FRAGRANCES IN JAPAN - ANALYSIS

Country Report | Apr 2021

KEY DATA FINDINGS Market Sizes

The closure of department stores and lack of socialising resulting from measures Sales of Fragrances
introduced to contain COVID-19 undermine sales of fragrances in 2020 Retail Value RSP - JPY billion - Current - 2006-2025
Fragrances sees sales fall by 19% in current value terms in 2020 to reach JPY59 billion
Unit volumes decline by 17% in fragrances in 2020, while only mass women’s
59 Forecast
80
fragrances witness significant (upwards) movement in unit price
Chanel KK becomes the largest player in fragrances in 2020 despite its value share
falling by one percentage point to 12%
60
Fragrances is forecast to see a 6% CAGR in current value terms (5% at constant 2020
prices) over 2020-2025
40
2020 IMPACT
COVID-19 crisis halts fragrances’ positive progress
20
The COVID-19 crisis abruptly halted the significant progress that fragrances had been
making in the Japanese market. While the category has traditionally been
underdeveloped in Japan, mainly for cultural reasons, both imported and domestic
brands had begun to see significant growth prior to the pandemic. This was primarily 0
2006 2020 2025
due to domestic demand, with inbound tourists displaying a relatively low level of
interest in fragrances. Manufacturers played an important role in generating demand,
increasingly investing in promotional activities through digital platforms, such as social
media, in order to appeal to young consumers. Furthermore, fragrances, especially Sales Performance of Fragrances
fashion fragrances, increased in popularity due to Insta-bae, a Japanese buzz word for % Y-O-Y Retail Value RSP Growth 2006-2025
something that would look good on Instagram. Looking to further boost demand,
manufacturers aggressively launched new types of packaging for fragrances which were
easy to carry, with these including stick-type fragrances and mini bottles. These efforts
-18.6% Forecast
15%
succeeded in expanding the customer base to those who did not previously use
fragrances.
10%
However, restrictions on retailing, particularly the closure of department stores, and
the marked decline in social contact both in work and leisure contexts meant that the 5%
COVID-19 crisis significantly undermined demand for fragrances in 2020. The lack of
access to key physical retail outlets was particularly important in fragrances because, as 0%
in colour cosmetics, consumers often like to gain first-hand experience of a product
before committing to a purchase. The dramatic decline in inbound tourism also had an -5%
adverse effect on sales of fragrances, though this was less marked than in colour
cosmetics, in which foreign visitors are responsible for a significantly greater -10%
proportion of sales.
The importance of department stores to fragrances was underlined by the success of -15%
the Isetan Salon de Parfum event, held by Isetan department stores in 2020, the eighth
year of the event. Up to 2019, the event was only held in Shinjuku but in 2020 it -20%
2006 2020 2025
expanded to nationwide coverage. In 2019, the event was held for four days, while in
2020 it was held for seven days. Moreover, to cover the loss of consumers visiting
outlets due to the restrictions on admission because of COVID-19, the event was linked
to Meeco, the company's own e-commerce website for cosmetics. As a result, e- Sales of Fragrances by Category
commerce sales increased by 350% over the event period compared with 2019. In Retail Value RSP - JPY billion - Current - 2020 Growth Performance
addition, Isetan provided digital counselling using tablets to guide consumers to their
favourite scent, which was so popular that all slots were filled and there was a waiting Premium Fragrances
list. This indicates that interest in and demand for fragrances are rising amongst 41,8
consumers, while the large number and variety of brands makes it difficult for Mass Fragrances
beginners to find products that suit them. In this situation, department stores are 16,9
expected to remain a key channel as opportunities to try products (once this is allowed -25% 0% 10%
again) and professional counselling are well received by customers who have a sense
of security that expert staff will be able to select the best match for them. FRAGRANCES 58,8 CURRENT % CAGR % CAGR
YEAR % 2015-2020 2020-2025
GROWTH
Black tea scents prove popular in 2020
Fragrances and body care products scented with black tea proved popular in 2020. This
was in part because of the health associations of black tea and the fact that people
were increasingly seeking a sense of healing with the rising rate of COVID-19
infections. In addition, black tea is more easily accepted by Japanese consumers than
alternatives such as the scent of flowers or fruits, which tend to be liked by some and
disliked by others. Shiro’s Earl Grey Eau de Parfum was originally intended to be sold in

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physical stores so that people could actually try the Earl Grey scent, but the in-store Competitive Landscape
launch was postponed due to the pandemic. As a result, it was launched exclusively
online in August 2020, and sold out in nine hours, becoming a standard product in
November. New tea-related products are also appearing, which may be a sign of the Company Shares of Fragrances
desire to regain a peaceful everyday life, as consumers seek the comfort of scents that % Share (NBO) - Retail Value RSP - 2020
evoke a sense of tradition, health and calm.
Chanel KK 12.1%

