Market Overview

Based on business sales, the cosmetics original equipment manufacturer (OEM) market generated 354,700 million yen in FY2024, a rise by 2.6% from the previous fiscal year.

The market temporarily flourished as client companies, i.e., cosmetics brands or new market entrants from other industries, placed new or renewed orders in the hope that demand for cosmetics would recover once the pandemic ended and behavioral restrictions were lifted. However, cosmetics store sales have fallen short of expectations.
This is due to the diversification of consumer needs and preferences. Products and sales channels have also diversified with the emergence of mail order and ecommerce channels, as well as the increased distribution of overseas products, such as Korean cosmetics. To prevent stagnant inventory flows stemming from the gap between actual and expected demand, companies plan order placement forethoughtfully. In this context, the market has been soft, though a moderate recovery in order placement has been observed.
Meanwhile, price negotiations between cosmetics OEMs and clients since FY2022 have resulted in pass-through at each manufacturer, boosting the market size to exceed that of the previous years.

Noteworthy Topics

Diversification of Products and Sales Channels Led to Small-Lot Orders

The cosmetics market in Japan was previously supported by distribution channels consisting primarily of stores offering general cosmetics products. However, these channels have rapidly diversified due to the prevalence of mail order and online sales.
Impactful added-value products are now offered through mail order and online retail, developed primarily by fabless manufacturers (sometimes from other industries) that specialize in product planning and sales promotions.

Simultaneously, the market has diversified into small mass markets that cater to specific needs and interests. This contrasts with the previous mass market that uses general distribution channels. These small mass markets are represented by original brand products and businesses operated by TV celebrities, artists, and famous beauticians, leveraging social media. Changes in the distribution structure prevent client companies from placing large-scale orders for specific markets and channels. This tendency is likely to continue. Cosmetics brand manufacturers are expected to continue reconstructing their brand portfolios to adapt to these channels.

Future Outlook

The cosmetics OEM market is expected to reach 361,900 million yen in FY2025, 102.0% of the size of the previous fiscal year.
Despite the market's overall soft trend, stable demand is anticipated due to recovering makeup demand after the pandemic and invigorated market conditions stemming from robust consumption by inbound tourists. Well-selling haircare and skincare brands and products have emerged, which were developed by fabless manufacturers, offering products primarily through mail order and online channels. This momentum, including those new market entrants, is expected to continue.

Research Outline