Shiseido Sets Plan to Get Back in Black

Coming off the back of posting a full-year net loss, Shiseido Co. Ltd. said it expects brighter times ahead in terms of profit and sales growth.

TOKYO — Coming off the back of posting a full-year net loss, Shiseido Co. Ltd. said it expects brighter times ahead in terms of profit and sales growth.

This story first appeared in the April 29, 2013 issue of WWD.  Subscribe Today.

Japan’s largest cosmetics company said it expects net income for the 12 months ending March 31, 2014 to total 20 billion yen, or $201.32 million at current exchange. On Wednesday, Shiseido said that it would post its first net loss in eight years of 14.69 billion yen, or $177.87 million, for the fiscal year ending last month. An impairment loss of 28.6 billion yen, or $347.1 million, on the goodwill associated with Bare Escentuals pushed it into the red for the year.

The company predicts that operating income will increase by 45.9 percent to 38 billion yen, or $382.52 million. It is projecting sales growth of 4.8 percent, to total 710 billion yen, or $7.15 billion.

Those forecasts clearly did not impress investors. Shiseido’s shares fell 8.3 percent Friday to close at 1,390 yen, or $13.99. The Nikkei 225 slid just 0.3 percent.

“We have made big changes to our strategy toward growth,” Shiseido chief executive officer Shinzo Maeda said Friday during a briefing with financial analysts.

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Maeda said that among the underperforming divisions in the company are Bare Escentuals, which Shiseido acquired in 2010 for $1.7 billion, and its China business. These two areas, in addition to the company’s business in its home country of Japan, make up a three-pronged revised strategy for the cosmetics giant to return to growth.

In Japan, Maeda said, Shiseido will devise a new comprehensive plan regarding cosmetics specialty stores, which will include advisers to support such stores from 2014. 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. The company will also develop new lines and products specifically targeting Japan’s growing senior market.

Shiseido has blamed its poor performance in China on recent political tensions stemming from territorial disputes over a chain of uninhabited islands. The company has said that Chinese consumers are shunning its Japanese products. However, Maeda said that there are signs of improvement.

“In China, as we enter the 2013 financial year…our counter sales have begun to recover, although they have not yet reached normal levels,” said the executive, who resumed the chief executive role as of last month when Hisayuki Suekawa resigned.

In order to improve sales and profitability, Shiseido will narrow its focus in China to focus on key areas and top-performing brands. A spokesman said the company has not yet decided which brands it will pull out of the Chinese market, but a decision is likely to happen soon. The two brands Shiseido will focus on there in fiscal 2013, Aupres and Urara, are not easily identified as being a part of the Shiseido Group and therefore Japanese brands, the spokesman said.

In addition to reducing and refocusing its brand and product offering in China, Shiseido will apply different strategies to different regions and provinces of the country. After starting with the northern and southern coastal areas, which include such cities as Shanghai, by the 2016 financial year it will expand its focus to six provinces that account for 30 percent of the company’s total sales in China.

Maeda said that once Shiseido has begun to turn around its Chinese business, it will work on developing its presence in the emerging markets of Russia, Brazil, Indonesia and India.

As reported earlier this week, Shiseido’s operating profit for the year ended March 31 fell 33.4 percent to 26.05 billion yen, or $315.21 million at average exchange. Its sales slipped 0.7 percent to 677.73 billion yen, or $8.2 billion.

Sales of the group’s domestic, or Japanese, cosmetics business decreased by 2.2 percent to 345.88 billion yen, or $4.19 billion. Sales of its global business, on the other hand, were up 0.8 percent to 322.35 billion yen, or $3.9 billion.

“In the top-priority Chinese market, our employees, offices, and factories were not affected by anti-Japanese demonstrations, but due to subsequent anti-Japanese sentiment we were unable to undertake aggressive promotional campaigns at yearend, when sales are normally strong,” Shiseido said. “Accordingly, sales in China remained unchanged on a local-currency basis but increased slightly in yen terms.”