7. Shiseido 

Tokyo, Japan

www.group.shiseido.com

Beauty Sales: $7.2 billion

A series of executive changes continues with Shiseido’s incumbent representative director, chairman, president and CEO Shinzo Maeda searching for his replacement.

Key Personnel: Shinzo Maeda, representative director, chairman, president and CEO (incumbent); Yu Okazawa, director, corporate executive officer; Carsten Fischer, representative director, COO global business; Edward Houlihan, Shiseido America president and chief operating officer; Heidi Manheimer, CEO Shiseido Cosmetics America.

Major Products: Prestige and masstige skin care, makeup, hair care and fragrance sold under local and global brands including: Shiseido, Cle de Peau Beauté, Bare Minerals, Aupres, Jean Paul Gaultier, Za, Tsubaki, Senka, Maquillage, Elixir Superieur, Aqualabel, Benefique, Sea Breeze, Nars, Issey Miyake.

New Products: Shiseido Future Solution LX, Elixir Day Care Revolution, Aqualabel Special Gel Cream, Maquillage True Powdery UV foundation, FullMake Washable Base.

Comments: It was not a good year for Shiseido, which posted its first full year net loss in eight years—and its first-time year-on-year loss in China in 32 years—but Shinzo Maeda, representative director, chairman, president and CEO, made a vow that things will turn around by March 2014, the finale of the company’s next fiscal year. By then, too, Maeda hopes to name his successor, as he had stepped up to the plate in a pinch for a one-year term when his immediate predecessor, Hisayuki Suekawa, asked to resign in February 2013 due to health issues.

Maeda declared the results for the year “wholly unsatisfactory.” Overall, net sales decreased 0.7% to $7.2 billion. The loss was estimated at $177.87 million, for the fiscal year.

Ibuki is the latest skin care launch from Shiseido, and is designed specifically to address the skin-care concerns of “millennial,” women ages 25 to 34.

In a letter to shareholders, he further stated: “The reason we are struggling is that we have lost customer support because we have failed to respond adequately to changes in our markets. In the past, Shiseido provided numerous brands and lines worldwide to every type of customer through multiple channels. However, this kind of omnidirectional marketing has dispersed Shiseido’s crucial human, material and capital resources, and sapped our ability to act and respond to change. Our number one priority for quickly getting back on a growth trajectory is building customer support so that we can prevail as competition intensifies.”

In Shiseido’s domestics cosmetics segment—which accounts for 51% of business—net sales totaled about $3.7 billion, a decline of about 2.2% compared with the previous year; global sales (outside Japan) reached $3.4 billion, down 2.5% on a local currency basis. Sales of each division in the company’s domestic cosmetics business segment—counseling, self-selection and toiletries—decreased year on year due to increased competition.

Still, Shiseido is poised to fight back and regain sales, and says it expects better times ahead in terms of profit and sales growth.

Japan’s largest cosmetics company said it expects net income for the 12 months ending March 31, 2014 to reach more than $200 million. A three-year plan was put into effect, specifically concentrating on Japan, China and Bare Escentuals.

Maeda said that underperforming divisions of the company are Bare Escentuals, which Shiseido acquired in 2010 for $1.7 billion (Shiseido blamed its net loss for the fiscal year on the impairment loss related to Bare Escentuals), and its China business. These two areas, in addition to the company’s domestic business, which was affected by economic woes, will be key to the cosmetics giant’s return to growth, said Maeda, who outlined a comprehensive plan to improve the big picture. Overall, the company that bills itself as “a global player representing Asia with its origins in Japan” will hone in on key products, sales outlets and markets.

Going forward, in Japan, Shiseido will focus on cosmetics specialty stores, and will include adviser support. At drug stores and general merchandise stores, it will aim to improve product variety and shelf-space allocation, as well as the visual merchandising of its products. As aging baby boomers are also a leading demographic in Japan, Shiseido will also work to develop new lines and products specifically for this group.

Shiseido blamed slumping sales in China, in part, on a territorial dispute over the Senkaku Islands, which has turned Chinese consumers against Japanese products. But Maeda said sales have begun to recover, and here, too, they will focus on key regions and top-selling brands.

Shiseido has been generating double-digit annual growth in its China business since launching export sales of cosmetics there in 1981. China now accounts for over 10% of Shiseido’s consolidated net sales. Japan’s largest beauty company plans to concentrate on two brands that are not significantly exposed to anti-Japanese sentiment because they are not marketed under the Shiseido name: Aupres, a national brand in the department store channel; and Urara, which is marketed exclusively through cosmetics specialty stores.

While China remains a challenging market, Shiseido says that the number of people using cosmetics in China is projected to increase to 330 million by 2020, so the region will of course, remain a high priority for improving sales.

In the prestige business in Japan, which Shiseido deems its greatest strength, the company will determine focus brands and lines and enhance customer service. Primary focus will be on the Clé de Peau Beaute brand, the global brand, Shiseido, and the Benefique line—all with enhanced customer counseling.

Focus will also extend to Thailand as the Thai cosmetics market follows China in terms of what Shiseido calls “remarkable growth.”

Whether connecting—or re-connecting—with consumers, it all comes down to the products, and Shiseido devotes a considerable amount of resources to R&D. In the past year, the results have paid off handsomely.

Innovations such as FullMake Washable Base (FWB), a makeup base that enables makeup removal with warm water, was a new introduction that began as a manager’s random insight. FWB already had a high level of awareness by the time it launched at sales counters in February 2013. Shiseido says the result was record-setting shipments of 1.28 million units in the first month after launch.

In July, Shiseido announced its new, affordably priced skin care product range, called Ibuki (which translates to “inner strength”), which launched in September. The seven products and a starter kit target millennials—women between 25 and 34 years old. Heidi Manheimer, chief executive officer of Shiseido Cosmetics America, noted that Ibuki was the brand’s first completely new skin care line in eight years.

Also in July, Shiseido announced that it had established a wholly owned subsidiary—Shiseido India Private Limited—in Mumbai, India, as part of its strategy to target the expanding middle-class masstige market, which is forecast to grow significantly in the coming years. Shiseido’s initial entry into the segment will target the “upper masstige” bracket with the skin care and makeup brand Za, which is currently offered in 12 markets in the Asia/Oceania region.

Maeda is confident of a return to profitability. He said signs of a domestic economic recovery are evident since Japan’s new government took office in December 2012, and these should have a positive effect on the country’s cosmetics market. Slight year-on-year growth is expected for the year ending March 2014.