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Shiseido (Japan)

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Shiseido is Japan's biggest cosmetics company, and one of the world's top five by revenues, now with operations in almost 120 countries. At an international level, the company is known for its range of exclusive makeup, skin-care and professional haircare products, and it operates fragrance licenses for Issey Miyake and other designers through French subsidiary BPI. Latest string to its bow is Dolce & Gabbana, whose license it acquired in 2016. Although Shiseido has a presence in most large Western markets, its main sphere of operations is in the Asia Pacific region, and China has quickly developed as its second largest global market after Japan. The company was plagued by uncertain direction in the late 1990s, and that led to a massive restructuring of the company's portfolio in which around 140 separate brands have been slimmed down to fewer than 30. The process has been complicated by intense competition in the domestic market from arch-rival Kao Corporation, now a bigger company overall though still smaller than Shiseido in the beauty sector. A new management team was appointed in 2014 to speed up transformation.

Advertising

Who handles Shiseido's advertising? Click here for Agency Account Assignments for Shiseido. The group declared advertising expenses of Y53.2bn ($484m) for the year to 2015.

Competitors

As well as Western companies, Shiseido's main Japanese competitors are Kao and Kose. See Personal Care Sector index for other companies

Brands & Activities

Shiseido's main strength in Japan, as well as in its second most important market China, remains its retail network, comprising company owned stores and independent concession arrangements as well as department store outlets. No other beauty marketer in the region - yet - can match Shiseido's distribution footprint. Yet aggressive marketing by American and European companies, as well as Japanese competitor Kao, has created significant problems in several core sectors, especially the mass-market "self-selection" segment. As a result, the company has tended to concentrate its attentions on the prestige end of the market, where it can rely on the work of a team of more than 5,000 instore beauty consultants.

At the same time the group has overseen a drastic overhaul of its product portfolio. During the 1990s, bewildered by Shiseido's vast range of different products, domestic customers began to shift away from the company towards more exotic imported brands. As a result the group found itself sitting on huge inventories of unsold products by 2000, and initiated a major restructuring programme to strip down its range. A portfolio of more than 140 brands in 2000 had been reduced to around 60 by 2004, and was further pruned to around 27 core lines by 2008, mainly through the introduction of "megabrands" to absorb smaller lines. That number had reduced still further to around 21 main product lines by 2010.

The biggest global brand is Shiseido itself, sold mainly outside Japan. It serves as an umbrella for a wide range of cosmetic, skincare, haircare, suncare and fragrance products. The most important of these product lines is Shiseido The Makeup, a general cosmetics range sold almost 90 countries. Other important products include general product range Shiseido The Skincare, skin-brightening range Shiseido White Lucent, Shiseido Benefiance facial anti-aging products, daily skincare, intensive corrective line Shiseido Bio-Performance, and fragrances including Shiseido Zen, Shiseido Energising Fragrance and Eudermine, its single oldest brand, first introduced in 1897 as a beauty lotion. Its latest variant is Shiseido Ultimune, which aims to offer immunological benefits. In 2012, the group signed up actress Jennifer Connelly to become its first global brand ambassador.

In 2012, Kantar's Brandz ranking gave the global Shiseido brand an estimated value of just over $2.0bn. The Brand Finance ranking of most valuable beauty products listed it among the top ten worldwide at $2.9bn. Both researchers use widely different criteria in their measurements.

In Japan, Shiseido markets a broad range of different products. At the top end are four beauty consultant brands: prestige skincare brand Clé de Peau Beauté, Benefique anti-aging products, general makeup line Maquillage, and general skincare range Elixir Superieur. These are sold under consultation, through department stores and the group's chain of around 25,000 Shiseido-branded stores or a separate network of what it calls "voluntary chain stores", independent retailers who run an instore Shiseido counter under license. Together they account for just over half of the group's domestic sales.

Positioned below them are various "self-selection" products, sold off the shelf. They include Aqua Label skin care, Integrate mass-market cosmetics and men's skincare line Uno. Other self-selection products include Sengan Senka facial cleansers, Tsubaki consumer haircare products, professional haircare brands Prosynergy and Qi, healthcare products Shiseido The Collagen and In&On, Anessa suncare products, and &Face deodorants. In 2016, it launched a new colour cosmetics brand in Japan under the name Playlist, sold mainly through ecommerce channels.

The company also sells a range of other mass-market products, which don't carry the Shiseido name on their packaging, and operate as standalone businesses. They include Ipsa, a skincare and makeup brand sold exclusively at department stores; Sea Breeze deodorants; D'Ici La, a high-prestige brand marketed through Shiseido's own chain stores; Soka Mocka sunscreens, younger women's brands Ettusais and new age line Ayura.

