Deal focus: Integral discovers booming cosmetics niche

Japan’s Integral Corporation has a couple of existing investments in the beauty industry, but its team is mostly made up of men, which can make it difficult to stay tuned into the subtler trends in cosmetics. A lucky break came late last year when an advisor introduced the firm to T-Garden, the local leader in colored contact lenses.

Due diligence quickly revealed a niche market enjoying an almost invisible creep into mainstream lifestyles across Japan. The use of colored contact lenses in the country has evolved from a wild fashion statement in the mid-1980s – when T-Garden was established – into a boudoir essential.

“Color contact lenses have basically become part of makeup, and a lot of women won’t go outside without on,” says Masatsugu Kubo, a vice president at Integral. “It’s a market that is steadily growing at a rapid rate, and in today’s world, that’s rare.”

Integral estimates that the domestic market for colored contacts and circular lenses – a related style of beauty lens that enlarges the iris – is worth about JPY70-80 billion in retail price terms. It has been growing at an annualized rate of 6.4% for the past four years and T-Garden claims only a 10% market share despite being the largest operator. There is plenty of scope for consolidation.

The private equity firm agreed a management buyout of the company last week for an undisclosed sum, contributing equity from its balance sheet as well as from its third middle-market fund, which closed at JPY73 billion in 2017. Value-add plans include tapping similar demand in other countries across North Asia. International markets currently account for less than 5% of sales.

T-Garden sells about a third of its various product lines via online channels, including an in-house platform called Luvlit. This is supported by a wholesaler supply business targeting discount brick-and-mortar retailers. The company was the first beauty lens player to get shelf space at Don Quijote, a ubiquitous local discount store chain. Drug stores are seen as an important growth area.

The use of famous models in promotional materials has made this level of cultural penetration possible and is expected to propel further popularization. In this light, the emergence of beauty lenses as budget shopping items offers an example of the kind of edgy-to-everyday evolution that happens naturally in image-conscious sectors such as cosmetics. But it also reveals a marketing masterstroke of premeditated design.

“Image models have basically become the producers and brands of the color contact lenses themselves. They are the center of all the marketing for any company,” says Hiroki Kobayashi, an analyst at Integral. “When you go to a website, you often sort items by model, not price. Click on the model to find your ideal color contact lens. Before T-Garden, packaging was basic and just had pictures of the lenses. T-Garden set the foundation for the culture in the industry today.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Buyouts
• Consumer
• Japan
• Integral Corp.