Shiseido has its eye firmly on its goal of transformation.
While admitting that the venerable Japanese beauty firm has faced some “legacy and dynasty” problems, Masahiko Uotani, who was recruited in 2014 as president and chief executive officer to rejuvenate the aging giant said, “we are making progress on track” in adopting the Vision 2020 strategic plan. That mission calls for achieving sales of $10 billion and profits of $1 billion. It compares with estimated sales of $7.11 billion in 2015, according to the Top 100 ranking of WWD Beauty Inc magazine.
Those headaches to which Uotani referred included cleaning out some retail inventories in China and being forced to take a $347.10 impairment loss in 2013 after buying Bare Escentuals for an eye-opening $1.7 billion.
“Business is business and everything is not a positive,” he said recently during a freewheeling interview. Problems like that require solutions, he noted. “Then while working on those issues, you have to start working the positive cycles as well. If you put [positive and negative] together we are making good progress.”
One of those pluses involved landing the Dolce & Gabbana beauty license, Uotani pointed out, describing it as a “surprise” that planners had not foreseen two-and-a-half years ago. But it provides a plank in Shiseido’s strategy to mount an offensive with fragrance and makeup. “I believe in the fragrance business,” he declared. “To become a prestige beauty company in the world, you definitely need a fragrance.”
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He also is planning to make more of a statement in the U.S. and Europe. “I don’t think we invested enough before,” he said. A recent study tells us that brand of Shiseido in the total U.S. market, as a skin care brand, it’s less than 40 percent — still less than 40 percent.”
Shiseido’s fragrance presence was embodied by its Paris-based Beauté Prestige International arm, which is scheduled to be absorbed in January into the reorganized Paris-based operation which covers Europe, the Middle East and Asia, under the leadership of president and chief executive officer Louis Desazars. As previously reported, Shiseido aims to grow its share of the global fragrance market to 9 percent by 2020, up from the current 5.8 percent.
Uotani has redrawn the corporate global map and reorganized the company into three zones of product development, with Centers of Excellence devoted to developing particular product categories. Facilities in Yokohama, Japan, now oversee skin care; Paris is in charge of fragrance development, and New York oversees development of makeup and digital. The heads of these centers stay in touch with each other. But the company has begun construction of a new research and development center in Yokohama that is expected to be done by late 2018 and will be called the Global Innovation Center. It will focus on basic research, the kind of clinical-oriented studies and work the company does with Harvard University. The other mission will be in developing products for Japan, particularly skin care.
Uotani sees the new Yokohama center as a hub that will accumulate intellectual property derived from basic research. “We are recruiting aggressively from new graduates and from other companies, cosmetics companies and non-Japanese, foreign people,” he said. “We’re going to make it a real global research center.”
Turning to the larger picture, Uotani said, “If I think of the future growth of Shiseido in the prestige market in the world, including all those developing countries, fragrance is indispensable and makeup could be more attractive,” Uotani said. “Our makeup business on the Shiseido brand — to be very frank — is not well-developed yet. That’s the reason we put the Center for Excellence in New York,” he said in apparent reference to America’s leadership in the global cosmetics market.
In addition, Shiseido has been building its portfolio. Following Bare Escentuals, it bought the Laura Mercier color cosmetics brand along with the Révive skin-care label in July and Serge Lutens last December.
Uotani also ticked off the peaks and valleys of the global market. He noted that studies done by Shiseido indicate that makeup is going to grow in China and fragrance will take a larger share in Japan than its present less than 5 percent of the market. That also will be true in China. He added that fragrance is expected to grow in other emerging markets like Africa and India, while continuing to flourish in Brazil and South America.
Uotani pointed out that China is becoming much more in tune with Southeast Asia. “Asia and China are much more interconnected. What we are doing in China is really impressing our businesses in Asia countries. Clé de Peau is an example [of a Shiseido brand] that’s commonly doing very well in China and [the rest of] Asia, and the Shiseido brand is now coming back,” he said, noting that medium- to low-price products is bigger, compared to Europe and America. “If you just focus on prestige, which is still relatively small in Asia, we are doing quite well,” Uotani said. In the Chinese prestige market, “we are growing double digits.”
While Uotani had good things to report about Clé de Peau and the Shiseido brand, Aupres is in a trickier situation. The cosmetics and skin line was developed exclusively for the Chinese market in 1994, with a name that means “nearby” or “next to” in French, with an equivalent Chinese name. “It means it’s very close to your life,” Uotani said, adding that it was priced with a bit of premium for a daily product. It was successful, he said, then noted that a youth version was launched two years ago and a much higher-priced premium edition. “People lost the identity,” he said noting that the line was overhauled this year — “getting rid of all the fragmented products and going back to basics. Next spring we’ll be introducing a core item product, and the pricing is going to be the one we had before — much, much closer to regular, normal day-today pricing,” Uotani said. “We’re shutting down many stores,” he added, noting that the brand is now carried in 1,300 stores in China.
In general, “Asian consumers are traveling a lot. We had more than two million Asian consumers coming into Japan last year, including Thais and Malaysians.”
Uotani made his remarks and gave his analysis in the midst of the Tax Free World Association conference in Cannes, France. During that gathering of travel retail and duty-free leaders, there was much talk about how newly hard-pressed groups, like the Chinese, have become cagier in picking travel destinations. Generally, they now choose to go to countries where the exchange rate is favorable.
Philippe Lesne, president of travel retail at Shiseido, outlined opportunities in the duty-free market. “Asia continues to be the most dynamic region for beauty in travel retail — perfumes and cosmetics sales in Asia grew by 17 percent last year,” he said. “It is also our biggest growth driver in travel retail, thanks to the China outbound tourism boom. First-half sales of our core brands Shiseido, Clé de Peau Beauté and Nars have been especially buoyant in China, South Korea and Thailand.
“Makeup is the fastest-growing beauty category in travel retail — in 2015 sales were up 13 percent,” he continued. “We see a lot of potential for growth, led by our makeup artist brand Nars which is seeing dramatic growth with Chinese travelers, especially in South Korea. Digital is a key priority for us, and synergies are in place to further build the Nars brand through a strategic digital strategy. Shiseido Group has also implemented structural reforms to increase sales and restore profitability to the bareMinerals brand.”
While acknowledging that global sales of fragrance in travel retail declined by 8 percent last year, Lesne said, “we are optimistic about the category’s potential, especially in the underpenetrated Asia-Pacific fragrance market which has a CAGR of plus 7.1 percent. Dolce & Gabbana is set to be a growth engine for us.”
When asked to enumerate the weak spots, the Shiseido travel retail chief said corporate consolidation has resulted in “fierce competition,” a higher frequency of product launches and “not enough real newness and uniqueness.”
“The key is in differentiating our offering through strong marketing and product innovation to build our brand equity, making price a secondary concern for consumers,” Lesne said. “To do this, we need to develop a better understanding of our consumers and create products that resonate with them.”
He, like others at the conference, pointed to the success of the liquor category in the travel retail market, with innovation as the driver. “In beauty the focus is more on the product,” he said, “whereas in liquor there is a huge emphasis on the experiential element and storytelling — brand heritage and product education feature strongly in engaging the consumer.”