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Kao Revamps the Strategy for Its Cosmetics Business

The company will streamline its brand portfolio, with greater cooperation between Kao and Kanebo.

TOKYO — Yoshihiro Murakami, the new president and representative director of Kanebo Cosmetics who assumed the post at the beginning of the year, spoke to journalists for the first time on Friday regarding parent company Kao Group’s strategy for its cosmetics business moving forward. He said the company will focus on building a new global portfolio of strong brands.

In addition to Kanebo’s directly managed brands such as Sensai, Kate Tokyo, Suisai and Kanebo, subsidiary E’quipe runs the brands RMK and Suqqu. Kao’s beauty portfolio also includes directly owned brands such as Molton Brown and Curél. In total between Kao and Kanebo, there are currently 49 brands, making for what Murakami called an “unclear” portfolio.

Moving forward, the international strategy will be to focus mainly on 10 of the brands that are strongest, have the highest earning power and have potential for global expansion. These 10 brands plus a new one that E’quipe will launch in 2020 will form Kao’s new “global 11,” the core of its global cosmetics portfolio. The 10 brands selected are Sensai, RMK, Suqqu, Est, Kanebo, Sofina IP, Molton Brown, Kate Tokyo, FreePlus and Curél. Murakami said that other brands will not necessarily be discontinued immediately, but that this is eventually a possibility for some of them.

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According to data by Euromonitor International, the global cosmetics market is expected to expand most rapidly in Asia over the coming years, growing an estimated 9.8 percent between 2017 and 2022. Murakami hopes to take advantage of this trend by focusing many of the group’s efforts on the Asian market.

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Sales outside of Japan currently make up only 20 percent of Kao Group’s total cosmetics revenue, but the company hopes to grow that figure to 25 percent by 2020. It has also set a sales target of over 300 billion yen for the same year.

In addition to expanding key brands internationally, Kao will focus on borderless marketing initiatives in order to take advantage of growth in the travel retail market.

“Rather than focusing business on just one country, our head office in Japan will work together with overseas offices on cross-border e-commerce and travel retail marketing,” Murakami said.

Sensai, Kanebo’s “super prestige” brand formulated with koishimaru silk, is already sold across Europe, but Murakami said it will launch in Japan in 2019 and in China in 2020, with potential additional expansion across Asia possible in the future.

In the case of the Kanebo brand, which hit the Japanese market in 2016 and is now available across Asia, as well as in Austria, Germany and Russia, a new ultra-premium line will be introduced this fall. Another goal for the brand is to create a star item within its product lineup.

The company aims to expand value-added items to the Est line starting from fall 2019, and it will create an entire product line around Sofina IP’s Base Essence, a serum that sold 3 million units in 2016. It aims to strengthen Molton Brown through efforts in e-commerce and travel retail, and it will accelerate the globalization of the two existing E’quipe brands, RMK and Suqqu.

For mass-market brands, Kao will expand Curél, which is the number-one brand for sensitive skin in Japan and six other regions in Asia, within the United States, the United Kingdom and Germany in 2019, while also growing in Japan and Asia. Kate Tokyo, which has had the number-one share of the cosmetics market in Japan for 16 consecutive years, will continue its expansion in China and its marketing in large cities across Asia, such as Kuala Lumpur and Bangkok. The brand FreePlus, which is popular among Chinese shoppers both at home and when visiting Japan, will aim to strengthen its brand awareness in Japan and other Asian countries.

The group will also revamp its strategy in its home market of Japan, where its share of the market fell from 11.8 percent in 2012 to 10.7 percent in 2017. This was in spite of news that cosmetics surpassed women’s apparel in household expenditures in 2017, and that cosmetics exports surpassed imports for the first time in 2016.

“Despite growth in the market, Kao Group’s cosmetics business was not able to take advantage of this and ride the wave of expansion. While our profit and sales grew in 2017, it was at a lower rate than those of other companies,” Murakami said.

In addition to the “global 11,” Kao has identified a “regional eight,” a group of brands that will be key to its domestic regional strategy. These include Lissage, Twany, Lunasol, Coffret D’Or, Media, Allie, Primavista and Evita.

Kao and Kanebo will shift from a channel-based brand positioning that focused mainly on retailers to a customer-based positioning, which is attuned to customers’ methods for selecting and purchasing products. For this reason, it has divided its domestic portfolio into counseling brands and self-service ones, and will match brands to the appropriate retailers accordingly, whether they be department stores, cosmetics stores, general merchandise stores, or drugstores. When asked which brands will be suitable for sale at the ever-growing number of semi-self-selection stores in Japan, such as Isetan Mirror and Fruit Gathering, Murakami said that this decision will have to be made for each brand on a case-by-case basis.

Kao plans to reform its management structure, so that rather than having an exclusive team for each brand with little communication amongst them, staff in each department will carry out their roles in relation to multiple brands.

“Until now we have made purposeful efforts to separate the teams from Kao and Kanebo, but after listening to the opinions of many people including our customers, we learned that, for example, customers are not buying Kate because it’s a Kanebo brand. Suqqu is the same. People do not know that Suqqu is a Kanebo brand, but even so, they are not buying it because it is an E’quipe brand either. They simply like Suqqu so they buy Suqqu. Or they like Kate so they buy Kate. So I think the important thing is that through each brand we have been able to connect directly to our customers,” Murakami said. “Moving forward rather than purposely separating things, we will do the opposite and have cooperation between the different brands.”