Interface News Reporter | Zhou Fangying
Interface News Editor | Xu Yue
Affected by Japan's discharge of nuclear wastewater, the leading Japanese cosmetics companies have been named in their financial reports for two consecutive quarters, and their revenue in the Chinese market has shown a sluggish trend.
Although daily cosmetics companies have expressed their confidence in the long-term investment in the Chinese market after the release of their 2023 annual reports, according to the National Bureau of Statistics, cosmetics retail sales in the first quarter have not kept up with the growth trend of total retail sales of consumer goods, with an increase of 2.2% lower than the 3.1% growth of the broader market. Combined with the impact of the nuclear sewage incident, the start of 2024 for daily cosmetics companies is obviously difficult.
Shiseido had said after the release of its 2023 earnings report that the Chinese market environment in the fourth quarter was severe, and the decline in sales was within expectations, but the company has seen a trend of bottoming out and moving towards recovery.
In the first quarter, Shiseido Group's revenue stopped falling, but the increase in revenue did not increase profits. Revenue increased by 3.9% year-on-year to 249.45 billion yen (about 11.58 billion yuan), and the net profit loss attributable to the parent company was 3.29 billion yen (about 150 million yuan). The loss was mainly due to the fact that the group was still in a period of structural adjustment, and at the beginning of the year, Shiseido announced an "early retirement" plan for 1,500 employees in Japan in order to reduce costs and increase efficiency, which led to nearly 20 billion yen in structural adjustment expenses in the first quarter.
But Shiseido said it saw hope of bottoming out in the Chinese market in the first quarter. During the period, the revenue of the Chinese market increased slightly to 55.48 billion yen (about 2.57 billion yuan) compared with the same period of the previous year, but excluding the impact of foreign exchange, it still decreased by 3.2% year-on-year; Core operating profit turned into a profit year-on-year, reaching 110 million yen (about 5 million yuan).
At the same time, Shiseido is gradually closing offline stores with poor profitability, having completed 15% of its annual plan in the first quarter, and expects more stores to close this year.
For example, the IPSA brand has already withdrawn a number of stores in early 2024, including China's first custom concept store in the heart of Lujiazui in Shanghai, which only opened at the end of December 2023. At that time, Shiseido responded, "The Infusa brand is making normal layout adjustments to the offline business part to better adapt to market changes and consumer needs." ”
The brands that performed better in the Chinese market during the period were CPB, Skin's Key and NARS, and the Shiseido brand was still affected by public opinion, and its revenue declined year-on-year. The Douyin platform and the high-end beauty category are the main drivers of Shiseido's online growth.
Overall, the Drunk Elephant brand has become the most outstanding brand in the entire group with a high growth rate of 30%. Recently, the Drunken Elephant brand has also been launched in the Chinese market through the high-end beauty retail chain brand Sephora and the official flagship store of the online Drunken Elephant.
Based on the information that new brands have entered the channel and the offline channel of old brands has shrunk, the Shiseido Group may shift its focus to online.
Kao Group, which has two divisions of consumer goods and industrial chemicals, increased revenue and net profit in the first quarter. However, the cosmetics business in the consumer goods business segment increased by 5.4% year-on-year to 54.6 billion yen (about 2.53 billion yuan) in the first quarter, or 3.4% at constant exchange rates. Operating profit decreased by 100 million yen to 4.7 billion yen (about 210 million yuan).
During the period, sales in the Chinese market continued to decline due to public opinion on the discharge of nuclear wastewater, especially the revenue of Curel, but the performance of FreePlus exceeded expectations, thanks to the rebranding and marketing efforts last year. At the beginning of 2023, Kao said that in order to improve the competitiveness of its cosmetics brand, Kerun and Florence, which were previously produced in Japan, will also be produced in China to better grasp the trend changes of local consumers.
Kao said that despite the decline in revenue, sales of an anti-red serum produced in China in the first quarter were strong. In addition, Biore Biore released two new products during the period, and its revenue in the first quarter increased by 24% year-on-year. The performance of SENSAI, another high-end brand that has just entered the Chinese market, was not mentioned in the financial report.
Also believing that the recovery time of the Chinese market may take longer is KOSE.
In the first quarter, KOSÉ Group's revenue and net profit also increased, reaching 77.5 billion yen (about 3.6 billion yuan) and 6.9 billion yen (about 320 million yuan) respectively. The sluggish revenue decline in China was offset by good growth in the Japanese home market and makeup brand Tarte.
In its earnings report, KOSÉ said that the revenue growth of new online platforms last year was not enough to offset the sluggish performance of existing online platforms. In terms of offline channels, activities aimed at VIP customers drove a certain increase in sales of high-end products.
It is worth noting that the official flagship store of KOSE brand Tmall has recently ended operation. In response to this in a conference call after the first quarterly report, KOSE Group said that the closure of KOSÉ's Tmall flagship store was due to the small sales volume and would not cause a significant impact, and brands such as Decorté still had their own Tmall flagship stores operating independently.
In addition to channel adjustments, KOSÉ Group is also controlling the cost of marketing in China, hoping to solve the current dilemma by reducing costs and increasing efficiency.
Although KOSÉ Group's revenue in China excluding travel retail fell by 25.1% in 2023, the group still conservatively expects revenue in China to recover to 5% growth in 2024. The high-end product lines of brands such as DECORTÉ and SEKKISEI will be the focus of investment, while KOSÉ will continue to strictly control online marketing expenses.
Due to the poor performance of the POLA brand, the revenue in the first quarter fell 3% to 40.89 billion yen (about 1.9 billion yuan), and the operating profit also fell 26%, but due to the impact of the previous year's non-recurring profit and loss, the net profit attributable to the parent increased by 14% to 3.13 billion yen (about 150 million yuan).
By segment, both beauty and real estate revenue declined, but the loss in beauty was heavier. Especially in the Chinese market, it was not until the end of 2023 that POLA ORBIS announced the establishment of its Chinese headquarters, in order to shorten the decision-making process and increase its investment in the Chinese market.
In the first quarter, only the Jurlique brand maintained growth in the Chinese market, and the Chinese market, which accounts for nearly half of the revenue, is also the brand's largest market.
BUT BY ALL ACCOUNTS, POLA ORBIS WOKE UP TOO LATE IN CHINA AND LACKED VIGOROUS INITIATIVES. In addition, under the sluggish demand for daily cosmetics, it is undoubtedly more difficult to revive the momentum.