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TOKYO — Pola Orbis Holdings Inc., one of Japan’s leading beauty players, is on the hunt for acquisitions as it seeks to internationalize its revenue stream.
Pola has already made inroads in this direction over the past two years, buying two skin-care companies: Australia’s Jurlique Group for nearly 300 million Australian dollars, or about $314 million, and Chicago-based H20 Plus for $91 million.
Satoshi Suzuki, president of Pola and grandson of the company’s founder, said those two acquisitions play an important role in underpinning the company’s future growth prospects — particularly in Asia — and he isn’t done shopping.
Suzuki said he is interested in acquiring new beauty brands with a strong international brand image that would appeal to consumers in Asia.
“I don’t like the idea of brands that are made for Asia. They have to have a world-recognized brand image and then we can sell them to China and Asia,” Suzuki told WWD during an interview, stressing that he is focusing on cosmetics companies in order to find synergies with Pola’s existing structure.
Mirroring the moves of countless other Japanese companies, including Pola’s larger rivals Shiseido and Kanebo, Pola is coming to terms with the fact that its home market of Japan — while extremely large — has limited growth potential in the long term.
Japan’s beauty market has largely stagnated over the past decade and the 2011 tsunami disaster and its economic repercussions certainly haven’t helped. Japan’s population is projected to not only shrink but continue to turn grayer. In 2011, there were 127.8 million people in the country and, by 2050, that number is expected to drop to 97 million. The number of Japanese aged 65 and older is expected to rise from 23.3 million last year to 38.8 million in 2050, while the total population shrinks. Moreover, Japan’s economy has officially slipped into a recession. Recently, the country’s Cabinet Office revised its second-quarter gross domestic product figures downward to reflect a drop. Third-quarter GDP slid 3.5 percent in annualized terms.
“There’s no room for big expansion within Japan,” Suzuki said with understatement. “So there was just one way to expand the business, which was to go overseas,” he noted, adding that he is most eager to expand Pola’s presence in China, Hong Kong and Singapore.
Pola, which was listed on the Tokyo Stock Exchange in late 2010, has a ways to go before it truly becomes an international company. The beauty firm is targeting sales of 182 billion yen, or $2.27 billion, for full-year 2012, with 10 percent of that coming from international markets. It is aiming to reach sales of 250 billion yen, or $3.12 billion, by 2020 with international sales accounting for at least 20 percent of the total.
Suzuki said Jurlique and H20 Plus are both performing well. Pola is leveraging its research and development facilities to create new products for both brands. For example, in September, the group launched H20’s new Total Source Night Cream. The company claims the product combines Pola’s antiaging know-how with H20’s sea-derived skin care technology. A 1.7-oz. jar sells for $95.
Pola is also leveraging the two brands’ existing distribution networks in Asia.
“Traveling is very trendy in China, so more and more people are going on vacation abroad. We are targeting duty-free shops where the Chinese go,” he said.
Jurlique already has 70 stores in China through department stores, while H20 Plus has 250 sales points in China through department stores and cosmetics retailers. Comparatively, Pola and Orbis have 30 sales points — 15 each in department stores — in China. In addition, Orbis launched its own Web site in China in July 2011.
For the nine months ended Sept. 30, Pola saw its profits decline on a combination of higher tax rates and costs — including goodwill — on the Jurlique acquisition.
Specifically, net profit shrank 32.7 percent to 3.69 billion yen, or $44.4 million at current exchange. Sales, boosted by the Jurlique acquisition grew 8.2 percent to 9.78 billion yen, or $117.6 million.
Shinobu Suzuki founded Pola in 1929 in Shizuoka prefecture, a region southwest of Tokyo. He started out small, going door-to-door selling batches of hand cream he made for his wife, thereby laying the groundwork for his future direct-selling business. Over the following years and decades, the company capitalized on that very same direct-selling model, becoming Japan’s answer to Avon.
In its heyday in the Eighties, Pola’s sales force numbered as many as 180,000 women. Since then, the number of reps has dwindled to 120,000 as the company shifts to a more traditional retail model of its own stores and aesthetic salons.
Pola also diversified in the Eighties and Nineties, starting up Orbis as a mail-order beauty business, and branching into other areas like fashion, pharmaceuticals and real estate.
When Suzuki took the helm in 2000, he set about refocusing the company on beauty.
“We were doing so many various sorts of business and it was becoming so varied that even the employees didn’t really have a clear idea of what the philosophy was, so I decided to concentrate on one core business,” Suzuki said. “My greatest vision when I took this position as president was to rebuild Pola, which was dispersed through the Eighties and Nineties.”
Today, cosmetics accounts for about 85 percent of Pola’s business, while beauty-related accessories and fashion products make up an additional 8 percent.
It seems unlikely the company will stray far from beauty again as long as Suzuki is in charge.
“It’s a simple business because the focus is on getting the customer to buy a new product every three months,” he said.