According to the Japanese personal care company’s third-quarter results, its cosmetics division reported a dismal sales decline in China of around 30% year over year.
The decline was attributed to the firm’s decision to manage and optimise inventory levels within its distribution network amid the ongoing slowdown in market growth and increased competition.
“While overall progress is being made as planned, a negative factor is the cosmetics business in China. Although China’s share in the overall Cosmetics Business is small… the market conditions which we expected would recover from the second half now seem to continue to slow down and we are optimising distribution inventory in response to this,” said Masakazu Negoro, managing executive officer, management finance
Negoro added that the outlook for the fourth quarter in China appeared unfavourable.
However, he highlighted that the company’s skin care brand Curél and freeplus saw substantial gains during the 11.11 mega shopping festival.
“Although the market in the fourth quarter is projected to decline by 5% year-on-year, shipments for the Curél derma care brand and freeplus, a hypoallergenic brand featuring Japanese and Chinese botanical extracts, saw a 20% increase on 11.11 compared to the same day last year,” said Negoro.
From the firm’s tentative assessment of the current situation, Kao has observed indications of a recovery in China.
“This is only a preliminary figure, though there are signs of recovery. We expect the market to grow by 2% to 5% in 2025, and we will adjust shipments to achieve optimal inventory under such conditions,” said Negoro.
Kao’s cosmetics devision is comprised of brands such as Kanebo, Sensai, KATE, Curél, and freeplus.
Cosmetics shakes business
The decline in China affected the division’s overall performance in Asia despite “steady” sales of cosmetics in other Asian markets.
Net sales in Asia recorded a decline of 25.8%.
The cosmetics division grew by 3.1% and 2.3% in Japan and Europe respectively.
Americas saw a slight decline of 1.9%.
This affected its firm’s overall consumer products business.
“Asia continued to see declining net sales down 10.8%, mainly due to significant slowdown in China centred around cosmetics. Excluding China, Asia’s total consumer products business net sales were down 2.7%, but profitability improved, with operating income growing 25%,” said Negoro.
Cosmetic sales declined by 3.7% on a like-for-like basis to JPY173.2bn (USD1.1bn)
Excluding China, cosmetic sales increased 3.1%.
Operating profit negative JPY7.9bn (USD50.7m), a decrease of JPY5.1bn (USD32.8m) from the same period last year.
The company initially forecasted during its interim earnings that its cosmetic business would break even for fiscal 2024. However, with the setbacks, the company is now anticipating an operating loss of about JYP3bn (USD19.3m).
