In the next 15 years, Japan's aging population will create labor shortages but also opportunities in the beauty and salon industry due to increased spending by seniors and working women. Beauty Garage is addressing manpower challenges by investing in automation for their logistics centers, with a new advanced center opening next year. Their e-commerce platform, launched in 2003, has evolved to unify online and offline operations, catering to diverse clients and expanding into new sectors like acupuncture and pet grooming.
In the next 15 years, one-third of Japan’s population will be over the age of 60. This could lead to labor shortages as well as a shrinking domestic market. On the other hand, this also creates opportunities such as the use of specialized services and contributing to the healthy lifestyle of the older generation who tend to have greater financial means. For Beauty Garage in particular, what are the advantages and challenges that this demographic shift has presented, and how have you been reacting to them?
The shortage of manpower is the gravest issue that we are facing. We have a logistics center and business model that are heavily reliant on manpower. To overcome this issue, we are now trying to shift to more automated warehouses which will rely on fewer personnel to operate, and we are actively investing in automation technologies for our logistics centers. In May of next year, we will open our third logistics center which will be two grades higher than the current technology we use when it comes to automation. That is how we are trying to mitigate the impact of Japan’s demographic decline.
As for the opportunities that this situation presents for us, we believe that there will be a huge growth in the beauty and salon industry. With more senior people, there will be a greater interest in beauty and health, as they have a greater budget to spend on this sector. Also, the shortage of manpower will lead to more women working. With that, the amount of money they will be able to spend will increase, and this will contribute to the industry.
Interestingly, you mentioned that the beauty industry is bound to grow. In line with this, we have also seen a growth in e-commerce, with Japan now being the fourth-highest country in the world for e-commerce. This trend has also influenced B2B J-Beauty companies, especially those catering to professional hair salons, to recognize the potential of e-commerce for expanding their operations. As such, we know that in 2003, you launched the industry’s first online shop for professionals, the Beauty Garage Online Shop, and as a smartphone-only website in 2011. How has the Beauty Garage Online Shop evolved to meet the shifting demands and technological advancements within the B2B beauty industry since its establishment in 2003?
We launched our e-commerce channel in 2003. Originally our e-commerce channel focused on the sale of second-hand and reused beauty equipment. No registration was required and it was a catalog-based mail order service. We then enhanced our product line-up with cosmetics. It was around 2006 when we introduced a membership. The prices of beauty equipment could be seen openly on the online store. However, when it came to B2B cosmetics, members were required to log in to see the prices. In 2010, we introduced our VIP and points system. The uniqueness of our business is that we do not segregate our offline and online customers. We unify their membership and we maintain the same consistent inventory whether it be online or offline. That has turned into one of our strengths as an OMO. We were one of the earliest companies to combine our online and offline operations.
Our business model has evolved over the years. We first started as a company that sells second-hand beauty equipment. We then shifted to the sale of new beauty equipment. Since 2011, our focus has been on cosmetics. Acquiring repeat customers has been key to our business success.
In terms of integrating these aspects on the website, we are curious as to how you get your customers to shop and spend more. When you go to Amazon’s website, each time you buy something, it recommends other products which can lead to customers buying more. How has the design of your website evolved to its current state, and how were you able to become the number-one wholesaler and mail-order company in Japan?
One of the biggest strengths that we have in the development of our e-commerce platform is that we have had a very good teacher in Amazon. We have learned many lessons from them and at the same time, we have also introduced our unique B2B features. For example, the staff of the stores often order but the financial settlement is done by the headquarters or the director of the store. Other features include being able to accommodate limited budgets or providing estimates to our customers. These types of features are required in the B2B business. We also provide recommendations to our customers as you have mentioned.
We know that you provide your consultancy services to various clients including hair, nails, and eyelash salons and spas among many others. Your expertise expands to professionals, large companies, and freelance and home-based business owners. First, what are the key challenges that Beauty Garage faces in catering to this diverse range of business owners? Secondly, how have you been able to cater to different types of clients while ensuring the same level of quality and service?
We first consolidated our business model in the hair salon sector. From there, we applied it horizontally to similar businesses such as aesthetics, nail salons, and eyelash salons. This proved very successful and created synergies amongst these different business sectors. We are also very particular about personalizing our website for each user, and based on their ID and the sector they operate in, we provide different interfaces and recommendations.
There is a lot more potential for us to expand horizontally. For example, at the end of this month, we are entering into acupuncture and a more treatment-based type of business. Dental beauty could also be an option for us as well as the pet grooming industry. There are many industries with a lot of potential for us. We also have our Gym Garage which specializes in fitness. Beauty comes from wellness and well-being. However, when compared to Western countries, the amount of people who go to the gym in Japan is quite low. Also, from the perspective of preventative medicine, gyms are a growing market.
Your company has strategically differentiated itself by introducing a balanced mix of private branding (PB) and national branding (NB) appliances and cosmetics. We know that you supply a vast selection of salon products such as hairdressing products, and nail items among many others both through your PBs and NBs such as Nakano and Arimino. Could you discuss the innovative marketing and branding strategies employed by Beauty Garage to differentiate itself from private brand offerings and competitive products in the market?
