KOSÉ Relies on China Sales Surge to Offset Domestic Slump

While duty-free counters in Japan remain quiet, Japanese beauty conglomerate KOSÉ Corporation is seeing high demand across its Chinese digital storefronts. On August 6, KOSÉ released its financial results for the first half of fiscal 2026, reporting net sales of 164.915 billion yen ($1.1 billion), up 2.7% year over year. However, operating profit fell 41.5% to 6.617 billion yen, while net profit attributable to the parent company dropped 19.9% to 5.682 billion yen.

Beneath the top-line numbers lies a sharp geographical split. KOSÉ's domestic Japanese business continues to contract, and its North American operations rely heavily on an acquired brand. In contrast, mainland China stood out as the group’s primary engine of growth, generating double-digit gains across e-commerce, department store counters, and travel retail.

China Drives Group Growth

KOSÉ's growth in the first half of 2026 was propelled almost entirely by Asian markets outside Japan, with mainland China delivering the strongest performance. Every retail channel in the market posted double-digit revenue increases. E-commerce sales reached 2.5 billion yen in the first quarter (up 38.8% from 1.8 billion yen a year earlier) and expanded to 3.7 billion yen in the second quarter (up 19.4% from 3.1 billion yen).

This online surge was driven by major promotional shopping festivals in March and June, where hero products like the Decorté AQ Pure Blackhead Dissolver deep cleansing oil set saw strong conversion rates across Chinese digital marketplaces.

In physical retail, luxury brand Decorté expanded its high-end client base by increasing the sales proportion of high-margin lines like Liposome and introducing dedicated in-store skincare consultation services. Second-quarter offline revenue rose nearly 30% year over year, from 1.4 billion yen to 1.8 billion yen.

Travel retail delivered even steeper growth in Hainan's duty-free market. First-quarter travel retail sales jumped 53.7% to 2.8 billion yen, followed by a 39.0% increase to 3.3 billion yen in the second quarter. KOSÉ attributed the recovery to operational normalization following earlier licensing adjustments and duty-free operator restructuring in Hainan, alongside renewed consumer demand.

KOSÉ maintains a distinct dual-brand division strategy in China: Decorté focuses on prestige positioning and profit generation, while mass-market brand Sekkisei drives consumer reach and lower-tier market penetration. Managed across general trade, cross-border e-commerce, and duty-free channels, local teams have adapted swiftly to regulatory and market shifts—even as international brands navigate wider policy updates like China's first mandatory national safety standard for cosmetics.

Yasuhiro Ishii, who was appointed Chairman of KOSÉ China in April 2026, noted that the priority for 2026 is building a complementary structure between prestige and mass tiers rather than choosing between them. Financial results from the first half indicate that this operational alignment is beginning to yield measurable returns.

Elsewhere in Asia, performance remained steady. Thai natural skincare and lifestyle brand Panpuri contributed additional momentum through new store openings and strong regional sales. Total revenue for Asia excluding Japan rose 24% to 26.141 billion yen.

Domestic Drag and Restructuring

In contrast to its momentum in China, KOSÉ's domestic home market continues to weigh on overall performance. First-half sales in Japan fell 3.4% to 101.196 billion yen, reducing the domestic market's share of total group revenue to 61.4%.

Management attributed the domestic decline to three primary factors: lower shipments for prestige brand Albion due to a slow recovery in flight capacity between China and Japan affecting domestic duty-free sales; market share losses for mass-market division KOSÉ Cosmeport amid intense drugstore competition; and a high prior-year comparison baseline for Decorté. While new product launches under ONE BY KOSÉ posted steady gains, single-brand growth was insufficient to offset broader domestic headwinds.

North American sales grew 5.9%, but structural imbalances persist. Growth was driven almost entirely by acquired brand Tarte, whose concealer line expanded retail distribution across Sephora and Kohl’s alongside viral social marketing campaigns on TikTok. Conversely, KOSÉ's proprietary brands, including Sekkisei, experienced significant declines due to the absence of large wholesale orders recorded during the same period in 2025.

Heavy promotional spending also compressed profitability. Albion’s 70th-anniversary marketing initiatives consumed approximately 3 billion yen in advertising and 2.5 billion yen in promotional expenses, contributing to an operating profit decline of nearly 20% for the cosmetics division. Meanwhile, operating profit for the mass-market division plunged 62.6% on a 3.4% revenue decline, squeezed by rising input costs and sluggish demand.

To address margin compression, KOSÉ transitioned to a pure holding company structure in January 2026 to separate strategic management from daily operations. The group announced plans to merge its manufacturing and sales subsidiaries by 2028 and reduce domestic staff by approximately 80 employees in early 2027 to streamline its headquarters organization.

For the second half of the year, KOSÉ plans to launch a new skincare brand, URUTANQ, and increase promotional support for its Make Keep setting spray line to stabilize mass-market performance. While strong growth in China offers a structural buffer, KOSÉ's corporate goal of raising overseas revenue above 50% will remain difficult to achieve unless its domestic Japanese business and Western operations recover.