Camellia Club is a membership-only beauty club. First established in 1937, it peaked at over 10 million members, and still publishes the monthly magazine, Hanatsubaki. Another subsidiary, Prier Co, manages a portfolio of non-Shiseido brands including 5S cosmetics and the Neutrogena license in Japan. The group also operates mail order business Kinari, through which it has launched a range of natural-ingredient health products, branded as Sockamocka. Shiseido also runs various shopping centres, health spas and restaurants (including L'Osier). It even has a joint venture with the East Japan Railway company to offer quick-service beauty treatment shops within railway stations.

In recent years the group has identified international expansion as a major priority, especially since competition in the Japanese market has intensified. China has been identified as Shiseido's most important growth market, with local sales reaching $1bn in 2014. The group opened its first directly-managed store in the country in 2003 and now manages a network of over 5,000 sales outlets. In addition to its general global brands, Shiseido markets prestige Aupres cosmetics and fragrances exclusively in China, as well as "masstige" chain store brand Urara, and mass-market DQ. Za is a range of mass-market skincare and cosmetics products sold across the Asia region, while Majolica Majorca is a line of mass-market make-up targeted mainly at Southeast Asia.

International fragrances are marketed by group subsidiary Beauté Prestige International (BPI), based in France. The business markets a range of perfumes under license for designers Issey Miyake, Elie Saab and Narciso Rodriguez. In 2013, the group took control of the fragrance licenses for other brands including Azzedine Alaia, followed by Zadig & Voltaire in 2014. However its top-selling Jean-Paul Gaultier license reverted to fashion label owners Puig from Jan 2016. (Products are marketed and distributed in the UK under licence by independent company Kenneth Green Associates). In 2016, Shiseido secured the global license to market fragrances and cosmetics under the Dolce & Gabbana name, after the eponymous designers declined to transfer from previous license holder P&G to Coty. D&G Beauty sales were around €400m in 2015. Shiseido took control of the brand in Oct 2016, and has vowed to build sales to €1bn by 2026.

The group also owns US cosmetics brand Nars (acquired in 2000) and John Varvatos cosmetics products. French professional beauty salon brands Carita and Decleor were sold in 2014 to L'Oreal. Zirh International, a US marketer of high end men's grooming and fragrance products, was acquired by Shiseido in 2000, but sold to private equity investors in 2007. (It was subsequently acquired by P&G). In 2010, Shiseido announced its biggest acquisition to-date, paying $1.7bn to buy Bare Minerals, a prestige US cosmetics group with sales of around $560m a year, mainly through home shopping channels. However, early performance was disappointing, resulting in a near-$350m impairment write-off against the brand in ye 2013. Performance improved in 2014 following the launch of new makeup product bareSkin. In 2016, Shiseido agreed to acquire US-based beauty and make-up range Laura Mercier and associated brand ReVive for an estimated $260m. Combined sales were $175m in 2015, according to Shiseido.

The group operates a professional haircare division, supplying products to salons, mainly in the US. Brands include Zotos, Iso, Senscience and Joico. Other group businesses market Gymrind dietary supplements, OTC pharmaceuticals and fine chemicals.

Financials

The group launched a substantial restructuring programme in 2001 to boost its competitiveness in the Japanese market, axing more than 80 brands. That strategy appeared to work for several years. After large losses for both 2001 and 2002, Shiseido was back in profit in 2003 and 2004. Increasing competition from Western companies dented performance again significantly in fiscal 2005, and the company reduced staffing levels significantly, leading to another loss. Performance improved for the next couple of years, peaking at Y723bn in 2008, before falling back sharply as a result of the recession. Topline dipped to a low of Y644bn in 2010 before recovering again. For the year ending March 2012, revenues rose 2% to Y682bn ($8.6bn), as growth in international sales offset a further decline in Japan. After a sharp decline in 2011 in the wake of the Great East Japan Disaster, net income recovered slightly to Y14.5bn ($183m), though still less than half 2010's levels.

For the year to March 2014, net sales rose 12% to Y762bn ($7.6bn). Domestic performance was sluggish (up only 1%), but international revenues benefited strongly from the weaker yen, jumping by 26%. That increase was almost entirely exchange rate related with sales in local currencies up by only a little over 1% overall. Following a loss in ye 2013, the group was back in the black with net income of Y26.1bn ($260m).

The group moved to a calendar year-end in December for 2015. Revenues for 2015, comprising nine months in Japan and 12 for international subsidiaries, were Y763bn, with net income of Y23.2bn. On an adjusted basis, with a full-year contribution from Japan, revenues would have been Y863bn with net income of Y29.5bn.

