R&D and new products add an edge to Japanese cosmetics leader’s global push

Having guided Kosé as its President & CEO for almost a decade, can you share with us what you think have been the key contributors to Kosé’s success?

I took over Kosé nearly 10 years ago, in 2007. Kosé was celebrating its 60th anniversary and had acquired a good and solid reputation in the Asian markets, producing advanced cosmetics and great business results. In 2007 things started to get frenetic for Kosé. The company had expanded its business very smoothly for the past 60 years, and from 2007, when I took over the company, it was facing a landscape that was tough to sustain because of the rapidly changing market.

Unfortunately, in 2009, post Lehman Brothers recession, we found ourselves suffering from the market’s downturn. This was the year of the ‘Defensive Reform’ for us, in which we made internal changes for three consecutive years. In 2011, we knew we had to change from ‘Defensive Reform’ to ‘Offensive Reform’ positioning. But Japan was hit by a triple disaster, which delayed our ‘Offensive Reform’ from 2011-2012. We faced difficulties on the procurement and production side of our businesses. It was a difficult situation to overcome and hard to build closer relationships with our suppliers, but it made us stronger and prepared for the next process.

In 2012, Kosé started an aggressive ‘Offensive Reform’ process, which led to a successful performance in the domestic market, while simultaneously and effectively expanding its business to several other countries.

In 1997, we launched in the American market with the brand Awake that was sold at Neiman Marcus. Unfortunately, our business failed because we could not find a suitable distribution company. Flash forward to 2014, when our second attempt in the American market successfully launched with tarte cosmetics. We acquired 93.5% of the company. The CEO of tarte, Maureen Kelly, loves cosmetics, knew a lot about Kosé and loved the brand Awake. In 1999, she started her own company with similar timing to Awake in 1997. She recognized that Kosé was a very R&D-driven company with a strong roster of products, and simply put, was an excellent match for tarte.

Typically, most businesses use security for in-between procedures with regards to mergers and acquisitions, but we actually started our relationship face-to-face and built our acquisition from there. Like Kosé, tarte is also a cruelty-free brand, something Ms Kelly has been passionate about from day one.

Since acquiring tarte, the revenue has more than doubled. Tarte has become the most profitable brand in the group. We have also received valuable advice from their team on our new venture, One by Kosé that we just launched with QVC.

Back in February we started a new strategy in the American market to sell and distribute our luxury brand, Decorté, featuring supermodel Kate Moss as our brand ambassador. We have an exclusive distribution agreement with Saks Fifth Avenue to roll out in their North American stores as well as their online site. We went into Toronto in February, California and New Jersey in March, and we are now expanding with five more locations in the US and Canada. Last October, I went to NY for a press event with beauty editors and the overwhelming response was very positive and encouraging. Journalists asked why after 70 years, we were coming to America. It was incredible to hear such feedback. I think the American beauty landscape is more than ready for us to bring back Japanese products.

Financial results from the third quarter released on January 29 show an increase in net sales of 20% and operating profit up by an impressive 90% yoy. What do you believe have been the key drivers that have contributed to these impressive growth figures and how do you hope to sustain them over the coming years?

Since 2007, we have strongly focused internally on probations, reformations, and revolutions. From there, we started to earn back our business, which has continued to increase since 2013, not only from a value standpoint, but also in terms of profits. We have gained a lot of significant business back from the local domestic market. The business cycle in domestic markets is improving considering Japan’s decreasing population, but with the inbound from other countries into Japan, we could clearly see the potential our products held, especially in foreign markets. We are ready to raise our global presence, which is why we are considering expanding fully into the global market.

Our brand Sekkisei is our flagship brand, not only in Japan, but also throughout Asia. It has a rich, 30-year history, which is a very interesting case in our company. In 1988, staff of French Vogue came to Japan for a Japanese Cosmetics Special featuring many Japanese companies and products. When they came to Kosé, the photographer took many photos of only Sekkisei versus our competitors. We didn’t expect the potential of the products [to be so big]. I believe Europeans and Americans chose Sekkisei because of the Japanese look and style.

