As consumer shopping habits in Japan evolve, the once-mighty department-store chains have started to lose some of their power, forcing them to come up with new business models and concept stores that will attract different types of customers. In the case of the prestige beauty market, this means that semi-self-select multibrand stores are popping up all over the country, giving shoppers more options for where (and how) to spend their money, and allowing prestige brands to reach a whole new range of customers.
The first location of this new crop of stores—a Cosmeme store owned by Aeon, one of Japan’s largest retailing groups—opened in a suburban mall outside of Tokyo in 2011. Since then, the success of the format in the Japanese market has been undeniable, with several other companies jumping on the bandwagon with their own chains of multibrand beauty stores. These include Isetan Mitsukoshi’s Isetan Mirror, Sumitomo Corporation’s In Clover, Hankyu’s Fruit Gathering and Takashimaya’s Million Doors. While the channel is still new in Japan, the majority of chains are reporting double-digit sales growth year on year.
“Currently, this type of store is relatively uncommon, with only a limited number of outlets in Japan, but the presence is likely to increase in the future,” says Yuiko Mitani, a research associate at Euromonitor International.
The recent success of these multibrand retailers is testament to just how much the Japanese market and the habits of its consumers have changed in the past decade and a half.
In 1999, both Sephora and Boots opened stores in Japan, at the same time announcing ambitious plans for aggressive expansion within the country. But both chains lasted barely two years before pulling out of the market entirely.
There are various theories as to why each failed in Japan, but most industry insiders agree that it was a combination of the stores not being able to stock products by major brands and consumer shopping habits not meshing with the kind of shopping experience on offer.
“Department stores have a strong power over the brands [they work with], and from the beginning Sephora didn’t carry these [prestige] brands. They weren’t able to get a full product lineup,” says Tomomi Fujita, merchandiser for In Clover, the luxury multibrand beauty retailer run by Sumitomo’s drugstore subsidiary, Tomod’s.
“The main reason [Sephora and Boots failed] was assortment, and secondly, people were not used to such a format,” agrees Takafumi Oba, general manager of Nars Japan. “Maybe the brands were a bit conservative about those channels. And at that time department-store sales were still good and growing, so therefore [brands] would rather have their image counter, like they have at department stores. But the situation has changed.”
Indeed. Euromonitor International valued Japan’s beauty and personal care market at 3.78 trillion yen, or $34.82 billion at current exchange rates, in 2013. This is up slightly from the previous year, but still lower than when the market peaked at 3.93 trillion yen, or $36.14 billion, in 2007. Analysts attribute this stagnation to demographic and economic drivers, such as the country’s aging population and overall economic decline. These same factors have affected Japan’s department stores, which offer customers a time-consuming, consultation-driven shopping experience that no longer resonates with younger shoppers. According to the Japan Department Stores Association, there were a total of 241 department stores in the country as of the end of August, down from 280 at the end of 2008.
“Historically speaking, counseling channels such as department stores and speciality stores were the strongest channels in Japan. In the 1980s however, general merchandise stores were widely spread all over Japan, and in the 1990s drugstores became popular. Both of these are considered to be ‘self-selection’ channels,” says Masahiko Uotani, president and chief executive officer of Shiseido. “These ‘semi-self-selection’ channels increasing recently are something that could bridge a gap between counseling and self-selection channels. They are receiving the customers who would need advice but feel a little bit annoyed with conventional counseling.”
While the market may not have been ready for luxury multibrand beauty stores at the time of Sephora’s arrival here, some retailers nevertheless saw the value in the format. Toshiharu Sakurai, buyer and store-development manager for the Isetan Mirror stores, says that Isetan had been mulling over the idea of rolling out Sephora-style beauty stores for about a decade before opening its first one in March 2012. There are now nine branches of Isetan Mirror, and Sakurai says the company hopes to have 20 to 30 in the near future.
Luxury brands themselves were also instrumental in getting the semi-self-selection channel up and running.
“Even in rural areas, Japanese department stores are closing, and the number of stores remaining is decreasing,” says In Clover’s Fujita. “As the department store business is becoming more difficult, the points of sale of international brands have decreased. Of course, as points of sale decrease, so do sales, so now many brands are looking at new ways of selling their products, such as e-commerce and these types of new concept stores.”
