Summer 2009
The Future of Skin Care

Onsen|Onsen's Business Model

Phone: 818.264.4113
Website: OnsenSecret.com
Number of kiosks: 3
Number of carts: 180
Number of employees: Approximately 20
Headquarters: Los Angeles, CA
Philosophy: "We believe in thinking outside of the box. We ask ourselves what is new that we can bring to the market, something that's ahead of the competition, like powder technology. People don't know how to relate to it now but it will soon be the next big thing, "—Doron Santo
The Winning Formula: Onsen Anti-Oxidant Micro-Water and F.A.C.T. Fast-Acting Vitamin C and Thalassine|

Onsen's corporate team stands behind each and every one of its products. Just recently, a retailer made the easy mistake of putting the wrong product in a customer's bag. When the customer returned home from her travels and called Onsen about the error, they not only exchanged the item for the right one but gave her a discount on a future product, as well. On a daily basis, Onsen offers its customers a 1-800 number, a live chat option on the company website, and the opportunity to correspond via email.

Onsen also supports children, by donating 10% of every on-line purchase to Spirituality for Kids. This organization provides free outreach classes to schools and community centers that help children, ages 6-12, with skills in problem solving, self-esteem and social competence, to name a few. SFK currently assists children in eight countries. "SFK gives kids the tools to change their own reality, " says Ezra.

With 180 carts, and 2008 sales of $6 million, Onsen is taking the specialty retail skin care market by storm. This year promises to be even bigger, with the introduction of a revolutionary concept called powder technology. “Powder technology is the main concept [in skin care] today,” says Doron Santo. Santo is the executive director of research and development for OD International, Inc., in Los Angeles, the company responsible for manufacturing Onsen products.

OD International is a private labeling company for the skincare industry, designing products and making formulations for many different cosmetic companies. At the time of their inception, in 2004, OD International teamed up with a lab that had over 25 years of experience.

It was through this collaboration that the company worked with powder technology to create a new beauty system, F.A.C.T. The system addresses a wide array of skin issues such as aging and acne. F.A.C.T.—which stands for Fast Acting vitamin C and Thalassine—comes in two formulas, AM and PM. Both contain vitamin C and bio-marine actives. Bio-marine actives are obtained through a stem cell process using marine algae. A small amount is harvested and the cells that are beneficial for skincare are isolated. These are reproduced over and over again in a laboratory, says Santo. The effects of thalassine, one of the bio-marine actives used, are similar to Botox. Unlike Botox though, which tightens facial muscles, thalassine relaxes them. Both vitamin C and thalassine are natural antioxidants that combat harmful free radicals and repair sun damage.

“Powder technology works from the inside out,” says Santo. The nano particles penetrate deep into the subcutaneous layers of the skin.

The F.A.C.T. powder can be used as a spot treatment—under the eyes or on expression lines. The powders are also meant to be used as “active enhancers” which means they enhance other skincare products. They can be blended with other products, such as creams and lotions already in a customer’s closet. The AM formula is designed to protect skin from elements such as sun and pollution, says Benjamin Oren Ezra, public relations director and sales manager. The PM formula, a heavier concentration for when the skin is more relaxed, is designed to firm the skin. Both formulas come in sleek, shiny blue tubes.

The two products, sold as a set, retail between $150-$200. When training retailers, however, the focus is on the product’s cost-effectiveness. “It enhances all your products at home,” says Santo. Ezra says: “[Customers] can use the powder as a booster with any eye cream, face cream, or serum or even cheap moisturizer a customer uses to make it stronger.”

The tubes are designed to last for four months of applications, but this forecast depends on how much of the product is used and how it is used. “The treatment itself is a three-month treatment since that is the length of a skin cycle,” says Santo. Ezra explains that the skin renews itself approximately every three months. As for a potential reversal of the benefits if someone suspends use of the product, he likens it to going to the gym. Your muscles become stronger and you enjoy better health. As long as you use it, it strengthens your muscles. After you stop, it doesn’t mean they disappear right away—but will do so slowly.

Wonders of water

While the F.A.C.T. powders can be used with other skin care products, Onsen also sells a whole host of products that complement them. These product offerings include moisturizers, cleansers and masks that incorporate mineral-rich water.

Before Santo and Ezra started at OD International in 2004, they traveled all over the world. It was while living and working in Japan that they both made a discovery that would greatly impact the cosmetics they would produce in the future. This discovery was “Onsen,” or rather, the mineral-rich, volcanic hot spring baths found throughout Japan. It wasn’t just the name that would be incorporated into their business—it was the healing properties of the waters themselves.

Water in Japanese hot springs is exposed to different layers of earth and is thus mineral-rich. The folks at Onsen recreate this water in the labs and use it as the base for their supplementary line of products. “We create the same natural process that water in Japan goes through,” Ezra says.

“Each hot spring has different properties,” says Ezra. “What we do, and have a patent on, is take very specific minerals from seven unique places in Japan and combine them together to create [the] water. Water then becomes the active ingredient,” he says. The company refers to these seven minerals as “Shichi Complex,” the Japanese word for seven.

