Tomorrow, Kose, a well-known Japanese cosmetics, will close its Tmall store that has been in operation for 14 years.
Coincidentally, judging from the 2023 financial reports released by several Japanese cosmetics companies, the business in China has declined to varying degrees.
Why can't Japanese cosmetics be sold in China?
In the mainland, in addition to domestic products, foreign brand cosmetics are mainly Korean, Japanese, and French.
Of these three, you sing and I will appear on the stage, and take turns to sit in the village.
According to the import data provided by the General Administration of Customs, from 2017 to 2018, South Korea became the first importer of Chinese cosmetics, from 2019 to 2021, Japan became the first importer of Chinese cosmetics, and from 2022, France became the first importer of Chinese cosmetics.
Since losing the No. 1 position in 2022, Japanese cosmetics have not recovered in the Chinese market.
According to the 2023 China Cosmetics Yearbook, the sales of cosmetics in Japan fell by 17% year-on-year in 2023.
Let's take a look at the operating data of the four major Japanese cosmetics companies in 2023.
Shiseido's net sales for the full year 2023 were 973 billion yen, down 8.8% year-on-year, operating profit was 28.1 billion yen, down 39.6% year-on-year, and net profit attributable to the parent company was 21.7 billion yen, down 36.4% year-on-year.
Specifically, Shiseido's net sales in the Japanese market were 259.9 billion yen, a year-on-year increase of 10%. Net sales in the Chinese market were 247.921 billion yen, down 4% year-on-year.
Shiseido's performance in each regional market
China is one of Shiseido's most important single markets, and Shiseido's full-year sales decline in 2023 is not unrelated to the shrinking Chinese market.
POLA ORBIS GROUP'S 2023 GROUP REVENUE WAS 173.3 BILLION YEN, UP 4.2% YEAR-ON-YEAR, BUT THE PROFITABILITY OF BRANDS IN THE CHINESE MARKET FELL 7.5%.
Although the Kao Group did not disclose sales in the Chinese market, it is assumed that the figures for the Chinese market will not be too good, considering that the revenue of the cosmetics business in the Asian market (excluding Japan) has decreased by 17.9%.
Kao Group's financial report data
The KOSE Group also only announced sales data for the Asia-Pacific market, which is 52.7 billion yen in 2023, a year-on-year decrease of 34.7%.
If KOSÉ's sales in China had grown steadily, it probably wouldn't have closed its Tmall store on April 19.
Announcement of the closure of KOSÉ stores
Here, the Correct Solution Bureau provides another set of observational data.
The annual Double 11 is not only a key node for major cosmetics brands to seize the market, but also provides us with a valuable perspective to observe the ups and downs of brands.
According to the "Brand Report Card on the First Day of Pre-sale in the Tmall Cosmetics Industry" released by "Tmall Cosmetics", during the Double 11 period in 2023, 60% of the top 20 brands are foreign brands.
Surprisingly, there is not a single Japanese brand in the top 20 brands.
Tmall beauty industry's first day of pre-sale brand report card Swipe up and down to view
Taking Shiseido as an example, the GMV on the first day of pre-sale on Double 11 in 2023 exceeded 100 million, but it fell by 74.1% year-on-year.
You must know that during the Double 11 in 2021, Shiseido's sales of only one product, Red Waist Essence, exceeded 100 million.
Japanese cosmetics are indeed a bit unsellable in China.
The reason why Japanese cosmetics are cold in China starts with the consumption characteristics of cosmetics.
Unlike other products, cosmetics are more susceptible to factors such as culture, events, etc.
For example, around 2015, Korean dramas such as "My Love from the Stars", "The Inheritors" and "Descendants of the Sun" became popular in China, and they also brought fire to Korean cosmetics.
In 2015, South Korea's cosmetics exports to China doubled year-on-year to $1.088 billion, a record high.
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From 2017 to 2018, South Korea became the No. 1 importer of cosmetics in China.
For Japanese cosmetics, the biggest variable affecting their sales in China is not culture, but nuclear wastewater.
Since the Fukushima nuclear accident in 2011, every time there has been a nuclear sewage problem, it has triggered a wave of returns of Japanese cosmetics.
On August 24, 2023, Japan's Fukushima Daiichi Nuclear Power Plant started discharging nuclear-contaminated water into the sea, which became a straw that crushed Japanese cosmetics.
This is also an important reason why Japanese cosmetics have been cold in the Double 11 promotion that started more than 2 months later.
Not to mention Japanese cosmetics, even Procter & Gamble's star product SK-II has also been implicated.
SK-II, which was born in Japan and claims to be the only source of water quality in Lake Biwa, is expected to see its sales in Greater China drop by 34% in 2023 due to the impact of nuclear wastewater.
The discharge of nuclear sewage into the sea in Japan can be seen in the great harm to Japanese cosmetics.
Consumers can't be blamed for this, cosmetics are used for personal care, and safety is the primary consideration.
The Japanese government's insistence on discharging nuclear sewage into the sea will inevitably cause consumer concerns.
Everyone has a love for beauty.
Although makeup has become a "compulsory course" for many people every day, cosmetics are not just needed, and consumers can easily find alternative products.
