Naris Cosmetics closes in on a century of cosmetic excellence

Over the past couple of decades, Japan has seen the rise of manufacturers in South East Asia, who can replicate certain manufacturing processes and products at a cheaper cost. How have Japanese firms been able to remain so competitive in the face of this tough price competition?

That's a difficult question. To give you an overview of the cosmetics industry globally, it's very much based on customer preference and it's targeting female buyers. Toyota and Apple make complex products, but making cosmetics is even more difficult because it's up to the preference of the users. It's very difficult to become the number one company in the world.

In the 1980s, global companies such as Unilever, P&G and L'Oréal targeted Asian countries and considered Japan, China and Korea as being one market and made products for that, but it wasn't successful. That's because the market, or those countries, are actually separate with their own preferences. A common product did not apply to all the countries.

We, as a Japanese company, know that Asian markets like China, Japan and Korea, are totally different, so we can find a way to cater to the demands of each country. The western giants, however, considered Asia as being one market and that wasn't successful.

But at the same time, Japanese companies are experiencing Galapagos syndrome, where they know the Japanese market, but that's not applicable to overseas markets, and although Japanese cosmetics have advanced, there are not many Japanese cosmetics companies that are successful globally. Worldwide, there are many females and all of them have their own complex and transient preferences and it's very difficult to capture their needs.

We see that global manufacturers often try to have a more localized approach to local markets. How do you ensure that you understand the complexities of local populations, both in terms of their preferences and in terms of physical appearance?

In terms of cosmetics, there are two aspects to it. One is the cultural aspect and the other is the physical characteristics of each person, but we consider them together and try to cater to those needs. Biologically, we consider humans as humans, but it's up to what region and climate they’re living in that determines their skin structure and characteristics, and the amount of melanin that the person has. At the same time, culturally, the degree to which tanning is acceptable is also a factor we consider when trying to penetrate a market. Catering to such a wide range of factors is something Naris has not yet managed to achieve.

The Japanese population has the oldest average life expectancy in the world of eighty-five years. More than one third of the population is over sixty-five, which means a reduced labor force and less demand for products in general. How has this declining demographic affected your company and how are you reacting to this particular challenge?

With regard to the aging female population, we can’t label cosmetics as specifically being for the elderly because they won't use it then. What's important is to cater to the specific needs of each customer. The aging population means that the preferences of people are diversifying, and the skin structure and the condition of the skin is very different. Of course there's a correlation between age and skin condition, but it's not always easy to determine if a person requires more moisture, oil or what is required for their skin based simply on age.

So what we could do is make overarching categories for each skin type and offer products based on those to our customers through marketing and sales. One of our sales channels is door-to-door and that has been ongoing for over sixty or seventy years. We believe this will continue because even during the Covid period, the door-to-door sales did not decrease at all and there will be increasing demand on E-commerce and other channels. However, we're sure that door to door sales is the most effective means of providing our products to customers.

Coronavirus has been devastating for the world economy for a year and a half now. Can you tell us what are some of the mid to long term changes that the pandemic has accelerated at Naris Cosmetics and what was the impact of Covid on your company?

Regarding door-to-door sales, there hasn't been a drop in sales because our main product is skin care. Although people may stay at home and will continue to practice skin care, some women will take this opportunity to beautify their skin. They can't get to travel or go to good restaurants, so they invest in skin care products instead.

Last February when Covid was at its peak, we launched a new high end skin care essence product which sold very well, making record sales for our company. However, the non-door-to-door sales channels decreased because retail outlets had to be closed, so our sales were lower and at the same time, overseas sales also fell drastically.

CONC

Majesta

Overseas products

Factory

Head office

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Could you please share with us what you believe to be some of the key milestones in the firm's history?

NARIS Cosmetics was founded in 1932 and is celebrating its 90th anniversary this year. After World War II in 1945, the cosmetics industry emerged and companies like Shiseido, Kose and Kanebo became the major players.
Our company's breakthrough product is CONC, an exfoliating lotion that was launched in our fifth year of operation. CONC was developed by Mitsuyoshi Muraoka, the founder of NARIS Cosmetics who was also heavily involved as a researcher.

The goal of CONC is to remove the aging stratum corneum so that cosmetic products can better penetrate the skin. Our research on aging keratin has been going on for 85 years, and Naris now has the largest share of the domestic sales of exfoliating lotions.

While larger firms started using a very unique Japanese style of selling called OTC, where salespeople were dispatched to work in the actual retail outlets to do direct sales, smaller companies like ourselves went door to door to inform people about the correct way to use the "exfoliating lotion".

