Speaking during the firm’s earnings conference, director and chief financial officer Shinichi Mochizuki said the firm was expecting tough times ahead in China.
“China is the most worrisome of these situations. Especially after April, how long the lockdown will last, our current estimate is that it will last until mid-June, so we expect the second quarter to have very difficult figures. Therefore, we are in a situation where we need to make a firm recovery plan for the second half of the fiscal year and beyond.”
Despite this, the company has plans to launch around 15 more Decorté counters in department stores as well as two more on the duty-free mecca of Hainan Island.
The company said its goals for Decorté moving forward were to raise awareness of its “higher-priced products, increasing the number of high-end customers, improving profitability and further increasing the value of this brand.”
Founded in 1970, Decorté Cosmetics is a cosmetics brand under Kosé’s high-prestige beauty portfolio. Last year, the company renewed Decorté’s Liposome Advanced Repair Serum for the first time in almost three decades as it prepared to push it globally.
These were part of ongoing efforts to raise awareness of Decorté in China. In January, the brand launched the Liposome Advanced Repair Serum with a campaign featuring Chinese celebrity Zhou Xun.
The company has also been actively driving the brand in Hainan and in February unveiled Decorté’s largest sales space ever at the Haikou Mission Hills resort on Hainan Island.
Last year, while China was hampered by the COVID-19 infection, demand for cosmetics remained high, with Decorté performing well in online and department store channels.
Decorté net sales were up to JPY89.5bn (U$778m) from JPY79bn (U$686.8m) in the previous year.
While the firm was optimistic about further growth this year, it was affected by the strict lockdowns in various Chinese cities including Shanghai and the travel restrictions that affected travel retail in Hainan.
According to the firm, Decorté had been performing in China and e-commerce sales had been up year on year with a successful International Women’s Day campaign in March.
While sales of Decorté were strong in markets like Japan, its first-quarter performance took a dip by 2.3% because of the negative impact of the overseas business.
The company was hoping to see some improvements in the second quarter, especially with the 6.18 Mid-Year Shopping Festival coming up in June.
“If the lockdown ends in the middle of June, we expect to see revenge consumption on June 18. We have the merchandise, and advertising and marketing materials to meet this demand.”
The company is also expecting the mid-year sales to aid recovery on Hainan Island.
“We think sales will be slow in the second quarter but are aiming for a recovery in sales around the June 18 shopping festival and in the second half of 2022,” Mochizuki said.
“We will step up sales promotion activities for Decorté Moisture Liposome. We will also use the tax-free e-commerce channel. At this time, we have not changed our sales target for 2022. Hainan Island accounts for a large share of our duty-free business in China.”
In the first quarter, net sales decreased 3.7% to JPY59bn (U$464m). Operating profit was JPY370m (2.9m) compared with a loss of JPY458m ($3.6m) the year before.