Klaus Fassbender, president of L’Oréal Japan, which sells brands including Lancôme, Yves Saint Laurent, Shu Uemura and Clarisonic in these new-format stores, is a strong supporter of the change: “We had been discussing with different retailers about how to capture new customers to the luxury business. So our job was to inspire a ‘new selective perfumery,’ which didn’t really exist in Japan, and then other luxury makers joined.”
Fassbender says that multibrand beauty stores aim to attract one of two types of customers: either those living in suburban areas where there are no department stores, or younger customers who don’t normally shop at department stores. Because of this strategy, brands and retailers alike agree that there is very little overlap in customers between department stores and multibrand stores.
“In Yokohama, we have a Takashimaya department store counter and also we have a Yokohama Sogo department store counter. And even though we got into Isetan Mirror in Lumine Yokohama, [our sales at] all three stores are growing,” says Nars’ Oba. “Normally in those areas, when you expand with one more store, cannibalization happens, but we haven’t had cannibalization. Based on the sales results, we think we [are gaining] new customers.”
But developing and growing these new retail formats hasn’t been without its challenges. While companies like Isetan Mitsukoshi, Takashimaya and Hankyu Hanshin have had no problem convincing brands to sell in their new concept stores because of their existing relationships with these brands through their department stores, other retailers have found it more difficult.
“When we first opened, we didn’t have any domestic brands. The brands maintained that because Tomod’s is a drugstore chain, it would be difficult [for us to succeed with prestige cosmetics],” says Fujita of In Clover. “It took about three years to get Addiction into the store. Even though we’ve been negotiating with them since before we opened, [the brand] just entered the store recently.”
Another obstacle is helping customers become comfortable with a style of shopping that may be unfamiliar to many of them.
“At first, we had customers asking things like whether or not they could touch the testers, or whether they could take the products from the drawers themselves to bring them to the register,” says Akiko Akutagawa, director of Hankyu’s multibrand beauty chain Fruit Gathering, which has a very successful store in Tokyo’s busy Shinagawa station.
“Japanese customers are very polite,” says Kikuko Fujita, president and chief executive officer of Cosmeme. “One of our challenges is to make them feel comfortable to test the products.”
One way that stores are putting customers at ease is by working with brands to offer better explanations of their products on wall and counter displays. Without this, it would be difficult for many Japanese customers to distinguish between a volumizing and a curling mascara, or even between a lip liner and an eyebrow pencil, based solely on the products’ packaging.
“This is the first time that luxury brands have given indications of what their products are on the shop displays,” says Fujita of Cosmeme. “Until now [explanations] were not written out clearly in Japanese, but with this, customers can understand things on their own, and then ask if they want more information. If customers know even just a little about the products, it’s easier to start a conversation [with a salesperson].”
In Clover has gone a step further and created themed stations for products such as foundation and mascara. At these stations, customers can easily compare similar products from different brands, even across different price points. For example, products by lower-priced domestic brands like Three might sit next to international prestige brands such as Bobbi Brown or Givenchy.
Million Doors aims to make customers feel comfortable by creating a homelike atmosphere. Misato Sugiura, director, says the store near Kawasaki station outside of Tokyo is modeled after an old Parisian apartment—there is even a “kitchen” area where customers can sample body-care products.
“Customers want to be able to browse many brands in a relaxed way, without feeling pressured to buy something,” Sugiura says.
Other unique elements that set multibrand stores apart include fragrance bars in the center of the store, where customers can sample scents from different brands; chairs and tables dotted with magazines for waiting partners or family members, and sinks for trying products like scrubs or Clarisonic’s cleansing devices.
As multibrand beauty retailers become more and more prominent in Japan, these kinds of differentiating factors are likely to become more important in order for the various chains to stand out from one another.
“One trend which may be more prominent in the future is stores having a particular theme or specialized type of products, such as a focus on natural and organic products, imported products or whitening products,” Mitani says.
Cosme Kitchen, a chain of stores that has been around for longer than most others in this category, has already taken this route. After a rocky start as a multibrand retailer of conventional cosmetics, it took a chance and decided to focus exclusively on the small but growing niche of natural and organic beauty products. The chain now has 25 stores across Japan and yearly sales of about 4 billion yen, or about $36.8 million at current exchange rates.