Visionary founder of cosmetics brand Dear Laura, Hulk Ishii, has strategically diversified the company’s portfolio by venturing into the pet industry with its groundbreaking product, the PROMO THERMO MAT.
The biggest rival to J-Beauty is K-beauty, which has gained momentum over the last few years due to the immense popularity of Korean culture through K-dramas and K-pop. Despite this, many Japanese firms are still leaders in the cosmetics field, such as Shiseido, Kao Chemicals, and Kosei. How have Japanese firms been able to maintain this leadership despite the regional competition we have seen, and what are the strengths and weaknesses of the Japanese cosmetic sector today?
The rise of K-beauty, widely embraced by younger generations, is a significant factor to consider. Historically, tensions existed between Japan and South Korea. However, the two countries have shared a positive relationship since the change in the South Korean administration.
Despite the heavy criticism faced by South Koreans purchasing Japanese products in the past, the younger Japanese generation shows little concern for the political history between the two nations. They readily embrace South Korean culture, including K-pop and K-beauty.
Meanwhile, Japanese cosmetics maintain popularity among the middle and elderly generations not only in Japan but also in the world. However, the younger Japanese demographic is increasingly disinterested in J-brand and J-beauty, shifting toward K-beauty, and it remains uncertain how long this trend will persist, possibly extending for the next 20 years. Similarly, younger generations in China exhibit a strong preference for Chinese cosmetics.
Looking ahead, the Japanese cosmetic industry may sustain this trend for the next decade or two, but it could face challenges thereafter. The same situation was seen in the home appliances market. The so-called made-in-Japan white home appliances like refrigerators have lost their global appeal. I think the J-beauty industry could reach the same outcome, approaching a critical period.
For a considerable time, consumers purchased Japanese cosmetics for their perceived safety and renowned quality, extending to other products like home appliances. In contrast, K-beauty offers fashion-oriented products through numerous South Korean cosmetic companies, with varying product quality across brands.
Japanese cosmetics are renowned for their consistently high quality, attracting consumers who prioritize excellence, regardless of the brand or company. This commitment to quality has long been the competitive advantage of Japanese cosmetic companies. However, their vulnerability lies in marketing strategies. Since the Japanese domestic market for cosmetics was relatively large, cosmetic companies didn't have to think about exporting their products, roughly speaking.
On the other hand, the South Korean cosmetic market, which is about half of its Japanese counterpart, adopted an early and proactive approach to international expansion. South Korean cosmetic companies began exporting their products abroad, supported by their government—a practice not as actively pursued by the Japanese government until recently.
A prevailing trend in Japanese industries, cosmetics included, has been a predominant focus on the domestic market, with less emphasis on overseas opportunities. As a result, Japanese companies often display less flexibility in adapting to societal and global changes. While Japanese companies have overcome challenges in the past, the current obstacle appears more formidable. I think this period is the start of the end, where Japanese companies may not experience a rapid V-shaped recovery in sales.
Quality is one of the key determiners of the success of Japanese cosmetics, particularly in the sales of specific products. You offer a variety of quality brands: PA and Eternal Basic for nails and Automatic Beauty, dedicated to eyelid and eyelid care-based products. Which one of these brands are you currently focusing on, and what are the strategies you're employing in order to ensure the successful growth of all your brands going forward?
Our Eternal brand has undergone a transformation and is now known as Ohana Mahaalo, which is slated to phase out next year. In the face of Japan's diminishing population and a contracting domestic market, our primary objective is to either grow sales or achieve a stable growth rate. Recognizing the challenges posed by operating in a shrinking market, we acknowledge the necessity of striving to strengthen our brands and products. Consequently, we’re forced to make “a decision to adopt or reject” whether might like it or not. We used to have enough domestic demand so that we could have several brands. We should focus, however, on workable brands for the shrinking population from now on.
We are placing a significant focus on our new nail brand, Playful. Although our longstanding PA nail product, with a history spanning 22 to 23 years, has steadily contributed to our sales, the newer Playful brand, introduced just four years ago, has demonstrated robust sales performance. Despite its higher price point at JPY 1,200 per bottle compared to the PA brand's JPY 300 per bottle, Playful has garnered strong sales.
The success of Playful gives us tips to survive the market. Given the difficulty in maintaining our sales, particularly in a market experiencing a demographic shift, introducing higher-priced products, exemplified by the success of Playful, emerges as an advantageous approach. We decided to cultivate this brand as much as possible to survive in this market.
Many other companies, especially in Japan, sell nail products. What are the competitive advantages of the Playful series? What makes them superior to other products in the market?
Playful's competitive edge lies in its innovative blend of nail color and nail care ingredients, setting it apart from competitors in the market. What further strengthens our position is our factory, strategically located in Kishiwada City in Osaka Prefecture, housing a dedicated research and development center. This empowers us to swiftly create and bring to market the products we envision, a distinct advantage compared to competitors.
While other prominent cosmetic companies Maybelline also offer nail polish, it often falls under a weaker category for them. In contrast, we have strategically positioned ourselves to place a concentrated focus on nail products, recognizing the potential and significance of this market segment.
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You've launched the Femille brand, which includes products like the Femille Feminine Wash FD - a freeze-dried bowl containing ingredients that are ideal for cleaning delicate zones in a woman like the vulva. Can you tell us more about this brand?
In anticipation of potential challenges, I have made the decision to expand our product lineup to the new category. As the founder, I am committed to embracing new challenges to ensure our continued success.