You make use of a number of different sales channels including mail order, e-commerce platforms, door-to-door and also through your own beauty salons. What are some of the advantages of having all these various different channels given the extra costs that they also involve?

Door-to-door sales is very effective because we can provide the correct products through direct communication with end users together with “How To Use” guidance and if we want to maintain profits, we should continue doing door-to-door. However, looking at the future, people are changing the way they purchase items in general, so we have to be flexible in adapting ourselves so it's easier for the customers to buy, and e-commerce is a part of that.

We are now trying to diversify into e-commerce and other sales channels. Although it may incur extra cost, it’s an investment for the future. At the same time, there's a dilemma whereby if we sell the same products both through door-to-door and e-commerce, people will prefer e-commerce and door-to-door sales will decrease. To avoid that, we are trying to change the products that are sold through different channels and change the pricing.

How would you describe the role that collaboration and co-creation plays in your business, and are you currently looking for partners either in Japan or overseas?

We attempted to collaborate in terms of manufacturing with local companies in China thirty-five years ago and in Thailand thirty years ago. Both failed because with joint ventures, you can get a discrepancy between investors regarding which direction to go in, and that led to failure.

What we are trying to do is go by ourselves to local areas and with a local sales agency. In Thailand, for example, we have a joint venture with a local company doing direct marketing sales and also in Vietnam, we have an agent that distributes our product. In Indonesia, we collaborate with a drug chain company. In Russia we also have an agent. We’re manufacturing in Japan and exporting products to those countries and either the local agents or a joint venture company takes care of the sales.

You started a joint venture in Thailand in 2013, and then the next year 2014, you moved into Vietnam. How have those projects been developing, and have the last ten years met your expectations for them?

Vietnam and Thailand are different stories. In Thailand, the joint venture partnership is an existing local direct marketing sales company and they wanted to sell high quality, Made-in-Japan cosmetics. However, the joint venture company is now deviating and is entering into the Chinese market and we cannot foresee exactly what the situation will be in the near future, but we hope to retain the sales channels of our products.

As for Vietnam, we established our own factory there with the purpose of reducing production costs and providing skin care products that would target the ASEAN market, as well as Japan. However, this hasn’t been very successful because in Japan, there's been a decrease in inbound demand, so overall, it's not going as well as we expected. But now, we are able to open up a new sales channel in Japan for the toiletries that are made in the Vietnamese factory. In the near future, we hope to increase sales from that operation.

The reason why the Vietnamese factory was not as successful as we had hoped is because we couldn’t source all the ingredients in the local area and had to export some from Japan, which increased the cost of the production, even though labor costs were lower. So it's important that cosmetics industries can source materials in the local area in Asian regions.

Looking forward, are there any other particular regions or areas that you consider key? Could you please elaborate for us a little more on your international strategy?

We are distributing to 18 countries right now. We are also putting effort into exporting to Europe, which is a very hard market. I don't think that any Japanese company has been successful in that market. We’re also looking into the Middle East. It’s a very interesting area because women use more cosmetics and they can still understand the quality of Japanese beauty products.  

Before Covid-19 we went everywhere in the world, but we can’t now, so we have to find a new way.

We used to go to two or three countries every month. Face to face communication was important, but it's been stopped since then.

China is good right now and sales haven’t decreased too much, but some of the ASEAN countries have shut themselves down so we couldn't connect with them for six to eight months. I think that our international division has to find a new way to communicate, but it’s difficult because with cosmetics you need to feel the texture and the smell. Those are very important factors in product development, which cannot be done using Zoom. Daily communications can be by zoom, but there are some things that we cannot do.

As you mentioned, we have been finding new partners locally and the partners are very important so when we want to try to move into more countries we have to have a good partner.

Cosmetics is not just about selling. There must be a two-way process between the seller and buyer because the seller will explain the products and the buyer can give feedback. Having a good partnership with a local company is very important in international business.

Let's say we come back to interview you again on the last day of your presidency. What would you like to tell us about your goals and dreams for the company by that time, and what would you like to have achieved by then?

The purpose of making cosmetics is to make people happy and I really feel that in Japan and overseas, there are many customers who really like our cosmetics and who gain happiness from them. My mission is to increase that happiness, as well as increase the number of people who can share that happiness with us.

On the last day of my presidency, I will reflect back on how much I achieved. People’s lives are limited in length, but companies are ongoing, so I really hope that our company will continue to pursue happiness for people. This ethos has been passed down from my predecessor, and it will be passed down to my successor. This is an ongoing, shared feeling.