Chanel gains the lead Coty Japan GK 10.1%

Fits Corp KK 8.2%
Chanel KK took top spot in fragrances from Bluebell Japan Ltd in 2020 despite its value
share declining, as Coty took over distribution of a number of brands, including Chloé Kosé Corp 6.5%
by Chloé, Marc Jacobs Daisy and a range of Gucci and Calvin Klein brands from the Estée Lauder Group Cos K... 5.5%
former category leader. As a result, Coty Japan GK became the second largest player in
fragrances in the Japanese market in 2020. International brands continued to dominate T Kawabe & Co Ltd 5.3%
fragrances in Japan during the year. This is mainly due to their strong presence in Christian Dior Japan KK,... 5.2%
premium fragrances, which accounts for a much higher share of sales than mass
Bluebell Japan Ltd 4.7%
fragrances. Domestic beauty manufacturers have traditionally invested not in
fragrances, but in skin care products and colour cosmetics, which they believe have AEON Forest Co Ltd 3.3%
more potential in Japan. Shiseido Co Ltd 2.9%
The dramatic changes to market conditions during the COVID-19 crisis served to Guerlain KK 2.4%
strengthen brands’ already growing commitment to the development of online
Kanebo Cosmetics Inc 1.6%
operations, including digital marketing and e-commerce. Bluebell was amongst the
fragrances players to focus on the development of its online activity before the Aesop Japan KK 1.5%
pandemic, with its online store, opened in 2018, being well-received by consumers. Mandom Corp 1.3%
Loewe Japan KK 1.0%
RECOVERY AND OPPORTUNITIES
L'Occitane Japon KK 0.9%
Positive outlook, though not without obstacles Givenchy KK, Parfums 0.8%
L'Oréal Japan Ltd 0.7%
In common with other beauty and personal care categories, fragrances is expected to
see a return to growth in 2021 as the waning of the immediate threat from COVID-19 Nippon Menard Cosmetic C... 0.6%
leads to a return to more normal social and economic activity and the revival of busy
Others 25.5%
consumer lifestyles involving high levels of social contact. With fragrances remaining
underdeveloped in the Japanese market compared with Western markets, there is
considerable room for further development during the forecast period, though the fact
that the category does not have a strongly established place amongst the priorities of
Japanese consumers may also make it vulnerable to consumers narrowing the focus of Brand Shares of Fragrances
their spending due to the uncertain economic conditions resulting from measures % Share (LBN) - Retail Value RSP - 2020
introduced to limit the spread of COVID-19. Nonetheless, the category is expected to
see strong year-on-year growth throughout the forecast period from 2021 onwards. Jill Stuart 3.6%
Premium brands are expected to benefit from significant levels of brand loyalty, as
well as the fact that the purchasing power of more affluent consumers has been less The Body Shop 3.3%
impacted by the COVID-19 crisis than that of lower-income consumers. Jo Malone London 3.1%

One of the most significant potential obstacles to the further development of Miss Dior Cherie EdT 2.5%
fragrances in Japan may come from the negative impact of rising awareness of “smell Chance 2.5%
harassment”, or sumehara - the act of causing discomfort to others via unpleasant
Chloé by Chloé 2.0%
smells. It is worth noting that whilst the sumehara concept accelerates sales of
products with fragrance claims, it could also negatively impact sales of fragrances, as Prada 1.8%
excessive use of perfumes is also considered to be sumehara. Although it depends on Lanvin Eclat D'Arpege 1.8%
the individual, Japanese people generally prefer light and natural scents, and there are
many people who dislike strong smells, so applying too much fragrance can cause Cosme Decorte 1.8%
distress or discomfort for certain people. There are even people who believe Chanel N°5 1.6%
odourlessness is the ultimate solution for sumehara prevention, because no-one can
feel discomfort if there is no smell at all. Considering the sensitivity of Japanese Coco Mademoiselle 1.5%
consumers to strong scents, product developments which fit Japanese cultural Aesop 1.5%
preferences could be a way to combat the negative impact of sumehara. Another threat
Tom Ford 1.4%
to the development of fragrances is the growing presence of alternative products with
fragrance claims, including fabric softeners which often carry milder scents and so are Dolce & Gabbana Light Bl... 1.3%
appreciated by Japanese consumers. These products also benefit from having a dual Gatsby 1.3%
purpose and thus are seen to represent good value, which is likely to be an important
factor in the context of the challenging economic environment resulting from measures Marc Jacobs Daisy 1.2%
introduced with the aim of containing COVID-19. J'adore 1.1%
Bvlgari pour Femme 1.1%
Potential for further development of subscription services
Salvatore Ferragamo Youn... 1.1%
Fragrance subscription services are expected to expand their user bases during the
Others 64.5%
forecast period. Coloria, provided by High Link, grew dramatically from March 2020 as
consumers were largely confined to their homes because of the pandemic. By 5-Year Trend
November, the service’s user base had increased sevenfold from 2019. The customer’s Increasing share Decreasing share No change
favoured perfume, chosen from around 500 different brands, including Chanel, Chloé,
Hermès and Gucci, is delivered to their home every month in a 4ml spray container. The
service gained popularity due to the fact that, while fragrances were previously used to
make a good impression on others when going out, as people spent more time at
home, there was a growing demand for mood enhancement. In addition, the service
attracted consumers who were interested in fragrances but never got used to using
them because of the high prices of many products, and the fact that bottle sizes are too
large for them to take a risk and try the product out. Customers can choose the perfume
they want to try each month, or can consult with a concierge who knows about the
fragrances online. With subscription services generally becoming more popular and
consumers wanting to try out different fragrances without a major outlay in a

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challenging economic environment, such services are expected to become more
prominent and popular as the forecast period progresses.

Environmental concerns to exert a growing influence

With many cosmetics companies taking actions to improve their environmental
footprints and work towards Sustainable Development Goals, and consumers'
environmental awareness continuing to increase, environmental factors are set to
exert a growing influence on the development of fragrances during the forecast period.
In December 2019, Zara launched a vegan fragrance that uses only natural ingredients
and no animal products, and in April 2020, DedCool, a clean fragrance brand from Los
Angeles, arrived in Japan for the first time. The brand’s products do not contain any
ingredients that are toxic to the environment or pose a risk to the human body, and use
100% biodegradable corn-derived alcohol. The amount of alcohol contained in the
product has been reduced by about 20% compared to conventional perfumes, while the
bottle is made of 100% recyclable glass. The forecast period is expected to see the
range of products with a positive environmental positioning continue to expand.

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