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Kanebo Cosmetics Eyes Overseas Growth

Tokyo-based Kanebo Cosmetics Inc., whose acquisition by Kao Corp. was officially completed this week, is eyeing China, Europe and the U.S. as growth markets.

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NEW YORK — Tokyo-based Kanebo Cosmetics Inc., whose acquisition by Kao Corp. was officially completed this week, is eyeing China, Europe and the U.S. as growth markets.

Meanwhile, Kanebo Cosmetics is set to introduce in the U.S. a nine-item antiaging line called Sensai Silk, designed to target those in their late 20s and early 30s.

"In terms of growth, Asia — especially China — Europe and the U.S. have potential," said Kunihiko Yogo, chairman and chief executive officer of Kanebo Cosmetics Inc. Yogo, 48, was appointed to head the company when it was spun off from Kanebo Ltd. in May 2004 as part of a rescue deal with the Industrial Revitalization Corp. of Japan, which bought 86 percent of beleaguered Kanebo Ltd.

Among Yogo's first moves as ceo of Kanebo Cosmetics was to retrench the brand's distribution scheme in Europe and Asia. Kanebo Cosmetics, which at one time had a high-end positioning in Europe, Yogo said during an interview here last week, began "eroding" in Europe's mass market channel. So the company began closing European doors in fall 2004 and focused distribution on upscale venues. For instance, in the U.K. alone, Kanebo Cosmetics closed more than 180 doors — with the exception of Harrods.

"We had brand equity as prestige in Europe," said Yogo, who added that, once again, "the [European] strategy is focused on superprestige." Kanebo Cosmetics' European sales are roughly $60 million, according to industry sources, and its biggest markets are Germany, Italy and Spain.

Similarly, in China, Kanebo Cosmetics' distribution network stood at 260 doors, a number Yogo reduced to about 180 department store doors in major cities today. The company's major department store brand in that country is the Aqua assortment, which ranges in price from $80 to $100. Kanebo also was launched in the pharmacy channel in China in December.

"With China exploding now, we expect the drugstore channel to open up," said Yogo. Kanebo Cosmetics' biggest Asian markets include Taiwan, Thailand and Indonesia.

In the U.S., Yogo asserted, Kanebo Cosmetics will employ a strategy similar to the one implemented in Europe — "gradual, step-by-step distribution [growth]." There are now 27 doors of distribution in the U.S., including Saks Fifth Avenue, Barneys New York, Bergdorf Goodman and Takashimaya. Kanebo Cosmetics expects to open 10 new doors in the U.S. this year, all within existing retail chains. Kanebo Cosmetics' U.S. business is projected to reach about $10 million at retail this year, according to industry sources.

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So what does a turnaround specialist do once he's overhauled a $2 billion cosmetics brand's international distribution strategy?

Retire.

Yogo, whose career includes business consulting, a turnaround of troubled mobile phone reseller Hikari Tsushin and a managing director's role at the IRCJ, officially stepped down Tuesday as ceo of Kanebo Cosmetics. But, as a parting shot, he mandated an expansion of Kanebo Cosmetics' international business, which now generates about 8 percent of its revenues. In comparison, he noted, competitor Shiseido's international business generates about a quarter of its $5.9 billion in annual sales.

"I have been aggressive in terms of overseas expansion," Yogo contended. Nevertheless, "we should be 50-50 in the next 10 years," he said of Kanebo Cosmetics' domestic-versus-international sales ratio. "In 10 years, China's cosmetics market will be the same size as Japan's."

In addition to gradually expanding its U.S. distribution base this year, Kanebo Cosmetics will embark on a multistep product launch starting next month, called Sensai Silk.

Kanebo Cosmetics' research was able to "pinpoint the first symptoms of aging in the face," according to Yukie Fujita, marketing manager for Kanebo Cosmetics USA Inc. Individuals in their late 20s and early 30s "begin to notice fine lines and sagging," she said. Sensai Silk is designed to "stop" these signs, claimed Fujita.

Sensai Silk's key technology is said to stimulate production of heat shock protein, a naturally occurring material integral to normal protein function in skin cells. HSP is believed to begin diminishing in one's late 20s.

Four products, including Sensai Silk Soothing Cream; 10 Minutes Relaxing Mask; Softening Lotion in Light and Moist versions, and Emulsion in Light, Moist and Super Moist versions, will be launched next month.

Then, in April, Kanebo Cosmetics will introduce Intensive Eye Mask and Essence, followed in June by 10 Seconds Awakening Essence. The items will range in price from $50 to $100.

Industry sources estimate the Sensai Silk range could generate $2 million in first-year retail sales. Deluxe, 9-ml. samples will be used to promote Sensai Silk.

Kanebo Cosmetics' existing Sensai treatment collections, namely Sensai Premier — which features a 1.4-oz. cream for $650 — and Sensai Cellular Performance, generally target an older demographic. Sensai Premier has been "really successful since launch," said Yogo.

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"In the past 12 months, Kanebo [Cosmetics] has outperformed its business plan in terms of sales and profits," said Yogo, who noted Kanebo Cosmetics has 25 "focused" brands, a number that's down from 60 brands in recent years. "We decided to focus on 20 brands and introduce new brands where we [were lacking]," said Yogo.

As a result of Kao Corp.'s $2.27 billion acquisition of Kanebo Cosmetics, Kao is expected to grab an 18.7 percent share of the domestic Japanese market, which weighed in at $8.85 billion in 2004, with the exception of toiletries.

Shiseido held the largest share of cosmetics in Japan, with a 24.3 percent share, Yogo noted. The third-largest brand was Kose Corp., with 12.1 percent of the market.

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