By and  on March 10, 2013

TOKYO — Shiseido Co. Ltd. said Monday that president and chief executive officer Hisayuki Suekawa is stepping down at the end of the month for health reasons.

Shiseido said that chairman Shinzo Maeda will resume his role as president of the company as of April 1. Maeda, 66, was president and ceo prior to Suekawa’s appointment in January 2011 as the company put into action its succession plan. This management shake-up marks the end of Suekawa’s two-year tenure at a difficult time for the Japanese company, which is currently underperforming both in its native Japan and abroad, particularly in China.

Speaking at a press conference here, Maeda said he will take the company’s helm on an interim basis until a suitable successor is found. He declined to give a precise timetable for how long the executive search could take, but said he expected to be president for less than four years.

“I don’t have an exact time span,” Maeda told journalists.

Suekawa said that his job was a strenuous one and he started worrying about his health last month, at which point he decided it was better for him to step down. He said that the decision to bring Maeda back as interim ceo was made because possible successors within the company were not yet fully prepared to take on the role.

Maeda praised the work Suekawa has done over the past few years, noting that it has been a very difficult time to lead the company due to issues stemming from the 2011 earthquake, the formerly strong yen, a global economic downturn and political tensions between Japan and China stemming from a territorial dispute.

“Suekawa is excellent at his job and has worked very hard, with many early mornings, late nights and overseas trips, always applying himself completely,” Maeda said. He went on to state that Suekawa needs a break but that he remains a strong person with a strong spirit. Maeda declined to divulge specifics on Suekawa’s illness, which he said was “private.”

Maeda said that moving forward, Shiseido will undergo organizational reforms and restructure the management of its China business, which has been losing momentum. Shiseido has said tense China-Japan relations have prompted Chinese consumers to continue to shun its products. China is Shiseido’s second-largest foreign market after the United States.

Investors embraced the news of the managerial switch, sending Shiseido’s shares up 6.6 percent to end Monday at 1,362 yen, or $14.18.

“We believe Mr. Maeda will be a popular choice with the stock market as he was at the helm during the period of earnings expansion under the previous business plan,” Wakako Sato, an analyst with Mizuho Securities, wrote in a research note. “Nonetheless, we do not expect a change in top management alone to herald an earnings recovery given that there are numerous reasons for the company’s recent earnings slump, including business conditions in China, and it is thus difficult to hold Mr. Suekawa responsible.”

Suekawa, 53, joined the company in 1982, working in various departments including sales and corporate planning. He spent his entire 30-year career at the Japanese beauty giant. In 2008 he became Maeda’s “right-hand man” as corporate officer and general manager of corporate planning before ascending to the role of president and ceo in April 2011. Shiseido said Suekawa, the second-youngest person to hold the president title in the company’s history, is expected to assume a “senior advisor” role after he retires from the presidency.

Back at the beginning of this tenure, Suekawa said he planned to guide the company in a similar direction as that of Maeda, putting an emphasis on modernizing the corporate structure and increasing the company’s international reach.

“We’re trying to be as global as possible in our outlook and the way in which we serve our markets,” Suekawa said at the time.

Shiseido issued a disappointing set of nine-month figures in January of this year. The company also warned that it was continuing to see weak international sales in the fourth quarter and slashed its full-year forecasts.

According to its most recent estimates, Shiseido expects its net income for the year ending March 31 to fall 27.7 percent to 10.5 billion yen, or $115.33 million. This is less than half of the company’s previous forecast of 22 billion yen, or $241.64 million.

In recent years, Shiseido’s growth in foreign markets has helped offset its slumping performance in its native Japan, a massive but mature beauty market. That trend appears to be coming to an end.

Net profit for the nine months ended Dec. 31 dropped 21 percent to 4.56 billion yen, or about $57.1 million at average exchange rates for the period. Sales for the period slipped 1.2 percent to total 484.79 billion yen, or $6.06 billion.

In Japan sales in Shiseido’s domestic cosmetics business fell 3.2 percent to 252.05 billion yen, or $3.15 billion. Cosmetics sales in its global business inched up 0.8 percent to 225.62 billion yen, or $2.82 billion, although they rose 4.5 percent in constant currency terms. International beauty sales currently make up 46.5 percent of Shiseido’s total sales.

Maeda’s reinstatement is unlikely to bring about a major shift in the company’s strategy. He took managerial control of the company in 2005 and spearheaded a number of initiatives. Maeda cut down the number of brands the company sells in Japan to better focus its image. He also accelerated its growth in China and oversaw its acquisition of Bare Escentuals in 2010.

Maeda did not provide specific details on his managerial priorities but he said the company will continue to look at how it can cut production costs to combat shrinking demand for cosmetics products in the domestic Japanese market. As a part of this, the company will incur costs for restructuring production facilities, including closing its factory in Kamakura, outside of Tokyo.

Mizuho’s Sato said she is waiting to see how significant the changes will be for Shiseido in a second round under Maeda.

“When Mr. Maeda earlier assumed the presidency, the company was expanding its share of in-store space at drugstores under its domestic megabrand strategy, while development of its Chinese business was also reaching a peak. However, Mr. Suekawa was his right-hand man at that time, and we do not believe the management approach has changed significantly since then. It remains unclear whether there will be a larger shake-up. We will therefore be watching closely for any other moves in the makeup of the management team,” she wrote.

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