The FemTech industry is advancing in South Korea, and this product is actually also made in South Korea. Notably, the Japanese government finally started to support this industry about a couple of years ago. Our company deals with products in the niche field, which has allowed us to survive in this sector for more than 20 years. I believe it is imperative for us to venture into new territories and embrace fresh challenges to remain resilient and adaptable to future difficulties. I would often say “one win, nine losses will do.” to the employees. One win may save us in the long term, while nine losses are not serious ones for us to survive.
Inspired by the slogan of organizations like the CIA in American films about espionage, preparedness is a driving force for the worst-case scenario. I am not pessimistic about the existing brand. But we should have something new and consider numerous alternative options that can be a game-changer, especially in scenarios where the current product may face challenges in the market.
Can you tell us more about your R&D strategy? Are there any new products or technologies you have been working on that you would like to showcase?
Taking on new challenges may involve venturing into categories where we currently lack experience. As we independently develop products to address these fresh challenges, it's important to acknowledge the limitations within our human resources. Specifically, our team may not possess the expertise required for certain new categories, such as feminine wash. To overcome this challenge, our approach involves outsourcing the R&D functions to seasoned professionals in the respective fields.
In many of the interviews we’ve conducted in the cosmetics sector, a recurring theme in penetrating new markets and even developing new products is the significance of collaboration and partnerships with other firms - leveraging their expertise to create an innovative and unique product. Could you go into more detail about the role partnerships play in your business model? Are you currently looking for any partnerships in overseas markets?
Between 1986 and 1989, I served as a businessman stationed in New York, overseeing exports. During recent interactions with former colleagues, I observed that Japanese SME cosmetic companies were not prioritizing the exportation of their products. Given my background in international business, I have extensively traveled to numerous foreign countries before the onset of COVID-19. This experience enabled me to deliver effective product presentations through in-person visits to foreign nations. In line with our global expansion efforts, I am actively seeking local distributors who can comprehend and effectively sell our products within their respective markets. Our company has a dedicated international section and has established the necessary infrastructure to support and facilitate exports.
Another extremely important pillar that many firms are now starting to leverage, especially post-COVID, is e-commerce. Due to COVID, physical retail stores struggled immensely. However, in 2021, online sales jumped by 13%, and Japan became the fourth-largest e-commerce market in the world. How has your business adapted to take advantage of this growth in e-commerce that we have seen?
Initially, we held high expectations for the e-commerce market; however, the onset of the COVID-19 pandemic altered our projections. Given the circumstances of people staying at home, we anticipated a surge in sales for our self-nail product, especially with the closure of nail salons during the pandemic. Contrary to expectations, our sales did not experience the anticipated increase. Our main product, the PA series, caters to the mass market at an affordable price. This fact lets us know we can’t expect too much in e-commerce.
As part of contingency plans B or C, we are exploring a strategic shift toward higher-priced products, exemplified by the success of Playful, which offers substantial added value. This strategic move not only aligns with the dynamics of the e-commerce market but also positions us to thrive in the face of a shrinking market.
Moving forward, what countries or regions do you believe will be the key to the international growth of Dear Laura? What strategies will you employ to achieve that?
Our South Korean office primarily serves as an import hub for nail-related products, both from South Korea and China via a local trading company. Despite the inherent risks, we are strategically focusing on expanding our business in China, given its vast population and the historical affinity of Chinese consumers for Japanese products. However, we acknowledge the evolving preferences of Generation Z in China, which is like a ticking time bomb. This poses a potential challenge as they increasingly lean toward Chinese products, including those that used to like Japanese products five to 10 years ago.
While we anticipate that China will remain a significant market for us in the midterm, we recognize the need to diversify our strategy due to potential political risks and the occasional drastic measures taken by the Chinese government. Although a substantial portion of our export sales, ranging from 8% to 10%, currently come from the Chinese market, we are mindful of not over-relying on it. I think it will still grow for the next 10 to 20 years.
In addition to our focus on China, we are actively working to strengthen our presence in other key export markets. Taiwan, the US, and Australia rank as our second, third, and fourth biggest exporting countries, respectively. Leveraging my background in exporting, we aim to bolster our exports to these countries, recognizing their stability and market potential. I also tried to expand to other foreign countries, but they weren’t feasible.
Suppose we come back in 2030 on your company's 30th anniversary. As the company's president, what are some goals you would like to achieve?
My primary goal is to ensure the company's stability and survival. While this may sound passive, as the founder and leader of the company, it's a fundamental responsibility. Despite our current challenging situation, I believe there is still potential for growth, depending on our strategic approach. We have various contingency plans to navigate uncertainties, including Plan B, C, D, and so forth.
Although it’s not our main business, we are entering the pet business because it presents an interesting opportunity. The connection between the pet industry and the cosmetics sector is notable, as many cosmetic products designed for humans can also be utilized for animals. Leveraging our extensive experience as a cosmetic company, we can bring a unique perspective to the pet industry. As a result, we may great use of our cosmetic plants with ISO22716.
Our recent success in e-commerce with our PROMO THERMO MAT for dogs and cats, particularly the significant sales surge on Amazon in October, underscores the effectiveness of our approach. This surge was not driven by our existing products but rather by our introduction of high-added-value items.
I happened to be a leader of the cosmetic company. I admit that I don't fit the conventional mold of the industry. When I started producing products focusing on nails, I tried to combine nail color and accessories, which was unprecedented. This is my mindset as a business strategist with 25 years of experience in the cosmetic industry. I believe this strategic insight is transferable to other sectors, such as our entry into the pet industry. With identified growth potential in this field, I am eager to embrace the challenge.
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