Kao is a fast-moving consumer goods (FMCG) company that deals in health, hygiene and cosmetic products. Its cosmetics business comprises of brands such as Kanebo, KATE, freeplus, Curél and Molton Brown.
In 2021, the company continued to be significantly impacted by the delayed market recovery, particularly in Japan, which experienced the repeated state of emergency declarations.
According to the firm’s latest 2021 full-year earnings report, the company saw its operating income decreased by 18.3% to JPY143.5bn (U$1.24bn). Net sales increased slightly by 0.3% on a like-for-like basis to JPY1,418.8bn (U$12.3bn)
Speaking during the earnings conference, president and CEO Yoshihiro Hasebe said that the company expects the impact of the pandemic to persist this year.
“COVID-19 hit us at the beginning of 2020, and we do believe that it will have an impact until the very end of this year.”
To that end, he said that Kao intends to make investments in a select group of brands and products moving forward.
“We need to allocate our investment and develop brands that could become number one. This is the direction we are headed for. And any of the brands that are out of this scope will be discontinued or divested.”
Hasebe revealed that the company had decided to discontinue or divest 28 brands and had already axed 15 of them.
“We will make sure we don't cause any inconvenience to our customers or distributors. We're doing this in stages, but we already discontinued 15 rounds out of 28 and we have 13 remaining,” he said.
The company did not give more details to the timeline or further specify which of its brands would be discontinued or divested.
However, it highlighted that focusing on its 11 global strategy brands (G11) and eight regional strategy (R8) brands would be crucial growth drivers for the firm moving forward.
The G11 and R8 brands include brands such as Sensai, Kanebo, KATE, Curél, Molton Brown, Freeplus, Allie, Lissage and Primavista.
Despite the difficulties of the past year, sales of its G11 brands grew by 8% and now account for 65% of total sales of its cosmetics business. However, the R8 portfolio as a whole saw sales decline by 8% as inbound demand continued to suffer.
Hasebe added that the company will focus its attention on “categories we cannot lose”. These core areas include laundry detergent, fabric softener and hair care.
“All of these three enjoy very high profitability but they are all faced with fierce competition and they're starting to face very difficult ground. In 2022, we want to make a lot of investments so that we can take on the new challenges between 2022 to 2024… We will not draw back from these three categories. By increasing these three categories we will strengthen our Reborn Kao strategy.”
Overall, Kao’s cosmetics business decreased 0.6% on a like-for-like basis. Operating income increased JPY5.1bn ($44m).