On average, skin care products are 50-90% water with a nutrient percentage, or active ingredient percentage, between 4-10%. To put it succinctly, water makes up the bulk of many products without adding any nutrients. Through Onsen’s water technology, their patented Shichi complex water becomes an active ingredient adding its own set of nutrients. Since this is the foundation for the bulk of Onsen’s products, the effectiveness of the overall product becomes that much greater.

Beauty systems

At Onsen, beauty systems are the preferred way of selling products. “We are trying to give women the whole package to transform themselves. Just washing their face won’t do it,” says Ezra. Customers save between 20-30% of the cost when they purchase sets as opposed to buying products separately. Beauty systems retail between $150-$300.

There are four types of Onsen beauty systems: a Daily Protection System with hydrating cleanser, skin renewal facial peel and skin regenerating facial moisturizer, a Complete Age Defying System with line smoothing mask, intensive facelift serum mask, and firming and moisturizer cream, a Specialized Eye Care System with revitalizing eye serum and soothing eye cream, and lastly the Powder Technology Active Enhancer that includes AM and PM powder technology products.

Onsen also sells single products. There are about 25 total products under the Onsen umbrella, that retail between $50-$200 and include a variety of products for the body including specific ones for target areas like the eyes and face. These products promise to moisturize, protect and help slow the signs of aging.

Onsen’s typical customer is between the late twenties and early sixties. The younger set looks for products that will delay the aging process and the older customers aim to battle the lines and problem areas caused by aging.

All of Onsen’s products are manufactured in the U.S. at OD international, Inc. “The main advantage of this is we have more control over the manufacturing process,” says Ezra. “And there’s a concern when you have a patent and the product information is top secret. We prefer keeping it here.” All products, including beauty systems, come with a healthy markup, between 600-800%.

Futuristic sales vehicles

Onsen not only delivers cutting edge products, they have also designed carts and kiosks that are very high-tech in their appeal. Customized Onsen carts are streamlined, well-lit selling vehicles with colorful graphics and enticing products spread throughout. The look is clean, sleek and sophisticated.

Onsen kiosks, measuring six feet on all sides, dive even farther into the future with touch screens seamlessly built into their countertops and a select sampling of products displayed nearby. The rest are tucked cleverly throughout the unit, as well as on U-shaped, free-standing product storage bins. Powerful 3-D graphics display the Onsen name, as well as its latest invention, powder technology. “Kiosks are very futuristic. It creates a different sales atmosphere,” says Ezra.

Touch screen monitors—explaining the benefits of Onsen products to the customer via an interactive experience—are key sales tools. To facilitate getting customers to the touch screens, sales associates, donning uniforms that say “Ask Me About Your Free Gift,” hand out cards, containing codes on the back of them, to mall shoppers. Interested participants approach the touch screen monitors, put on headphones and journey into the world of Onsen. They are able to stop and repeat certain portions when necessary, and interact throughout the demonstration.

Once the demonstration is complete—it takes roughly 3-5 minutes—shoppers can enter the code on the cards to receive a variety of different discounts or free products. After the touch screen demo, customers are free to sample powder technology, by placing the product under the eye, where the results are quickly visible, and by mixing it with other available products. Santo recommends displaying no more than ten to keep a focused presentation.

One of the benefits of this approach, compared to other demonstrations, is one doesn’t need aggressive sales associates standing in the common area of malls trying to rub lotion or salt scrub into a potential customer’s hand. Many mall shoppers do not want to be touched. Onsen has removed these obstacles by catering the sales pitch to a tech-happy generation. “Touch a screen, don’t touch people… They have all the products next to them and can try them on by themselves,” says Ezra. Of course, there are sales associates at the unit to answer questions, assist with applications if desired and ring up purchases.

The selling process was designed to be “something that broke the regular routine of typical selling practices,” says Santo, and one that created a relaxed atmosphere for the customer.

When selling Onsen’s powder technology, kiosks are the way to go, says Santo. The futuristic look and upscale feel of the unit mirrors the product. A plug-n-play unit that includes everything (the kiosk with built-in storage, touch screens and computers—no product) costs $25,000-$40,000. Onsen also offers professional-looking display units, costing between $2,500-$3,500, to incorporate into a shopping center’s existing carts. Retailers are not encouraged to build their own displays. “Our concept is similar to a franchise, you can only sell our products and you need to follow our company guidelines, such as wearing a uniform,” says Santo. This ensures the brand is represented in the same exact way all across the country.

Onsen doesn’t ask more from its retailers than it delivers. Just as the company strives for continuity among its locations, it matches this principle with the ingredients it uses, the packaging of its products and the design of its kiosks. All are representations of a high-tech, sophisticated cosmetics company. “It’s time to raise the bar,” proclaims their website—and they have.

Customers have taken notice. Buying so much, in fact, Santo predicts his sales will double this year, and carts will grow from 180 to 280. Additional kiosk locations are already on the table. For this company, and its retailers, the future of cosmetics is here, and so are the profits.

Emily Lambert

Lambert, a senior writer for SRR, resides in Philadelphia. She can be reached at emilylambert@comcast.net.
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