In the early stages of our PB development, the purpose was to reduce the cost so that we could be more price-competitive. The Japanese conventional scheme involved manufacturers, wholesalers, and dealers before the products reached the salons. Commission was retrieved at every stage which made the costs very high. By cutting out these intermediaries and producing by ourselves before providing directly to the salon owners, we were able to become very price-competitive.
We could provide our products at a 70% discount on the list price of competitors’ products which gave us a pricing advantage. We were also able to order in mass quantities which further reduced the costs. Back then, we were competing against competitiors by providing new products from China and Korea and offering alternative options to the market.
An intriguing aspect of offering both PB products and NB products is that you are competing with some of those brands. How do you ensure that when creating your own PB products, especially in the case of more consumable products such as eyelashes and serums, you do not step on the toes of your competitors?
At first, the price was the main strength of our PB products. However, value-added aspects such as our products’ uniqueness, functionality, and design are now their main strengths. By having a direct relationship with the users, we can listen to their needs and provide them with the solutions they require through our products. Around 70% of our beauty equipment sales come from private brands, while more than 75% of our cosmetics sales come from NBs. Our strategy involves making more PBs for beauty equipment, but limiting our PBs in cosmetics as we want to deal more with major Japanese brands.
In addition to the divisions that you have already mentioned, we know that you also have your solutions business which encompasses a wide range of services aimed at supporting beauty salon owners throughout various stages of their businesses from inception to management. Here you provide comprehensive support including start-up assistance and managing consultancy among many other services. It is predicted that the number of startups will increase in the coming years at a CAGR of 6% and that the sector will be worth USD 217 billion by 2026. How does Beauty Garage tailor its business start-up support services to meet the unique needs and requirements of individual salon owners?
The consultancy and support service that we provide is a comprehensive one-stop service that provides many advantages for start-ups who may not have sufficient knowledge of the field. For example, we instruct them on attaining finances, finding the property, designing the interior of the salon, creating a system, and even making and printing out their business cards. Our comprehensive service is very helpful for start-ups. Introducing such a service creates multiple entry points for them to access our distribution and designing business which is our core business. This allows us to acquire more customers as we provide these start-ups with a pathway to our commerce business. Each month, we have around 4,500 newly opened accounts.
We saw that Beauty Garage has seen constant growth in its sales since its founding, and more specifically in the last decade which saw you double your profits. We know that your goal for 2025 is to reach JPY 35 billion in sales. Could you tell us how you plan to do this?
It is difficult to explain in simple words how we plan to achieve JPY 35 billion in turnover for 2025. There is a clear delineation in the midterm plan that we have formulated. It is very important for us to first consolidate our position as the number-one beauty e-commerce platformer. Many companies are entering this field as it has become a very popular area. Even Amazon has recently entered into the B2B beauty equipment tools distribution business. We refer to this as the “coming of the Black Ship” and liken this to the arrival of the US ships to Japan in the past to open up Japan’s ports. We want to first expedite our process of consolidating our number-one position.
In addition to Beauty Garage’s domestic operations, you also operate overseas. On top of your two subsidiaries in Singapore and Vietnam, we know that you have an office in China as well as a showroom for your group company in Taiwan among many others. Can you tell us more about your overseas strategy and the regions you believe have the most growth potential from a business perspective?
We closed our showroom in Taiwan last year. The purpose of having our Taiwanese base was to enter the mainland China market. However, we realized that due to geopolitical reasons, it would be hard to conduct business in China. We currently have our showroom in Singapore, and we are looking to expand further into Southeast Asia. Our overseas business shrunk as a result of the Covid-19 pandemic. We are now trying to revitalize our overseas business and want to grow our overseas presence going forward. Last week, I was in Singapore to meet with our management there. While nothing has been decided yet, we are considering further expanding our presence there in the future.
When we talk to beauty companies, they always speak about the different types of skin and different ethnicities they cater their product line-ups. As you expand to new countries, such as Malaysia, Indonesia, or India perhaps, you will deal with different demands when it comes to beauty. Can you explain how you would deal with that in terms of your offerings? Would you use a different product line-up, or would you continue to offer the line-up that you currently offer?
We want to apply our business model overseas as a platformer. Our goal is not to promote Japanese products but rather to provide a platform to the local people so that they can purchase the products that are popular in their area. Our main focus is on Southeast Asia, since while there are slight differences, their hair and skin types are quite similar. The biggest factor that we need to take into account is that there are some restrictions on what ingredients can be sold when it comes to religions such as Buddhism and Islam. Localizing our product line-up is therefore necessary. However, as a platformer, our main purpose is to apply our business model to the region, starting with Malaysia and Indonesia. I lived in Jakarta, Indonesia before.
Your company was launched in 2003, and since then, your business has skyrocketed. If we were to come back to interview you again in 2033, for your company’s 30th anniversary, what would you like to have achieved by then that you could share with us in that interview?
As part of our midterm plan, our target is to become the number-one trader and dealer in the beauty salon sector. We also want to be number one in the beauty sector when it comes to B2B distribution. They are my main goals for the future.
For more details, explore their website at http://www.beautygarage.co.jp/
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