Professional Documents
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Distribution System
Japan is the second-largest cosmetics market in the world after only the
U.S.A. According to statistics released by the Ministry of Economy, Trade
and Industry, the size of the Japanese cosmetics market reached US$12.5
billion/Euro 9.4 billion (ex-factory) in 2006.
Meanwhile the recent booming Spa market and the introduction of the
market for men's beauty-related goods and services are making Japanese
beauty market further enticing and expanding.
The volume of import cosmetic products has been increasing for nine
consecutive years since 1998.
One major factor behind the rising value of import cosmetic is the
deregulation of cosmetics imports in 2001. Another factor is that more
retailers than before outside cosmetics specialty stores are carrying
import cosmetic products, such as large drugstores, convenience stores,
general merchandise stores, variety shops and select shops.
Due to strict import regulations, the Japanese market has long been
considered a difficult one for foreign suppliers. Starting from 2001, new
rules for import cosmetics are consistent with international standards.
Japanese cosmetics manufacturers can be classified into those that sell directly through their shops,
those that sell through wholesalers, and those that sell door-to-door.
Distribution System
Importers & Wholesalers
Consumer cosmetics preferences are showing a clear polarization to products that offer clear functional benefits (e.g.,
lipsticks that do not rub off easily, skin care products that fights aging and provide protection against ultraviolet rays)
on one hand and products that are inexpensive but may not provide noticeable benefits on the other hand. Such clear
needs or price orientation with no middle ground is leading to changes in the traditional retail and distribution setup.
Retailers are forced to choose personal counseling and other value-added services to justify the higher prices or to
shift to a self-service system for providing lower prices.
Some importers distribute products through wholesalers, while others sell directly to retailers (e.g., department stores,
supermarkets, drugstores). Few wholesalers also conduct business directly with overseas manufacturers, and some
overseas manufacturers sell limited-edition products only to select department stores to target upscale customers.
Cosmetics are rarely handled by the major trading houses.
Door-to-Door Distribution
Overseas manufacturers selling door-to-door operate in much the same manner as their Japanese counterparts.
Offices across Japan distribute the merchandise to salespersons, usually women, who sell the products from their
homes.
Most overseas manufacturers start by distributing the products through an authorized Japanese agent to specialty
shops and department stores. After making some headway, the manufacturers then set up branch offices or Japanese
subsidiaries.
The removal of the resale price maintenance system and increased demand coming from younger consumers have led
to the decline in consulting sales. Consumers now exercise their own judgment in choosing the products. This has
resulted in increased cosmetics sales through mass retailers and direct mail.
Japan is the third largest cosmetics market after the European Union and
the United States. According to the European Cosmetic, Toiletry and
Perfumery Association, the Japanese market reached a volume of JPY 2,239
billion in 2004 at manufacturing/ex-factory sale prices (MSP). At retail sale
prices (RSP), total cosmetics and toiletries sales grew by 1% to JPY 3,323
billion in 2004, according to estimates.
Face and body care products form the main and the most dynamic
segment. Skin care products have been growing at an average of 5% each
year since 2002. It is also the segment where competition is at the
highest levels. The make-up segment has been relatively stable over the
recent years, despite a succession of negative and positive years. Hair
care products, the third main market segment, have been decreasing
constantly since 2000 but just recovered last year.
Foreign manufacturers may note with interest that despite their relatively
small market share (2 percent of the total) fragrances may constitute a
good opportunity for them. Contrary to other segments, the competition
from domestic manufacturers is relatively lower. "Major domestic
cosmetics companies have historically invested limited effort in
fragrances, instead concentrating on other sectors.
Since the implementation of the new cosmetics law in 2005 (PAL), the
accessibility to the Japanese cosmetic market has greatly improved. Even
if incomplete, the regulatory harmonisation with cosmetic rules
governing cosmetic products in the European Union allowed to reduce
red tape and to decrease administrative costs.
France and the United States are the main foreign suppliers of cosmetic
products in Japan. The two countries contribute 60 percent of the total of
imports. Other main suppliers are China, Italy, the United Kingdom and
Germany.
The most recent figures show that the total of imports slightly decreased
during the first semester of 2005 compared to 2004. Main suppliers
were affected very differently; imports from the US and the UK have
decreased by 6.5 percent and 22.4 percent respectively, while France and
China progressed.
