By  on January 3, 2005

TOKYO — Morio Ikeda, Shiseido’s president and chief executive officer, anticipates that sales generated overseas next year, especially in China, will markedly outpace revenues in the Japanese cosmetics giant’s domestic market.

“In the Japanese market, we expect an increase of 2 to 3 percent, while we will see a rise of about 10 percent on average in overseas markets,” Ikeda said during a recent interview. “And, for China, we project at least a 30 percent increase.” Ikeda was also describing the first phase of a three-year strategy by Shiseido, in which the company would like overseas sales to consistently rise 10 percent annually, while sales within Japan rise 3 percent annually.

Of all overseas markets, China is viewed as the market with the greatest immediate potential. Within the next three years, Shiseido expects retail sales in China to reach 100 billion yen, or $959.3 million at current exchange rates. Last year, sales were around 20 billion yen, or $191.9 million. That would amount to a 400 percent increase in retail sales in China by 2008.

The Shiseido group had more than 200 voluntary chain stores — or independently owned and operated stores that prominently feature Shiseido brands — in China at the end of 2004. Within five years that “number will be 5,000,” said Ikeda. “There are inquiries inviting us to set up plants for revitalization of local commercial districts in China,” he added. “But when we have much more voluntary chain stores in China [then] we may need more manufacturing factories.”

Presently in China, Shiseido has counters at 380 department stores and 200 voluntary chain stores as well as two factories, one in Beijing and the other in Shanghai. Comparatively, in Japan, there are 18,000 voluntary Shiseido chain stores. Ikeda noted that each of the voluntary chain stores exceeds its original budget by selling Shiseido products such as UV White and Elixir.

For the first half ended Sept. 30, “sales growth was prominent in China, increasing 39 percent in local currency terms,” said Ikeda. “Our mainstay brand, Aupres, expanded its sales through marketing reinforcement and an increase in the number of sales counters, while other brands, such as Shiseido, Za and FIFIT, enjoyed good demand as well,” he added. Shiseido has begun selling its Aupres Makeup line through 350 counters in China.“Although there are some problems arising such as logistics and counterfeit products in China, we will invest a part of our profits into development of the Chinese market,” said Ikeda. “That is the country where even local cities have populations of five million to six million people.”

But China is not the only focus when it comes to looking overseas. During a three-day trip to Russia in October, Ikeda recognized business opportunities while visiting department stores under renovation in Moscow and St. Petersburg. “They have been renovated into stores as modern as those of Ginza,” he observed. In a country where income is expected to double within the next five years, he added, “the beauty market has great potential for rapid increase.” Presently, Shiseido sells its products in Russia through local agencies.

Overseas sales for the first half ended Sept. 30, which accounted for 26.2 percent of total group sales, increased 8 percent, while domestic sales were flat compared with the same period last year. For the entire fiscal year overseas sales are projected to account for 26.8 percent of the total business, according to Shiseido.

Regarding mergers and acquisitions, “Shiseido wants to be active if there are possibilities,” said Ikeda. “Alliance with other firms in a moderate fashion is one of the possibilities to expand business,” he noted, adding frankly, “to buy out a whole firm costs a lot.”

For the full year ending March 31, Shiseido is expecting 645 billion yen, or $6.19 billion, in net sales; 25 billion yen, or $239.8 million, in operating income, and 12 billion yen, or $115.1 million, in net income.

All things considered, Shiseido has two principal strategies: “to expand share in the domestic cosmetics market [and] to reinforce development of the Chinese market,” said Ikeda, who noted that profits are being deliberately cut down and used as marketing costs. “Our aggressive measures toward the market have been launched into action.”

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