TOKYO — Shiseido Co. Ltd. has outlined its new strategic plan and said it is targeting sales of 1 trillion yen, or $8.5 billion, in fiscal 2020 as it pursues M&A opportunities and introduces new brands.
Japan’s largest beauty company also said it will work to strengthen its e-commerce and travel retail businesses and ramp up its research and development investments, while trying to lessen Shiseido’s “Japan-centric” orientation. Shiseido posted full-year sales of 762 billion yen, or $7.6 billion at average exchange, for the year ended March 31.
The new plan is the brainchild of Shiseido president and chief executive Masahiko Uotani, who took the company’s reins earlier this year. His posting was significant in that he is the company’s first top executive to be appointed from outside, rather than promoted from within. At a briefing on his new strategy Wednesday afternoon, he said he plans to hire even more outside staff, as well as to do away with the company’s long-standing “seniority system” in order to motivate younger workers and reward them for leadership and other capabilities.
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While Uotani said he plans to reduce personnel costs by just over 5 percent by 2020, he said this will not be achieved by a large number of layoffs. While he admitted there is likely to be some “streamlining” within the company, the focus will be on improving labor productivity per capita.
As personnel costs are driven down, Uotani plans to increase Shiseido’s investment in marketing costs, with the goal of strengthening its brand value and increasing market share. He said marketing investments will be increased by at least 100 billion yen, or $853.49 million, a year for the three years starting from 2015.
“If you ask customers in Japan, I think they’ll say something like, ‘Shiseido is a wonderful company; it’s great; I like it. But I don’t buy Shiseido-brand products,’” Uotani said. “[So] we must invest in order to create greater brand value.”
Uotani’s strategy is divided into two stages, the first running from 2015 through 2017 and the second from 2018 through 2020. The first stage will focus on reforms and reinforcement, such as consolidating the company’s portfolio of around 120 brands by eliminating 28 small, unprofitable ones. Uotani said the company has not yet made a final decision on exactly which brands these will be, but stressed that they will be very minor ones. Shiseido will also strengthen its business in China and elsewhere in Asia, as well as its travel retail and e-commerce activities in order to achieve a compound annual growth rate of 3 to 5 percent.
The second stage of the plan will focus more on the development and introduction of new brands; M&A activities — although Uotani did not specify what types of companies he may target for this, and entering into new markets. During this period, Shiseido expects to see sales growth of 5 to 7 percent. The company is targeting an operating profit of at least 100 billion yen, or $853.49 million, in 2020. That would be more than double the operating profit for the year ended March 31, which totaled 49.64 billion yen, or $423.71 million.
Uotani said that despite having a presence in many markets around the world, Shiseido has until now been too Japan-centric, which makes it inefficient when responding to customers’ needs.
“I’ve been to China many times, and if you ask staff there, they say that the Chinese market changes very quickly and dynamically,” Uotani said. “And so they tell us, ‘We want you to make this kind of product,’ and we bring that to Japan, where the people in charge have meetings about it and it takes months and years to decide whether or not to make that product, by which time [the needs of Chinese customers] have already changed.”
In order to address these inefficiencies, Uotani plans to establish regional headquarters in each of Shiseido’s major geographic areas of operation. These offices will be in charge of functions such as marketing and finance, and will work to develop and promote products that cater to the local region. The company’s global headquarters in Tokyo will be scaled down to support strategic functions of the regional offices.
Uotani also acknowledged that Shiseido is often seen as a company whose products appeal more to a slightly older customer, which must change in order for it to achieve longevity. He said the company will begin to focus on increasing market share among young customers, while also continuing to support seniors, particularly in its home market of Japan, where the population is rapidly aging.