TOKYO -- Japanese beauty product maker Kao will eliminate 40% of its cosmetics brands to focus on names popular around Asia and the world as it aims to improve the profitability of its makeup business.
The company will discontinue about 20 labels, such as Dada and Raphaie, out of its lineup of around 50, comprising about 10% of the cosmetics segment's sales. It is encouraging clients and customers to switch to remaining lines instead.
Kao will concentrate investment on 11 global brands like Sensai and Kanebo as well as eight ones focused on the domestic market such as Evita, it said in a release outlining its new cosmetics strategy in May. About 10 specialty brands not mentioned then, such as its Tesshu Collection line of brushes, will also continue to receive investment.
The company will also reorganize its portfolio into the new categories of "counseling," for high-priced products handled by in-store beauty counselors, and "self-service." It previously classified its brands by retailer type, such as department store or mass retailer. Struggling labels that do not fit into the new categories will be terminated.
Kao purchased Kanebo Cosmetics from Japan's Industrial Revitalization Corp. for about 400 billion yen ($3.56 billion at current rates) in 2006 to accelerate growth in its makeup business. The two companies have gradually integrated their research and production divisions, as well as their corporate cultures.
They have not, however, begun to consolidate their product offerings until now. The integration process that started in 2012 only recently ended in January when the pair combined their sales companies and marketing divisions. Kao took the milestone as an opportunity to refine its lineup.
The cosmetics business booked 242.7 billion yen in sales for the year ended December, 16% of the total. But its operating margin of 2.1% was far below the group figure of 13.7%, which was propped up by relatively profitable cleaning products and diapers. The segment has few competitive premium brands and has not been successful at attracting visitors to Japan. Profitability has also been dampened by rivals like Shiseido.
Kao wants to lift the cosmetics segment's sales above 300 billion yen in fiscal 2020 by expanding investment in high-end products through reorganizing its brands. It is also aiming for an operating margin of 10% and for 25% of sales to come from overseas.
The global market for cosmetics grew 5.5% in 2017 to roughly $324.8 billion, according to Euromonitor International. Upmarket products are expected to grow more than 5% annually over the next five years.