​​Istyle: Creating a consumer-centric cosmetics market

Istyle Inc. has become a challenger in the Japanese cosmetics industry, traditionally dominated by established interests.

Consumers had limited options to evaluate and compare brands because the market was led by the nation’s biggest cosmetics companies, leveraging their brand power through frequent television advertisements. They launched hundreds of items under multiple brands, each strategically designed for different sales channels and categories of cosmetics. That meant consumers needed to physically visit retail locations and test each product individually.

“There was little presence of consumers in the industry, even though cosmetics are consumer goods,” said Kei Sugawara, a director of the company and its vice chairperson and chief financial officer, in a recent interview, part of a monthly series by Naonori Kimura, a partner for the consulting firm Industrial Growth Platform Inc.

“I started to think, if consumers wrote user reviews of cosmetics on the internet, it would change the widely held perception in the business that big makers sell well but others don’t and could eventually create a level playing field,” Sugawara said. “That’s why we started this company.”

Sugawara is one of the founding members of the cosmetics portal, established in 1999 at the onset of the internet era, when digital information began to affect people’s daily lives.

The cosmetics industry — selling makeup and products for skin and hair care — is more complicated than many people may realize. It traditionally has a wide range of distribution channels, including department stores that handle high-end brands, small voluntary chain stores that exclusively sell certain brands and drugstores or convenience stores that deal with standard products.

What Istyle did in its first year was to form a portal site under the name

@cosme, providing cosmetics information and rankings based on user evaluations. The data and user traffic from this led to marketing support services for manufacturers in the following years. It later set up a cosmetics shopping site and retail outlets, which helped accumulate data on consumer purchases and contributed to services on marketing research and consulting that were launched later.

The startup has since become the nation’s top cosmetics and beauty product platform, with its big data sought by more than 16 million monthly active users. For the business year that ended in June, the company marked ¥3.16 billion ($20 million) in operational profits on sales of ¥68.8 billion. It has 1,210 employees and has expanded to other parts of Asia such as Shanghai, Hong Kong, Taiwan, South Korea and Singapore, with 36 domestic and four overseas stores.

One of the turning points accelerating the group’s rapid growth was the launch of its first physical outlet, @cosme store, in the Lumine Est fashion building at Tokyo’s Shinjuku Station in 2007. Back then, opening a cosmetics store as a newcomer was not an easy thing to do because the market had structural barriers. Though it took time, Istyle got over that hurdle and started to sell products from big makers and wholesalers, with support from others.

Its one-stop shopping ,offering products across both high and low price ranges, was a totally new experience for cosmetics users and had a strong impact on many of them. The products on display are organized by category, with a ranking accompanying each one. Shoppers can test cosmetics before choosing which one to buy.

The new outlet drew attention, with sales skyrocketing in the first month. This popularity helped to increase the number of brands the company could handle at the store.

All these activities reflect Istyle’s vision: “Creating Consumer-Centered Markets.” For example, what makes it possible for Istyle to create fair rankings is its strict internal guidelines. Its online evaluation database, based on reviews posted by consumers, decides rankings through undisclosed algorithms that are shielded from the company’s marketing and sales sections — above all, the database is protected from the influence of any ad placements.

Meanwhile, the company monitors consumer comments 24 hours a day to catch any fraud. Reviewers are verified, and the site clarifies whether reviewed items were purchased or free samples. If reviews are determined to be intended for product promotion or to damage reputation, they are removed.

“Our success in business is due to the trust we’ve built. However, trust can be lost quickly if something goes wrong,” Sugawara said.

He added that it is important to gain trust not only from consumers but from cosmetics makers, as the platform connects both sides and should be neutral. Corporations are business partners, essential for running the platform and other businesses. “We cannot make it without cooperation from makers. What we aimed to do at the start was to become an agent (between consumers and makers), and we still aim to do so,” Sugawara said.

For a new venture, the company launched the “Tokyo Beauty Week” event last November in the fashion and beauty mecca of the Omotesando and Harajuku districts to provide opportunities for further interactions among consumers, creators and brand operators, featuring wide-ranging trends in fashion and beauty. The event invited about 50 beauty brands to set up booths in a pop-up studio, offering services analyzing skin and personal color.

“The diversity within Tokyo’s beauty scene stands out as one of its distinctive characteristics,” Sugawara said. “If this trend is sustained and the number of stakeholders continues to grow over the next 10 to 20 years, I am confident it will yield positive results.”

To further empower women, Meyumi Yamada, another Istyle director and one of its founding members, launched the Cosme Bank project with the cooperation of cosmetics and consumer goods makers to provide part of their excess inventories to financially struggling single parents. In the past year, they have provided cosmetics to about 60,000 households.

Sugawara said he hopes the company will retain the mindset of a startup even 10 years from now. “I believe we should continue creating new initiatives from scratch. We have to try new things and keep on upgrading,” he said. “I would be grateful if the company continued to grow by launching new ventures that we founding members have never even imagined.”