Shiseido flagship

TOKYO — Shiseido said Thursday that difficult business conditions brought on by the pandemic resulted in the company posting a first-half net loss of 21.37 billion yen, or $198.8 million. It also posted an operating loss, and sales for the period were down sharply.

The company said losses were “related to COVID-19, such as compensation of employees on leave and maintenance costs for shops and production facilities.” The company had reported net profits of 52.45 billion yen during the same period the previous year.

Shiseido’s operating loss for the six months was 6.35 billion yen, despite efforts to reduce costs. It said the main factors for the loss were a drop in margins resulting from a plunge in sales, and deterioration in productivity of factories due to decreased production volume. In last year’s first half, the company’s operating profit totalled 68.98 billion yen.

Sales for the six months ended June 30 declined by 26 percent on the year, coming in at 417.81 billion yen.

Shiseido’s sales fell in each one of its business segments, with all markets except China posting double-digit percentage decreases. In Japan, sales declined by 31.9 percent to 150.52 billion yen.

“In the domestic cosmetics market, consumer traffic decreased as a result of consumers staying at home, temporary retail closures and shortened operating hours following the lifting of the state of emergency,” Shiseido said in a release. “Other factors included restrictions on entry into Japan issued by the Japanese government, such as the cancellation of visas to citizens of approximately 100 countries and regions, as well as requests to international airlines to reduce flights, all of which significantly decreased demand from inbound tourists.”

The company’s sales in the Americas dropped by 42.1 percent to 36.74 billion yen, which it attributed to lockdowns and stay-at-home orders, as well as an increase in retailers filing for bankruptcy. But one bright spot in the market was Drunk Elephant, which Shiseido acquired last year. The brand’s strong e-commerce sales meant its performance remained solid despite the challenging environment.

In China, Shiseido’s sales fell by 7.1 percent to 100.04 billion yen.

“The China business was largely affected by COVID-19 from the latter half of January. However, due to the decline in infections from late March, nearly all retail stores have resumed operations, marking the fastest recovery among all regions, particularly in mainland China,” Shiseido said. “Net sales growth in the second quarter of the fiscal year 2020 turned positive, mainly for prestige brands. The prestige category recorded especially high sales in e-commerce, an area of strengthened investment which enjoyed substantial growth in this quarter.”

The current fiscal year is the final one in Shiseido’s medium-term strategy it calls “Vision 2020.” At a livestreamed press conference on Thursday, the company’s representative director, president and chief executive officer Masahiko Uotani announced a new strategy called “Win 2023,” which calls for strengthening digital marketing, increasing the product share of skin-care items, accelerating innovation and raising productivity while reducing fixed costs.

Uotani said that in light of the current pandemic, Shiseido will shift its focus to becoming a “premium skin beauty” company. While the sales ratio of skin-care products was 60 percent in 2019, the company aims to increase this figure to 80 percent by 2023. It is targeting becoming the world’s number-one skin beauty company by 2030.

As a part of its new strategy, the company will work to drive the global expansion of some brands. It hopes to roll out Drunk Elephant in in key markets in Europe, travel retail, Japan, China, South Korea, Mexico and Brazil between 2021 and 2022. Baum, a new sustainable beauty brand that launched in Japan this year, will enter the Chinese market in 2021.

Shiseido also announced a new joint venture with Yaman Co. for skin-care  and beauty devices, called Effectim Co. The new company is due to start operations in October, with an investment rate of 65 percent from Shiseido and 35 percent from Yaman.

Yaman is the number-one Japanese brand in China’s beauty device market, and the new company will initially focus on the Chinese market, while also developing cross-border business targeting Chinese consumers who are interested in antiaging and beauty devices. Products developed through the joint venture are planned to be launched in Japan and China in 2021.

Uotani said he expects COVID-19 to subside next year, with the overall recovery of the beauty market predicted for 2023.

For the second half of the current fiscal year, Shiseido does not expect any additional lockdowns or emergency declarations. It sees no recovery within the year for inbound travelers to Japan, especially from China. But it does expect to see a full recovery in the Chinese market, with further acceleration of e-commerce sales. In the Americas, it expects most stores to resume operations but with shorter hours, e-commerce sales to expand further and its factory to operate at about 80 percent of its full capacity.

Uotani said Shiseido will continue to strive to meet the needs of customers, which have drastically shifted since the onset of the coronavirus pandemic. He said that because people are going out less frequently, there are fewer opportunities to wear makeup, and because of masks, lipstick in particular is not being used as much. On the other hand, he said the pandemic has also led to new skin-care needs, such as skin issues the result from several hours of mask wearing. He said the company will respond to these needs over the coming months and years.

In addition to changes to its product offering and marketing methods, Shiseido will also reevaluate how it sells its products to consumers. While its e-commerce sales ratio for the group as a whole was 13 percent in 2019, it aims to increase this number to 25 percent by 2023. In China, this ratio was 34 percent in 2019, and the company is targeting 50 percent by 2023. Uotani also mentioned livestream shopping as a possible new sales channel.

After having withdrawn its previous forecast in May, Shiseido also released its guidance for the current fiscal year. For the 12 months ending Dec. 31, the company is expecting a net loss of 22 billion yen.

It is predicting that its operating profit for the year will be zero.

Full-year net sales are forecast to fall by 15.8 percent, totalling 953 billion yen.

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