When they install a sales area in a department store, cosmetics companies incur substantial costs. In addition to
decoration and other expenses, they also have to shoulder sales staff and advertising costs. These costs and business
habits are usually considered an obstacle to the entry of new brands in this channel.
On the other hand, the mass channel (ippan-hin) is usually supplied from independent wholesalers. Other
retail channels include door-to-door selling, direct selling and sales to professionals.
As far as sales results are considered, drugstores perform well and are now the most important distribution channel in
the country. Except for make-up, fragrances and skin care, they are leading the distribution of all products in the
sector. Large multi-storey drugstores selling complementary products, such as health and diet foods, as well as
cosmetics and toiletries and OTC medicines have been replacing small local pharmacies and the fierce competition
between the various chains leads to a strong pressure on retail prices. These Japanese chained drugstores are usually
located in very convenient places such as next to railway stations and inside large shopping malls. Alternatively, they
are located in out-of-town developments with large car parks.
Direct sales and door-to-door channels, which used to be the most popular distribution channels for cosmetics and
toiletries, continue to see a decline in value share. According to JETRO this is to be explained by a change in social
structures. "More women are staying in work after marriage, which is limiting recruitment of the sales personnel
needed for door-to-door sales, as well as the number of consumers who are at home when such personnel call.
Consumers also prefer to shop at retail outlets such as convenience stores and drugstores, where a wider range of
products is available."
Department stores have been strongly affected by the competition of chain drugstores, which have extended their
offer of certain skin care and make-up items and have benefited from the increasing consumer preference for self-
service, rather than counter-service. "The increasing strength of competing channels makes it unlikely that department
stores will increase their share dramatically in the future. The only sector in which department stores will continue to
dominate will be fragrances, where there remain very few alternative channels for purchasing premium fragrance
brands," forecasts the CIAJ.
Within the very specific Japanese environment, there are several trends and opportunities to take advantage of for
cosmetics makers. Ageing is certainly the strongest characteristic of the Japanese society today. More than 30 percent
of the population is over 60 years old already, and the country has one of the most rapidly ageing populations in the
world.
Ageing is likely to boost sales in certain sectors such as hair dyes (75% of hair colours value sales were accounted for
by products to cover grey hair in 2003) or premium skin care products. As in many other countries, Japanese women
and a growing proportion of men are ready to pay premium prices for products that can visibly reduce the external
signs of ageing. "Developing specialised products targeting middle-aged and older consumers and branding that
elevates companies and products above the competition will likely yield successful results, since middle-aged and
older consumers in Japan are generally loyal customers who do not easily change from one brand to another."
Spas, hot springs and sea therapies are also take advantage from the ageing of the Japanese population. There is a
strong traditional habit of sea baths in Japan and baths in volcanic hot water springs are also appreciated for their
health benefits. The Japanese government recently proposed financial incentives for the
development of activities that could both address health needs of the population and
contribute to the development of certain regional areas: hot springs and sea therapies are
included in the scheme.
- polarisation of products, with the increased popularity of upper premium at one end,
and other consumers (or the same consumers but for other products) more inclined to opt
for mass products.
Entering Japan successfully is mainly an issue of the ability and willingness of the foreign brand and manufacturer to
adjust to the Japanese market requirements. Herewith it is important to estimate own strength and ability to perform
as required by consumers in Japan. If a clear strategy is set (product range, sales channels, marketing tools e.g.) and
the right partners to perform are found, potentially high sales can be achieved importing and marketing a foreign
cosmetic brand to Japan on a long-term basis.
Ingredients 1. Are all products conform to the Japanese legal requirements (PAL)?
Business Type 2. Set up Japan branch -or- cooperate with a Japan distribution partner?
Sales Channels 3. Which channels are most suitable for sales in Japan (retail, hotels,
spas, salons, mail order, TV-shopping, internet, door-to-door, others)?
After running checks on the import ability of the products (concerning the Pharmaceutical Affairs Law Japan – issued
April 2005) to verify eligibility of imports, main issue should be to understand the importance of selecting a strategy
on entering the Japan market. Foreign brands usually select within one of the two main possibilities: (A) importing
through an importer / distributor or (B) establishing a Japan branch with Japanese staff. Both strategies include pro
and contra points.