Sekkisei is the largest brand in our company. We started selling the Sekkisei brand at new counters in department stores just in April of this year. The Japanese-styled design of these counters has been tasked to Kengo Kuma, the designer of the new Olympic stadium for the 2020 Tokyo Olympics. The first counter is in Abeno Harukas, a new skyscraper department store in Osaka. And we also received offers from a DFS in Hawaii.

As far as revenue, high-end Decorté and middle-tier Sekkisei are our stand-out brands generating the highest revenues.

Your Vision 2020 is expected to help you grow into a company that has a truly global presence, with management targeting sales of 250 billion yen by 2020. What are the key strategies in place to aid you in achieving such targets and what do you believe are the key opportunities for Kosé’s expansion over the next four years?

Compared to competitors in Japan, only about half of our brands are labeled with the name Kosé. We have a lot of brands (for example Jill Stuart) that not many people recognize as being under Kosé, so this might be our marketing strategy. For 40 years we had a joint venture with L’Oréal in Japan.

From my grandfather to myself, this is our third generation working in the company. Throughout the years we have learned alongside a number of different valued brands like L’Oréal. A cornerstone in our strategy is to diversify our products and create various values to help us consolidate our position in the market. Many Japanese companies post the same company name on their brands, but we use different names, and some of our products are labeled without the company name.

We think the cosmetics world is about innovation, and we are constantly looking at diversifying and improving our products, while trying to better our business practices. So when we compare to other brands in Japan, Kosé has the strength to create high-prestige products with very profitable results. We are currently exploring global markets like India and Brazil. We are not only looking at regions, but also pursuing expanding our e-commerce channels. By 2020, we are looking to utilize our strengths to fully expand our global imprint.

Another key factor for the Vision 2020 and the company overall, is the strengthening and further reinforcing of the company’s brands on a global basis. How do you communicate your brands’ quality and superiority when entering new markets?

We do an incredible amount of research when we want to enter a new market in a new country. We conduct numerous studies in our R&D department, especially to test the effects of using our cosmetics. If you look at China for instance, although we are quite close geographically, products and consumer requirements differ significantly there. China has different climates and different preferences than Japan, and Chinese customers like different types of texture.

Our philosophy is a combination of intelligence and sensuousness so that in the creative process, we don’t just think about technology but also the sensory experience. It’s a precise Japanese-style method, where the final result is a very carefully fine-tuned product in order to give the customer the highest level of satisfaction.

For the last 70 years, Kosé has placed a great focus on its R&D activities, operating three research labs in Tokyo, which are close enough to one another that synergies and face-to-face communication is facilitated and promoted. How does your increased focus on R&D help Kosé add value to its wide range of cosmetic products?

Kosé was founded by my grandfather and my father was the chemist. Therefore, he put a lot of effort into R&D. If you visit our laboratory, you will feel the difference immediately. He graduated from Waseda University with a Ph.D. Normally in Japan, it is quite unusual to see laboratories in the Tokyo area, but Kosé has three lab premises located in Tokyo. The proximity between our research centers nearby and our marketing department enables a close relationship between our researchers and our marketers. These direct face-to-face exchanges help us gain efficiency and we can really observe how the reputations of our companies start and grow with new products.

Can you provide us with some insights as to some of the next products that we can expect from Kosé?

In our history, my grandfather and father have always put a strong emphasis on R&D in order to establish a serious credibility of the brand. Back then, they didn’t have a lot of money left for marketing, advertising, or to promote our products because everything was focused on R&D.

In the 1970s, we created many new category products such as the first powder foundation, and the first Beauty Serum, which hadn’t existed in the cosmetic industry (as far as we knew). And now, we just launched a high-water (to the content of 70%) foundation in a compact from ‘One by Kosé’ in the US market in February 2016 on QVC. So as I explained, as a result of the reform effort, we are ready to make a strategic investment in order to make an impact on our global challenge.