Cosmetics to Japan

Trends and opportunities

The market

Japan is the world’s third largest cosmetics market. Although the market continues to shrink due to the nation’s demographic changes, it remains important in the global context. Brands that are successful in Japan also raise their profile in other northeast Asian markets.

In 2014 Japan’s cosmetics market was valued at JPY291 billion, a 0.5 per cent growth over the previous year, and in line with expectations from industry experts (Source: Yano Keizai Kenkyusho, Cosmetics Industry 2015, October 2015). A weaker Japanese yen as well as the adjustment to an increase in consumption tax (from 5 per cent to 8 per cent) negatively impacted on higher-end cosmetics purchases. However, purchases by inbound tourists of duty free, made-in-Japan cosmetics (Source: CosmeticsDesign - Asia.com, 6 September 2016) has boosted overall cosmetics sales.

According to the Cosmetics Importers Association of Japan, the value of imported cosmetics increased to JPY 237 billion in 2015. A weak yen attracted tourists particularly from China, Korea and Taiwan (Source: Nihon Keizai Shimbun, 24 August 2016). Of those, Chinese tourists were the largest purchasers of luxury cosmetic brands (Source: Euromoniter International, April 2016) and contributed to pushing up overall cosmetics sales.

With a growing mature domestic market, products that promote anti-aging and skin moisturising properties are expected to continue to be popular. This market segment is showing a preference for low maintenance beauty regimes which in turn translates to high functionality. Skin care has traditionally been more popular in Japan (in comparison to make up in Western countries) and consumers of all demographics are well versed in brands and quality. Expectations of packaging design and quality amongst consumers are exceptionally high.

There is increasing competition in the cosmetics markets from domestic manufacturers from other industries such as pharmaceutical, food, beverage and photographic film industry. Major Japanese companies have in-house R&D capability and utilise technical expertise from their product offerings in their traditional business sectors. Many retailers, including supermarkets, convenience stores and catalogue/ e-commerce companies have launched private label brands, and the contract manufacturers are also creating their own brands and entering the market.

Opportunities

The Japanese market is always looking for innovative new cosmetics brands that attract new consumers. Brands must demonstrate a strong concept and unique ingredients to gain buyers’ attention. Consumers tend to be influenced by the whole product (functionality, packaging, appeal) so maintaining brand awareness and education is extremely important. Use of celebrity endorsement is still effective in this market.

Australian cosmetics are expected to be made in Australia. The clean and green image of Australia also equates to the expectation of the use of Australian cosmetics ingredients. Organic cosmetics are expected to have certification from an internationally known organic accreditation organisation.

In products that cannot appeal through the use of Australian ingredients, then there is an expectation of clear functionality, and top market share, in Australia, and if possible, other markets. Cosmeceuticals should have proven, solid scientific evidence of their effectiveness.

Japanese cosmetic consumers are savvy and well educated about cosmetic products. Because Australian cosmetics usually sit in the high-end cosmetics range, it is recommended for brands to have third party scientifically proven and demonstrable functionality as selling points to convince consumers of their benefits.

Organic cosmetics

The organic/natural cosmetics market growth was estimated to be A$1.3 billion in 2016 (Source: Yano Keizai Kenkyusho). This product segment is expected to see higher growth than generic cosmetics, and around 5 per cent year-on-year growth for the next few years. The number of both domestic and imported organic and natural brands continues to grow, making it a very crowded market.

The challenges for organic and natural cosmetics are that, due to the relative scarceness of ingredients that can be used in this product category (as opposed to chemical ingredients used in generic cosmetics), the size of companies in this segment remain fairly small. This usually results in a relatively small budget for PR and marketing purposes. Also, as it usually takes longer for natural and organic cosmetics to show their effectiveness, it may take longer to capture repeat customers and sales.

The positives for organic and natural cosmetics is that the category is seen to be fashionable by younger customers who are more active in utilising social networking services (SNS) to discuss products of preference (or not).

Competitive environment

The cosmetics market in Japan is one of the most sophisticated, demanding and competitive markets in the world. There are more than 1,000 cosmetic manufacturers operating in Japan, including subsidiaries of foreign companies. The market share is overwhelmingly Japanese, with the top three brands (Shiseido, Kao and Kanebo) taking more than half of the market share.

