Erosion risks

• Private label / low-price competition
• Competitor innovation and promotion intensity
• Input cost inflation (petrochemicals, oils) outpacing pricing

Leading indicators

• Japan sell-out volume growth vs category
• Price/mix contribution in segment revenue
• Gross margin trend vs raw material indices

Counterarguments

• Switching costs are low; consumers can trial alternatives easily
• Global players can outspend on marketing in key categories

Erosion risks

• Fast-moving trends in skincare/haircare shifting demand
• Rising digital marketing costs and influencer-driven competition
• Retailer bargaining power in mass channels

Leading indicators

• New product sell-in vs plan (launch velocity)
• Repeat purchase / cohort retention for key brands
• Marketing spend efficiency (incremental sales per spend)

Counterarguments

• Brand advantages can fade quickly when consumer trends shift
• Large global peers can replicate claims/formulations and outspend on media

Erosion risks

• Salons can multi-source and switch if pricing/availability deteriorates
• Direct-to-consumer brands bypassing salons

Leading indicators

• Salon channel net sales growth
• Professional loyalty / reorder rates
• Distributor coverage and training program participation

Counterarguments

• Stylists often use multiple brands; 'lock-in' is weaker than in software
• Competitors can offer incentives and education to accelerate switching

Erosion risks

• Prestige demand volatility in China and travel retail
• Trend-driven category with rapid product cycles
• Channel shifts reducing department-store counter advantage

Leading indicators

• Brand-level sell-out in Japan and Asia
• Online-to-offline (OMO) conversion and repeat rates
• Inventory levels in China distribution channels

Counterarguments

• Global beauty leaders have stronger scale and marketing reach
• Consumer switching costs are low and social-driven trends can overwhelm incumbency

Erosion risks

• Consumers shifting to online discovery/purchase
• High fixed costs of staffed counters during demand downturns

Leading indicators

• Counter productivity (sales per staffed point)
• E-commerce penetration vs department-store sales
• Customer acquisition costs vs lifetime value

Counterarguments

• Services are not exclusive; competitors can match with their own advisors
• Online channels reduce the importance of in-person counseling

Erosion risks

• Procurement-led switching when contracts rebid
• Service model execution risk (coverage, quality, cost)
• Low differentiation if offerings commoditize

Leading indicators

• Contract retention / renewal rates
• Customer concentration and churn
• Service cost as % of segment sales

Counterarguments

• Ecolab and other specialists have larger service footprints
• Customers can dual-source supplies to reduce dependency

Erosion risks

• Commodity chemicals oversupply compressing margins
• Feedstock price volatility (oils, petrochemical inputs)
• Environmental regulation and customer sustainability requirements increasing costs

Leading indicators

• Specialty vs commodity mix (share of high value-added products)
• Capacity utilization and EBITDA margin
• Customer qualification wins in targeted niches

Counterarguments

• Large chemical majors can compete aggressively on price and capacity
• Some product lines can commoditize, eroding returns on capital

Erosion risks

• Customer dual-sourcing mandates
• Technology transitions that obsolete specific chemistries

Leading indicators

• Number of new customer qualifications / design-wins
• Revenue concentration by top industrial accounts
• R&D pipeline commercialization rate

Counterarguments

• Qualification does not guarantee exclusivity; competitors can qualify over time
• Industrial customers can pressure pricing once multiple suppliers are approved