SHISEIDO BUYS NARS, CAPPING DRIVE

Byline: Pete Born

NEW YORK — Japanese cosmetics giant Shiseido capped a busy week on the acquisition trail by disclosing Thursday that it has snared one of the hottest names on the still trendy makeup artist scene — Francois Nars.
The acquisition announcement of the Nars cosmetics brand confirms a report that appeared on page 15 Tuesday, and forms the centerpiece of a multi-brand marketing strategy that has been gaining steam at Shiseido since the mid-Nineties.
This approach was outlined here Monday in an interview with Sadao Abe, senior executive director and head of international operations reporting to Akira Gemma, president and chief executive officer in Tokyo.
Coincidentally on Monday, it was announced in Paris that Shiseido had acquired a 75 percent stake in Laboratoires Decleor, a French aromatherapy and skin care company with sales expected to approach $41 million on an ex-factory basis, which is calculated on prices well below wholesale.
In making the announcement, Shiseido expressed strong belief in Decleor’s “hybrid” approach, mixing aromatherapy and skin care products and driven by in-store counseling. Herve Lesieur will remain Decleor president and ceo and he will retain a 25 percent stake.
In addition, Shiseido acquired a 40 percent stake in Spa Partners Asia Limited and Mandara Spa, which operates 30 spas and luxury hotels in Asia Pacific and the U.S. The Tokyo headquarters also disclosed that it signed a contract with Bristol-Myers Squibb Co. to buy its Sea Breeze teen skin care brand, which is expected to add more than $70 million in sales.
Two weeks ago, the company bought 58 percent of Zihr, a U.S. men’s skin care brand with sales of $3 million. Plans call for expanding the brand into 40 to 60 countries by the end of 2002.
But it was the acquisition of the Nars brand that put Shiseido’s mission into overdrive. “It’s an amazing opportunity for Francois to take the brand to the next level,” said Jennifer Lister, executive vice president and ceo of Nars Cosmetics Inc.
Shiseido bought the entire brand from Agora Cosmetics Inc. for an undisclosed sum. The Nars brand consists of a 240-stockkeeping-unit line of color cosmetics. It is prestige priced, with a lipstick retailing for $19, and aimed at hip women in their 20s and 30s. Nars has cut a swath through New York and European fashion circles as a French makeup artist who has done the looks for fashion shows by Versace, Dolce & Gabbana, Calvin Klein and Marc Jacobs. He is also known for his fashion and advertising photography. Recently, his work appeared in W and InStyle.
His cutting-edge cosmetics line is now sold through 106 doors — 75 of them in the U.S. — in 16 countries across Europe into the Mideast and Hong Kong.
Lister pointed out that the brand is not yet distributed in Japan and the prospect of entering the market with Shiseido, the home turf leader, was one of the greatest advantages of the deal.
But the chief attracter, Lister indicated, was Shiseido’s great expertise in skin care, a category that Nars has longed to enter. Also, he is planning to open a New York flagship, hopefully next spring, Lister said, adding that a site is being sought in downtown Manhattan. Interior designer Christian Liaigre is already at work on the project. Plans also call for opening a second store in Tokyo and a third one in either London or Paris.
Meanwhile, Nars plans to open his own Web site in June. His brand is currently sold on eve.com.
According to Shiseido, the Nars cosmetics brand did $10 million at wholesale in 1999 and the company expects the total to grow to $15 million this year. Projections for 2002 call for sales of $25 million.
“I feel Shiseido is the perfect partner to take my vision globally,” said Nars in a statement Thursday. “I started five years ago to build something special and they very much respect what we have created and wish to take it further. I know our partnership will be creative, visionary and ultimately successful in terms of continuing my ultimate goal for a lifestyle brand built on cutting edge technology and innovation. I am looking forward to working closely with them to blend creative and technological forces,” said Nars, who is working on a makeup book, due out next spring.
The acquisition of the Nars brand thrusts Shiseido onto the playing field with Estee Lauder, L’Oreal and LVMH Moet Hennessy Louis Vuitton, all of whom have been hungrily acquiring hip young brands.
During the Monday interview, Abe said the company, which ended the fiscal year in March with sales of $5.5 billion, has been focusing on marketing and improving profitability with a “cost-best” effort.
Due to the appreciation of the yen against the dollar, there was a 1.3 percent dip in yen-based sales, but in local currencies outside Japan, there was a 12.7 percent jump.
As previously noted, operating profit was up 7.4 percent and net income leaped 48 percent.
Shiseido began a drive in the mid-Nineties to diversify its brand portfolio. And this week, Abe ticked off the results of that effort. That includes the launch of the ultra-exclusive Cle du Peau in the U.S. at Bergdorf Goodman. Isao Isejima, chairman of Shiseido Cosmetics (America) Ltd. plus the regional headquarters, said talks are under way with Neiman Marcus for expanding distribution.
In addition, Shiseido successfully launched its new Serumnoir hair products two months ago in Japan and The Skin Care in the U.S.
In China, the company introduced an upscale version of its Aupres line, called Aupres Dx. As an indication of how rapidly the company is diversifying, 5S, a brand that was launched in New York’s SoHo section, has been introduced in Tokyo.
In addition, Abe said the percentage of non-Shiseido business done outside Japan has risen to 40 percent. Total business done outside Japan has grown from 9 percent in fiscal 1996 to 15.5 percent now. That total is expected to hit 25 percent by March 2004, through a combination of internal growth and acquisitions.
Abe declared that the firm is heading into the new millennium in 2001 with a plan to clear its decks of excess fiscal baggage. Due to a change in Japanese accounting law in regard to retirement funds, the company will take a huge writeoff. It also decided to clear the books of its goodwill provision from its Zotos acquisition with an accelerated amortization.
These writeoffs will turn a projected 5 percent operating profit into a loss under the weight of 93 billion yen in writeoffs. The loss has been projected at $309 million net.
Abe framed the expected loss as a positive move by entering the new era ready to enhance profitability “for our shareholders,” with the ability “to move strongly in to the 21st century.”