United States and French brands dominate close to half of imported cosmetics to Japan. There are close to 20 Australian brands retailing in Japan, and Australian brands have a positive position in the organic and natural cosmetics segment. However, Australia is not yet in the top 10 of country of origin.

Buyer perception of Australian product content is positive, however, packaging is generally considered to be a weakness. Consumers have commented that packaging is viewed as quite ‘ordinary’. Increased efforts by suppliers to improve this aspect are highly welcome.

Tariffs, regulations and customs

Under the Japanese Pharmaceuticals Affairs Law, companies that import, wholesale, retail and market cosmetics for business purposes require a manufacturer/importer and distributor of cosmetics license from the Japanese Ministry of Health, Labour and Welfare.

Marketing your products and services

A unique value proposition is necessary for brands attempting to enter the market for the first time. With Japanese consumers buying into ‘the whole deal’ it is important to have a combination of exclusiveness, unique ingredients, strong concept, original story and high quality design and packaging.

Appropriate pricing is important. With internet and international travel, Japanese cosmetics consumers are aware of, and compare brand prices with the country of origin and recommended retail price (RRP) in Japan. When establishing export pricing, it is important to consider margins for an importer, wholesaler, retailer as well as transportation costs and consumption tax. An ideal price will be within 120-130 per cent of the Australian RRP. Suppliers should understand that the Japanese consumers are far more price sensitive than general Australian perceptions and/or expectations.

Demonstration of unique features such as functionality or ingredients, is essential in a crowded market. This is why ‘having a story’ is crucial to success.

The use of SNS is becoming increasingly important for successful marketing of new products, particularly to a younger demographic. Having mini-celebrities and influential bloggers associated with your product is also important in reaching a larger audience.

Market entry

To successfully market your product in Japan, exporters should consider:

• Working with, and be guided by your local Austrade representative to ensure a customised market entry strategy is implemented and your products meet the specific needs of buyers and customers.
• Monitoring the cosmetics industry to identify changes and growing trends that may affect marketing strategies.
• Developing relationships with local partners and/or distributors to facilitate ease of entry.
• Being creative, unique and having a long-term commitment to the market.

Distribution channels

The Japanese cosmetics market has three main channels: a high-end market, a budget market and e-commerce.

The high-end market is comprised of luxury brands, both domestic and international. These can usually be found in department stores and sold over the counter by personal advisors and make-up artists. Imported organic and natural cosmetic brands usually fall into this category and are sold in department stores, cosmetic specialty stores and lifestyle stores.

The budget market is made up by supermarkets, convenience stores and drug stores. Products sold in this segment are usually second tier brands of the top domestic manufacturers.

E-commerce has emerged in recent years as a growing distribution channel for cosmetics. Omni-channelling is a given for products already sold in market; a bricks-and-mortar brand will usually have their own website, be sold through their retailer’s website and sometimes sold through websites created by wholesalers. For major brands (both domestic and international) there are discount cosmetics sites in Japanese, and the product delivered from overseas warehouses, often from Hong Kong, with free shipping.

There are self-professed ‘cosme freeku’ (cosmetics obsessives) who scour internet sites – in Japanese - looking for cosmetics not sold in Japan. The main characteristics of brands that are introduced on these sites are the quality of the packaging and ‘puchi-pura’ (petite pricing). Foreign brands that have exited the market are often purchased by fans through e-commerce.

Selling to Japanese consumers directly via e-commerce from Australia is possible through two major platforms, Amazon Japan and Rakuten. In both cases, the product must be sent directly to the consumer as both companies adhere to Japanese regulations that products warehoused and freight-forwarded in Japan must have an importer. The maximum number of products that can be shipped for individual use is 24 items. For more information, contact Austrade Japan.

Links and industry contacts

Cosmetics–related resources

Cosmetics Importers’ Association of Japan
Japan Cosmetics Industry Association (in Japanese)
Japan Cosmetic Suppliers Association

Government, business and trade resources

Ministry of Health, Labour and Welfare
Ministry of the Economy, Trade and Industry

Australian resources

Japan External Trade Organization (JETRO)

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

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