Japanese O2O cosmetics firm ready to grow in Asean
Even though it started life as a pure online player that eventually became Japan’s largest cosmetics review website, istyle Inc has been busy opening physical cosmetics stores throughout Asia in response to the growing online-to-offline (O2O) trend. Istyle operates @cosme stores that bring together brands once found only in chain drugstores under one roof. It opened its first store in Japan in 2007 and expanded to China in 2014, followed by Hong Kong and Taiwan in 2017. In November it opened its first @ cosme store in Southeast Asia at the new Iconsiam shopping centre in Bangkok. It now has 26 stores in its home market and seven abroad. Istyle reported revenue for the financial year to June 30 of US$258 million, compared with $70.7 million four years ago, and a net profit of $10.72 million. Maintaining a strong focus in both the offline and online worlds is important, as online popularity helps to determine what gets sold in the stores, according to Tetsuro Yoshimatsu, the president and CEO of istyle Inc. “For the cosmetics industry, the words ‘customer’ and ‘consumer’ are completely different,” he told Asia Focus. “Consumers are the people who come to ‘like’ our websites and social media while customers are the people who actually go out and buy our products from cosmetics stores.” In Japan, istyle and @cosme have made it easy for both customers and consumers to find products that have high customer ratings online. They also let shoppers try out a variety of products, which appeals to a lot of Japanese women. Mr Yoshimatsu offers an example to explain how products end up on the shelves at @cosme: Assume that there are two products with identical content and cost of production. The difference is that one has received a million likes online and the other received only 10,000. If online popularity determined price, the value of the product that received more likes should be 100 times that of the other. But this is not true in reality, especially for the cosmetics industry, because it is all about the name of the brand, he pointed out. He said that most mainstream physical stores will buy the same quantity of two products, despite a clear difference in their online popularity, because they don’t have the data that his websites have been gathering since 1999. Armed with this information, istyle and @ cosme have a different strategy. “Popular physical stores will still buy brand-name products that are more visible on television, though even products that come from SMEs have received one million likes online,” he said. “Popularity on the internet doesn’t actually translate into real sales at stores, so I want to create stores that would buy more from SMEs with online popularity, when compared with brand-name products with lesser visibility online.” Cosmetic products at the Bangkok store vary from department store names such as Paul, Joe Beaute and Lunasol to affordable cosmetics like Canmake. There are also counselling and skin diagnosis spaces where staff who have received training in Japan can advise customers. Running water and amenities similar to those in Japan also make it easier for customers to test the products. There are also children’s and leisure spaces for anyone accompanying a customer to relax while she shops. Mr Yoshimatsu, who studied biotechnology at Tokyo University, said he saw a huge opportunity for beauty-related portals, leading him to establish istyle during the first internet boom in Japan in 1999. Drawing on ideas from his ex-wife, who worked in the cosmetics industry, he learned all he could about Japanese cosmetic brands. Inspired by the early success of Amazon.com, he also became a believer in the e-commerce business model. Back then, he wanted to do something similar to what Amazon had done with books, and he settled on cosmetics because people were eager to provide reviews of the products on the internet. “Another reason is because the marketing budget for cosmetics companies is huge when compared to others. For the food or fashion industry the marketing budget might be 2-4% of sales but for cosmetics it is around 15-20%,” he added. Mr Yoshimatsu, now 46, said user information is vital and the data his company has gathered over the years helps it select new products for people to view and shop whenever and wherever they want. “We are not just a media company and we are not only a retail company: we are a user database company and our business is to combine the user experience,” he said. “The websites, the mobile applications, social media and the physical stores are just contact points that we are providing. Maybe we will create a new contact point in the future such as events because user behaviour is changing,” he said, noting the influence of social media. Among the most-viewed videos on YouTube, he said, are those of influencers reviewing cosmetic products, and @ cosme has recognised this opportunity. “Customers and consumers do not care whether the influencers are South Koreas or Japanese who are using the Japanese cosmetic products. I want to create a company that enable users who are looking at those YouTube channels to be able to come and buy the products online or at our stores if they want to.” He expects that O2O retail will flourish in Southeast Asia, as long as companies are willing to be as “user oriented” as possible. When a person goes online to buy cosmetics, Mr Yoshimatsu said, she will most likely buy from a popular portal, such as Lazada, rather than looking for the website of the original store. And when shopping in the physical world, she is likely to go to a popular retail store such as Watsons, rather than looking for the original stores. Hence, there is no connection between the online and offline worlds. Mr Yoshimatsu believes any company that can connect the offline and online worlds together will be successful in the future. The advantage @cosme has in Thailand is that it is the only one of its kind that connects what people see on the internet with what they can see in the physical store. He expects the demand for Japanese cosmetics to continue to grow in Asean, but admits that @cosme has its work cut out to build a profile in the region. “In China, Hong Kong and Taiwan, @cosme does not really have to promote itself in those markets and this is something we have to seriously consider in Thailand,” he said, adding that the firm might seek a partnership with a platform company such as Facebook and Google to expand its online visibility in Asean.
“We are not just a media company and we are not only a retail company. We are a user database company and our business is to combine the user experience” TETSURO YOSHIMATSU President and CEO, istyle Inc