Japan cosmetic firms see hope in $1,000 face creams

TOKYO (Reuters) - Japanese main cosmetics firms'' bet that their women customers will pay top dollar for anti-aging creams have paid off and now all three may shift strategies to focus on recession-proof luxury items.

All three are now reviewing their strategies to focus more on luxury items instead of the mid-priced segment, the traditional center of demand.

"It will be crucial for them to offer appealing, value-added products for those women in their 40s and older, who make up a big part of Japan''s population and have the money to spend," said Katsuro Hirozumi, an analyst at Daiwa Securities SMBC.

"High-end products in Japan could also serve for wealthy Chinese women, if cosmetics companies can find a way to promote the use of beauty care products among people who do not have a habit of using such products," he said.

Each of the firms says their cream has topped targeted sales, although they do not unveil exact amounts. The rival creams are sold in 40 to 50 grams sizes and target anti-aging effects.

Prices of items priced 5,000 yen or higher account for roughly 20 percent of total Japanese cosmetics business sales at Shiseido and nearly 40 percent at Kose.

Nomura Securities analyst Kyoichiro Shigemura says the demand from Japanese women in their 40s is polarizing into high and low-price segments and a strategy to introduce higher value, high-price items was especially important.

"Kao''s flagship brand Sofina is doing poorly because its products are in the mid-price segment. It will be important for Kao to capitalize on Kanebo," he said. In 2006, Kao bought Kanebo, which is focused more on the high-end market.

Shigemura has a bullish rating on Kao, he said, citing the strength of its core toiletry product business for helping counter the poor performance of its cosmetics business.

He is neutral on Shiseido''s performance in the next 12 months but says its recent steps to strengthen its high-price segment business, should help the company over the longer run.

Shares of Shiseido have outperformed Kao and Kose since the start of the year, with Shiseido gaining 2 percent, Kao losing 20 percent and Kose falling 15 percent. The Nikkei stock average has edged up 20 percent.