Full-scale expansion: Why Kao is pinning its hopes on travel retail in China despite global tourism woes

13-Apr-2021 - Last updated on 13-Apr-2021 at 01:39 GMT

Kao has unveiled plans for a full-scale entry into China’s travel retail space. [Getty Images]

Kao has unveiled plans for a full-scale entry into China’s travel retail space – at both airports and downtown stores – on the back of booming offshore duty-free sales in the past year thanks to government efforts to boost domestic tourism.

Unsurprisingly, its first foray will be via Hainan Island, where the government last year increased the duty-free allowance for domestic travellers to 100,000RMB (US$15,000), up from 30,000RMB.

The move comes as Kao’s cosmetics business, which comprises of brands such as Kanebo, Freeplus, Curél and Molton Brown, suffered due to a significant decline in inbound demand and the impact of COVID-19 restrictions.

Despite this, the company believes the cosmetics division will remain vital to the company growth, said CEO Yoshihiro Hasebe during the company’s FY2020 earnings conference. “I firmly believe that cosmetics will continue to be a growth driver for sales and profits.”

In 2020, Kao’s sales in China increased more than 20% year-on-year on the back of its e-commerce initiatives and strength of brands Freeplus and Curél. As such, the firm sees tremendous opportunities for its prestige portfolio in China.

“Kao has already gained recognition for its masstige brands, including Freeplus, Curél, and others, and plans to strengthen its prestige brands with the opening of duty-free shops on Hainan Island from 2021,” said Masayuki Akahori, director of the travel retail department, cosmetics business, Kao.

China’s duty-free market has continued to grow rapidly despite the pandemic and Kao expects this to continue in 2021 and beyond.

“The travel retail channel is one of the most important channels, especially for experiencing prestige brands,” said Akahori.

“In the travel retail market, we can create touchpoints with our main target customers in China. By promoting brand awareness and trial through China’s travel retail channel, we see this as the gateway to the Chinese market.”

The company also sees this as an opportunity to reinforce the brand awareness of brands like SENSAI before international travel returns.

“SENSAI has already been rolled out in Europe and various preparations were underway to sell the product abroad. After COVID-19, Chinese customers will be able to go to Europe again, where they will have more opportunities to see SENSAI,” said Akahori.

‘Full-scale’ expansion ahead

This year, Kao will be launching a cosmetics counter at Hailu duty-free shopping complex in Sanya, a popular destination for tourism and business in the south of China’s Hainan Island.

The counter will offer Kao’s prestige brands SENSAI and est, with an exclusive sales area dedicated to est BIOMIMESIS VEIL, a popular range in China that uses Kao’s fine-fibre technology.

This launch will be a stepping-stone to a retail expansion in other parts of Hainan Island and elsewhere in China.

Akahori said the company has plans for full-scale expansion in the Chinese duty-free market. “Once the first sales counter opens on Hainan Island, Kao will establish more outlets in China’s duty-free market at a growing pace, positioning itself in both airports and inner-city stores.”

He added that Kao was targeting to launch 20 sales outlets within the next few years. “With every new opening, more potential customers will come into firsthand contact with Kao’s prestige brands.”