Do you know how your girl friend is buying her cosmetic goods?

Last week, one of SEA’s top beauty e-commerce site Hermo was acquired by 
istyle, a Japanese company which runs a beauty portal site @cosme. In the release, it was stated that istyle has secured 60% of the company for US$13.2 Mn. Regarding that Hermo had about $10Mn revenue in 2016, the revenue multiple is estimated to be 1.3x. I guess this deal was the second exit in the beauty sector in SEA followed by the acquisition of Luxola by Sephora in 2015.

It is absolutely exciting to see these ‘for woman’ businesses to succeed in SEA because as a woman, I feel that the success of a women sided business means that it is delivering many treats to women proportionally and helping them out, considering that women have just so many things to care about throughout their lives.

Buying cosmetic products is one women-specific habit (although it is not limited to women). Whenever a beauty related deal comes through our fund’s deal list, I always become in charge of the deal since in general women can understand the strength of the business better. I have no objection to this but as I investigated the market, I found out that the buying behavior greatly differs by regions and by trends and it was not easy to draw the whole picture even though I am a woman. I’m still not sure whether I’m seeing the SEA market correctly so to prepare information that I can share with entrepreneurs in the future of what’s it like in Japan, I’ll start gathering cosmetic related information here.

$21 Bn Cosmetics Market Still Growing in Japan

Data from Yano Research ($1=¥115)

Since 2015, the domestic cosmetics market has grown rapidly and the market is expected to continue to grow in 2016.

The main reasons for the market rise are (1) the increase of inbound travelers who aim to buy Japanese cosmetics and (2) the tax free system change in late 2014 which increased the number of tax free items.

In one drugstore located in central Osaka, travelers exceeded the store capacity that the drugstore needed to increase its shops to eliminate the long line at the cash register. You can see that the same drugstore is operating 6 stores located within few minutes walking distance. (That’s way more than a convenience store!)

Screenshot from Matsumotokiyoshi website

Cosmetics = Skin Care + Makeup + Others (at least in Japan)

Data from Yano Research

For those who are not quite familiar with cosmetic products, here is the breakdown of the market by product. Since hair care includes shampoo and conditioner which are often used by both men and women, ‘women targeted cosmetics’ means skin care and makeup product which occupy 68% of the Japanese market.

Although both skin care and makeup are something women put on their face, it is totally a different product and the factors that women prioritize differ greatly.

Women Spend More on Skin Care Than Makeup

Data from Pola Research Institute of Beauty & Culture

It was reported that 13% of the women interviewed said they spend over $65 on skin care every month. The median was around $20/month. The spending increases as women grow old and early 30s and 40s seem to be a point where they increase their spending.

Data from Pola Research Institute of Beauty & Culture

Whereas for makeup, only 4% spend over $65 and the median of the total was $11/month which is almost half of what they spend on skin care. Also the spending on makeup doesn’t change much after mid 30s, indicating a very different pattern from skin care.

Over 40% of Women Buy Both Skin Care & Makeup Products at a Drugstore

Data from PLANET INC as of 2013

I personally had an image that Japanese women like to buy cosmetics at department stores since they can try the product and ask the beauty advisors to recommend the product but the number shows a great gap from my expectation. Over 40% are buying at the drugstore. Compared to other countries, drugstores in Japan have many shelves that have only cosmetic goods and in most cases, there are cute pops and many testers that people can use. Here are some visual examples. (Keep in mind that it’s a drugstore!)

Photo by beauty staff
Photo by beauty staff
Photo by beauty staff

Why buy at a drugstore? Why through internet?

By now I believe you have some image of how women are buying cosmetic goods in Japan. To step in further to understand why they choose to buy through each channel, here are the result of a survey done by Planet Inc.

Regarding that most drugstores and e-commerce players are retailers, providing competitive pricing and their own loyalty program are basically what attract the customers. In addition, because e-commerce players don’t have physical limitations, preparing wide variety of selections and unique products help them capture those who aren’t satisfied with the drugstores. I believe as e-commerce becomes more personalized and people can buy their repeat items easily through internet, the positioning will become the opposite in the near future.

Cosmetic Brands in Japan

Starting with Shiseido, Japanese cosmetic brands are popular and some have become a global brand. The numbers for top cosmetic companies are the below.

Data from SPEEDA. Market cap as of April 4th 2017

Kao includes its toiletry product so just looking at cosmetic industry, currently Shiseido is the largest cosmetics manufacturer in Japan. Shiseido used to have numerous brands but it seems that they started to focus on 15 brands to enhance the brand recognition domestically and also globally. Here are some brand logos from the top 3 players.

Brand logo from brand site

Well, to conclude my post I’d like to share some trending products in Japan.

Trend for Skin Care: All in One Gel

As many women start to work a lot, “All in One Gel” is trending in the past 1 year or so. It is a product that has been out in the market quite a while but recent all in one gel is evolving. For example,

white uv emulsion

Kose’s new all in one cream is for saving time in the morning. After skin lotion, you only need to put on this and you can start putting on your foundation right away. You don’t need milky lotion or makeup base or sunscreen! It’s all included :)

Trend for Makeup: Enhanced Base Makeup

MAYBELLINE’s cushion foundation: Its a combination of BB cream and powder foundation so you don’t need to put both separately. This also saves time.

puremineral bb fresh cushion matte

Kose’s cool spray type foundation: It’s just horrible to put on makeup when its hot and you’re sweating. But cool BB spray is cool so it kinds of save you from the heat and it includes sunscreen so you don’t need to bother putting on both.

Cool Spray Foundation

Try them in the drugstores whenever you come to Japan :)

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