Japan remains the group's biggest market by far, but sales there had been in slow but steady decline for several years, until a new burst of energy in 2015 under new group CEO Masahiko Uotani. Growth has come instead from the international market, mainly Asia and Oceania. As a result, the contribution from Japan has fallen from more than 80% of group revenues in 2001 to around 46% in 2015. That year, China accounted for 16% of sales, and other Asian or Oceania markets for a further 6%. The Americas contributed 19% and Europe 12%. The group has set itself a target of exceeding sales of Y1,000bn by fiscal 2018.

Background

Shiseido was founded in 1872 by Yushin Fukuhara, former head pharmacist for the Japanese navy. He took premises in Tokyo's bustling shopping district, Ginza, to open the country's first western-style pharmacy. The name Shiseido was derived from a Chinese expression meaning "all things come from Mother Earth". The company's first own-label product was Fukuhara Sanitary Toothpaste, launched in 1888. Not only was it an alternative to the tooth powders generally available, it was also one of the first toothpastes anywhere to contain fluoride. However the product which really set the basis for the development of Shiseido was cosmetic skin lotion Eudermine, first introduced in 1897. The business borrowed heavily from the American drugstore format, introducing Japan's first soda fountain in 1902, and introducing what was then a rare luxury commodity in the country, ice cream. It also defied traditional Japanese ideas of beauty, introducing the country's first skin-toned - instead of white - face powder. Among the flood of new products were cold creams, and the first domestically produced fragrances, introduced in 1918. Rapid expansion followed, and by 1923, the newly floated company was operating a chain of cosmetic retail outlets throughout Japan.

In 1927 the company was fully incorporated under the management of the founder's son, Shinzo Fukuhara, who had trained in America. He moved the focus of the business away from pharmaceuticals towards cosmetics, introducing the "Miss Shiseido" concept in 1934. These were among the world's first beauty consultants, a trained team of girls who delivered in-store demonstrations and advised clients on cosmetics. Three years later came the launch of the Camellia Club, designed to reward loyal customers. The club distributed a monthly fashion and beauty magazine to members who eventually numbered nine million, or one in six of all Japanese women.

World War II almost bankrupted the business, when it was forced to drop its cosmetic operation to manufacture medicines. But in the post-War years, the company launched a nail polish which re-established its focus. In 1957 Shiseido established local sales and production facilities in Taiwan, and began to export to Singapore and Hong Kong. Shiseido of Hawaii was established in 1962, and in 1964 the company introduced its first product designed specifically for the international market, Zen perfume. A year later Shiseido launched in America, initially as The House of Zen. Other international territories followed. Further subsidiaries were establishing during the 1980s; in 1986 the company acquired French beauty salon business Carita, followed by Zotos International, a leading US supplier of professional hair and salon products, in 1988.

To manage the company's growing line of fragrances, Beauté Prestige International was established in Paris in 1990, launching the highly successful l'Eau d'Issey Miyake and Jean Paul Gaultier perfumes. Les Salons du Palais Royal Shiseido, a showcase fragrance outlet was set up in 1992. The company then set its sights set on China, forming a joint venture in Beijing in 1997. It launched Aupres the same year, aimed exclusively at the Chinese market. Also in 1997, Shiseido bought the North American and Japanese professional haircare products divisions of Unilever's Helene Curtis beauty business, and followed this with American professional salon products company Lamaur in 1998. The group introduced a new cosmetics brand, Shiseido the Skincare, in 2000, and also agreed the purchase of nine haircare salon brands from Bristol-Myers Squibb, including DeAge hair colours, Waves and Salon Formula. Later that year it agreed a tie-up with Intimate Brands, owners of Victoria's Secret to develop joint cosmetic brands.

But as it attempted to build global sales, Shiseido had tended to overlook the domestic market, where its lead had begun to come under fierce pressure from imported, especially US, cosmetics brands. Many of Shiseido's main products in Japan had been available for several years and were perceived as old-fashioned by younger buyers. Also in 2001 the group was hit by a Y69bn accountancy change which resulted in a loss of Y45bn ($360m), the company's first since the end of World War II. Shiseido responded with a complete overhaul of its management team, and promised to concentrate on key products, eliminating almost half of its domestic brands. To build its salon business in the US, the group acquired California-based salon-use cosmetics maker Joico Laboratories at the end of 2001. The cost-cutting proved extremely successful, bolstered by strong performance in China. By mid 2002 the group was back on track.

Last full revision 23rd August 2016

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