Germany, is also president of Kao Group’s global beauty-care unit, in addition to his Kanebo duties. Kanebo is focusing its expansion efforts particularly on China, Russia and Southeast Asia, where he said he sees the most growth potential.

“In the case of Asia, [the market] is rapidly changing, and in those changing markets there is actually an opportunity to grow as the market grows. So for emerging and growing markets, I don’t think it’s too late. But in the U.S. and Europe, which are mature markets, the pie isn’t very big, so I don’t think we can expand as quickly. However, [our presence] in the U.S. and Europe is still small, so I think we can still expand quite a bit,” he said.

The company sells its products in 55 countries and regions. But reflecting the lack of a focused global strategy, international sales only make up about 10 percent of the business, with China, Germany and Taiwan being its three biggest markets. The company aims to lift that percentage to 15 by 2015 and at least 30 percent by 2020.

Kanebo has fallen into step as part of what has become a movement among Japanese companies. Shiseido and Pola are also prioritizing international growth. But unlike one key component of its competitors’ strategy, Kanebo isn’t looking to grow through acquisitions. Instead, it wants to focus on its existing brand portfolio. “Right now, we’re not thinking of M&A. On the contrary, we have too many brands, so we have to narrow down our focus,” Natsusaka said.

Kanebo posted sales of 190 billion yen, or $2.41 billion at average exchange rates, for the 2011 fiscal year ended March 31. The Japanese beauty player is aiming to reach sales of 200 billion yen to 220 billion yen ($2.43 billion to $2.67 billion at current exchange) by 2015.

Natsusaka said the company will take a series of steps to boost its competitive edge. He has weeded through Kanebo’s vast brand and product portfolio and plans to focus international efforts on five key brands: prestige skin-care brands Sensai and Impress (the latter of which will be rebranded Kanebo), as well as masstige skin-care line Freshel and color cosmetics brands Lunasol and Kate.

Natsusaka estimated that roughly 80 percent of these brands’ existing product lineups are already suitable for international consumers — Sensai for example has specifically targeted the European and American markets — while the company will need to beef up its research and development to tweak formulas and come up with products better suited for customers around the world. For example, he explained that Japanese consumers are accustomed to lotions containing alcohol while people in other countries find the ingredient off-putting. Similarly, Japanese women tend to prefer heavier coverage in terms of base makeup than their counterparts elsewhere in Asia.

“Here in Kanebo, we have people, we have brands, but the products are missing,” he said, breaking out of his Japanese to speak in English, as he did several times during the interview.

Kanebo has R&D and manufacturing facilities in Paris and Shanghai and a single factory in China that produces Aqua, a skin-care range made exclusively for the Chinese market. Everything else it produces is in Japan.

Natsusaka said Kanebo needs to capitalize on Kao’s more diversified manufacturing and R&D facilities in other countries to produce closer to the markets where it sells. Doing so would also cut costs as it is expensive to produce in Japan. The ceo said Kanebo might even choose to sell those foreign-made products in Japan in a margin-boosting move.

The executive said he learned a valuable lesson about the wrong way to approach international markets when he oversaw Kao’s beauty-care unit in Germany in the late Eighties and early Nineties. At the end of his six-year stint in Europe, he oversaw the closure of Kao’s cosmetics operations in Germany, France and Spain.

Natsusaka said Kao failed at that time because the company’s products catered too much to Japanese consumers. More importantly, he noted that there was a revolving door of managers coming and going from the Continent.

“The commitment was lost at a certain time. I was somehow alone,” he said.

The executive said his experiences living abroad have taught him the importance of understanding the local culture and demands of different countries.

“When you go abroad, you have to understand both your own identity and your identity among [others],” he said. “In business, I think companies also have to place importance on their identities, while also looking at the market of that country and thinking how they can match it and expand.”