Business Maverick: Chinese shoppers’ infatuation with Japanese brands is wearing thin

Online sales of products from Kobayashi Pharmaceutical Co. dropped 54% in the first half from a year earlier on Alibaba Group Holding Ltd.’s dominant e-commerce platforms Taobao and Tmall, according to tracking platform Liandanlu Data, after its supplements made from red yeast were suspected of causing dozens of deaths. Shiseido Co. and other cosmetics makers have seen similar declines following the discharge of treated wastewater from a nuclear plant that has fueled consumer boycotts.

Japanese companies were once seen as the pinnacle of quality after years of scandals in China involving locally-produced food and medical products, such as baby formula and cooking oil. That spurred the country’s growing middle class to seek out alternatives offered by foreign brands. Now, with the Chinese economy decelerating and setbacks for the Japanese companies, a reversal of sorts appears to be underway, and consumers are turning to cheaper mainland rivals.

“There is no question that Japanese brands have to work harder against domestic brands in China that are delivering well-designed, quality products that adapt to market changes faster, are more targeted and are often better value,” said Mark Tanner, managing director of consultancy China Skinny in Shanghai.

Sales for products from cosmetics giants Shiseido and Procter & Gamble Co.’s SK-II both slumped around 40% in the second half of last year versus 2022 on the Chinese e-commerce platforms, Liandanlu data show. 

Shiseido’s sales on Taobao and Tmall declined 4% in the first seven months of this year, and SK-II’s are down 9%, according to Liandanlu, which collects and analyses data from e-commerce platforms’ web pages.

Shiseido said this month that China core operating profit in the first half of 2024 dropped 10% year-on-year, attributing the plunge to the continued decline in mainland consumer confidence. Consumers there remain reluctant to buy Japanese products after the release of the treated Fukushima water, chief financial officer Ayako Hirofuji said. 

Kobayashi told Bloomberg that mainland e-commerce sales declined 50.9% from April to June from the same period in 2023. An advertising suspension after the red yeast incident impacted sales, the company said, and it plans to resume the ads gradually from this month.

Shiseido declined to comment on the Liandanlu data, saying its luxury brands were still doing well in China, but “less so” for mid-range premium brands.

“Multiple factors including the Fukushima treated water issues made the situation worse for us in China,” a company spokesperson said.

SK-II didn’t immediately reply to a request for comment. 

Reducing exposure

Xia Xiaobao, a government clerk in eastern China’s Zhejiang province, said the Kobayashi incident had her wondering how potentially hazardous ingredients could end up in Japanese supplements. Once an avid user, the 38-year-old has switched to buying supplements made in China and Australia.

“I used to take a lot of whitening pills and collagen drinks from Japan, but I don’t do it any more,” she said.

The situation is drawing close attention from China, whose tourists have long scooped up armloads of supplements at drugstores from Tokyo to Osaka. China’s influencers often tout Kobayashi products — from painkillers to fever-reducing patches and pills treating menopause symptoms — as must-buys on trips to Japan, and a mainland tourists contributed to a steady rally for Japanese drug stocks before Covid-19 brought tourism to a halt. Chinese media outlets have said Kobayashi was slow to react to early warnings about its supplements containing red yeast. Some went on to show how some popular health supplements made in Japan contain ingredients banned in other nations over undesirable side effects. 

Former Kobayashi CEO Akihiro Kobayashi said at a briefing last week that a lack of speed in his decision making had impacted the company’s response, and that it was “very sorry if the slowness has led to more victims.” 

The backlash is reminiscent of last year’s outcry over the Fukushima wastewater release, which led Chinese internet users to compile lists questioning the safety of Japanese brands and create a hashtag on the issue attracting hundreds of millions of views on social media platform Weibo. The impact forced Shiseido to slash its profit forecast last November, sending its shares to a 16-year-low. 

In addition to safety concerns, shifting consumer tastes and habits are taking the shine off some Japanese retailers, with a number of brands gradually reducing their exposure to China. Operator Isetan Mitsukoshi Holdings Ltd. closed its landmark department store in downtown Shanghai in June after 27 years in operation, leaving just one outlet in a country of 1.4 billion people. Retailer Seven & I Holdings Co. shuttered some of its Ito-Yokado mainland storefronts in recent years. 

Even brands that managed to survive ups and downs from diplomatic run-ins to the use of Xinjiang cotton largely unscathed are starting to buckle. Uniqlo parent Fast Retailing Co. reported a decline in China revenue and profit in its most recent quarter, citing Chinese consumers’ growing preference for cheaper alternatives. Uniqlo’s expansion in China has appeared to decelerate, and it says it’ll now focus on overhauling flagships in cities like Shanghai and Guangzhou. 

While Japan’s brands are no strangers to consumer hesitation in China, some analysts say mainland demand for the country’s products will return, in part due to the enormous cultural soft power they hold. 

“Despite the love-hate relationship with Japan,” said China Skinny’s Tanner, “I still believe their brands hold a certain aura with Chinese consumers.”