Japanese cosmetics are facing dual competition from European and American cosmetics and Chinese cosmetics.
To understand this competition, it is necessary to take into account the changes that have taken place in the Chinese cosmetics market.
According to Euromonitor, since 2017, the sales of high-end cosmetics in the Chinese market have maintained an average annual growth rate of more than 23%, and it is expected to surpass mass cosmetics by 2025.
China's high-end skin care products market size forecast Source: Compiled by Qianzhan Industry Research Institute
China's cosmetics as a whole are developing in the direction of "high-end", which is consistent with the trend of the global market.
In the high-end market, Japanese cosmetics brands have not been able to shake the status of European and American brands such as Estee Lauder, Lancôme, and SKII for the time being.
Domestic cosmetics brands are also vying for the Japanese cosmetics market.
With the blessing of the trend of "cultural confidence" and "Chinese national style", some consumers pay more attention to cost performance, which gives domestic brands the opportunity to rise.
For example, in the TOP20 of Douyin's beauty and skin care products list in 2023, domestic brands occupy half of the country, which is eye-catching.
2023 Douyin Beauty and Skin Care List TOP20 List
To sum up, Japanese cosmetics are pressed by European and American brands on the high-end track, and they can't compete with domestic brands in terms of cost performance.
There are big European and American brands "strong enemies" in the front, and there are Chinese domestic brands "chasing soldiers" in the back, and they are caught in the middle, and life is indeed a little difficult.
The Correction Bureau noted that although the Chinese market was cold, Japanese cosmetics did not give up on the Chinese market, but increased investment.
For example, although KOSE is about to close its Tmall flagship store, it has expanded its business on other e-commerce platforms.
Another example is Shiseido, which made it clear that it will "continue to increase its investment in China, actively participate in promoting local innovation, and further take root in China".
Kao Group also said it would increase its presence in the Chinese market, and its SENSAI brand opened a flagship store in Shanghai at the end of last year.
Behind the continuous increase in Japanese cosmetics is the strong potential of the Chinese market.
From a global perspective, China has surpassed the European Union and Japan to become the second largest consumer of cosmetics after the United States.
Judging from the data of previous years, in 2019, the retail sales of cosmetics in China were 299.2 billion yuan, and in 2023, they will increase to 414.2 billion yuan.
Except for negative growth in 2022, all other years were positive.
Statistics of total retail sales of cosmetics from 2019 to 2023 Data source: National Bureau of Statistics
Guosheng Securities Research Report predicts that by 2025, the consumption scale of only the core consumer group of cosmetics (urban women aged 15-59) will reach 653.1 billion yuan, with a compound annual growth rate of 15.2% in the next five years.
The huge market opportunities have attracted Japanese cosmetics companies to continue to increase their weight.
What's more, Shiseido has been deeply involved in the Chinese market for more than 40 years, and China has become its largest overseas market, so of course it will not give up easily.
As the impact of the above-mentioned nuclear wastewater problem fades over time, Japanese cosmetics companies are confident that they can regain the market by dispelling consumers' doubts in an open and transparent way.
The market for cosmetics in China is large and the competition is fierce.
Strong as European and American brands, it is not invincible in the Chinese market.
Korean cosmetics, which once topped the list, have become less influential in China than before, and some brands have lost in China.
In 2023, 11 domestic brands have reported that they will be shut down or withdrawn from the market.
From the point of view of the correct game, the most important thing in playing cards is not not not not to lose, but to lose easily and not to get off the table.
From this point of view, it is correct for Japanese cosmetics companies to increase their weight in China.
The key is, how can Japanese cosmetics companies that do not play the poker table play their cards again?
In this regard, Japanese cosmetics companies should learn from their competitors, European and American companies.
Compared with European and American companies, Japanese companies in China have too complex structures, too long decision-making paths, and too slow to react.
To sum up, it is not local enough.
Take Estee Lauder Group as an example, in the face of China's continuously changing e-commerce landscape, it has decisively increased the Douyin e-commerce platform.
During Singles' Day 2023, The Estée Lauder Companies' net sales on Douyin more than doubled.
Among them, the Group's Estee Lauder brand achieved triple-digit sales growth, ranked first in the high-end beauty category of Douyin in Chinese mainland, and its store live broadcast sales also ranked first.
Looking at L'Oreal, in order to better meet the needs of Chinese consumers, in addition to exporting its main products, it has also set up an investment company to invest in domestic brands such as Wenxian and Guanxia TO SUMMER.
L'Oréal's growth rate in China in the past five years
On the other hand, the Japanese cosmetics KOSE has a unclear positioning of various brands in China, leaving the impression that Chinese consumers are confused.
The Chinese market is rapidly iterating, and only by in-depth localization can we respond keenly and meet the needs of the market.
Japanese cosmetics companies are also taking note of this.
Shiseido's plan is to carry out operational reforms and streamline its organizational structure in China to improve productivity and efficiency. At the same time, it will sink its brand into third- to fifth-tier cities to compete with the growing middle class of consumers.
For future development, Shiseido emphasized in its financial report that "winning in China".
Only by deeply cultivating China and adapting to China can we win in China.
This is true for Japanese cosmetics companies, as well as for all foreign-owned companies.