SHISEIDO TO RESTRUCTURE OPERATIONS
Byline: Koji Hirano
TOKYO — Shiseido Co. Ltd. has unveiled a drastic reform plan for its domestic business, including a consolidation of its headquarter functions with those of Shiseido Sales Co. Ltd., starting April 1 and chopping the number of existing brands from 80 to 30.
Shiseido is restructuring its operations to “revitalize the Shiseido group’s core business — cosmetics — particularly the domestic cosmetics business,” the firm said, while also projecting a net loss of $374.5 million for the year ending March 31, versus an earlier forecast of a $296.1 million loss and a prior-year net income of $ 133.2 million. All dollar figures are converted from the yen at current exchange rates.
Sales for the year, originally projected to reach $5.36 billion, are now forecast to be $5.23 billion, slightly above last year’s $5.2 billion.
Despite “aggressive investments in advertising and promotion, we now believe that, due to the effects of depressed personal consumption, we will not achieve our original net sales targets,” the company stated.
Marketing resources will be focused on the main lines of the Shiseido brand, mainly skin care products. As part of this change, marketing and its related functions, previously divided between the head office and Shiseido Sales Co. Ltd., a sales company for the domestic cosmetics market, will be unified.
Shiseido’s sales from the domestic market, which usually makes up about 85 percent of the group’s consolidated sales, declined 5.9 percent for the first half of this fiscal year, reflecting declines in both cosmetics and toiletries revenues. Domestic sales of cosmetics fell 2.8 percent.
“The potential of the overseas market is increasing while the domestic market, as a whole, has matured with the change of the nation’s distribution-channel structure,” said Akira Gemma, president of Shiseido, at the end of last year. “A double-digit increase in the Asian beauty market and a stable increase of about 5 percent in Europe are seen for these several years,” he added.
“Shiseido’s sales activities will be strengthened by the unification of marketing functions, previously divided between the head office and Shiseido Sales Co. Ltd. Furthermore, we will move more staff closer to the ‘sales front.’ Shiseido’s activities will be much more focused on sales outlets in Japan,” said the firm.
Shiseido will establish supply chains in which information collected in outlets can be shared instantly. To avoid running out of stock and to rationalize sales channels generally, distribution functions, previously divided between headquarters and Shiseido Sales Co. Ltd., will be unified under the newly established Logistics Division.
“Shiseido’s chain store system, which runs from Shiseido to the retail outlet, was Japan’s first,” the company said, noting the company has contracts with the chain stores that sell Shiseido’s products. This system allows for customer counseling at point of sale.
Industry sources tend to agree that Shiseido’s 25,000-store chain retail system has given Shiseido clout, particularly in maintaining price levels and expanding the business. But its system has not given the company much flexibility. It was only natural for Shiseido to focus on chain stores, since that’s where the bulk of its business is done, compared to other channels, such as department stores, where major Japanese cosmetics manufactures do an estimated 10 percent of their business.
According to some industry executives, Shiseido is attempting to improve its position in department stores.
In its sales structure, Shiseido will distinguish between chain stores, which are mainly cosmetics stores, and “organized” retailers, which are general merchandisers. The newly established Domestic Sales Division at the head office will take over the sales management function of Shiseido Sales Co. Ltd. for sales to distributors.
Also, two existing offices, each called Value Creation Divisions, for prestige cosmetics and for self-selection cosmetics, will be consolidated into a single Cosmetics Value Creation Division.
This new division will be organized into four sub-divisions, handling global cosmetics, domestic cosmetics (including Asia), self-select retailers and men’s cosmetics.
The new unit will concentrate on marketing the 20 core brands within Shiseido’s current roster of 80 brands.
It will eventually reduce the number of lines to between 30 and 35, the firm said. The Cosmetics Value Creation Division is charged with developing mega-lines over the long term four or five years.
Distribution functions, which previously were divided between the head office and Shiseido Sales Co. Ltd. will be unified. A Logistics Division will be established at headquarters as the main artery between the cosmetics business divisions, factories and the chain stores.