The Japanese cosmetics giant announced on Nov 8 that net sales reached ¥805.8bn ($7.1bn), up 10.2% from last year. Shiseido also reported an organic year-on-year sales growth of 14% while operating income increased 43.5% to ¥101.4bn ($891m).
“We were able to achieve these results because we have created a virtuous cycle in which a combination of accelerated brand growth and effective cross-border marketing in our Japan, China and Travel Retail businesses is leading to considerable improvement in our cost structure,” said Norio Tadakawa, Corporate Executive Officer and CFO of Shiseido Company.
“As in previous periods, prestige brands and “Made in Japan” cosmetics brands continued to show high growth, especially in Asia, and net sales expanded accordingly,” he said.
Japan: Growth despite disaster and shortage
Japanese store sales reported double-digit growth, rising 13% year-on-year, compared to market growth of 1 to 2%, said Japan’s largest cosmetics company. Tadakawa said that tourists accounted for around 75% of inbound sales while sales to buyers accounted for an estimated 25%.
In the third-quarter, sales were impacted as Japan was besieged by natural disasters including a deadly heatwave, flash floods and magnitude 6.7 earthquake which hit the island of Hokkaido.
Additionally, the company faced supply shortages, mostly of popular Clé de Peau Beauté products.
“In 2017, we did not experience any supply shortages for these products because sales were not as strong, but since the beginning of this year they have suddenly grown in popularity. We had not fully grasped this demand trend. Also, certain products such as SHISEIDO ULTIMUNE and ELIXIR brands have been very popular, and supply could not keep up with the sudden growth in sales,” said Tadakawa.
He added that these supply issues were already resolved and production of core items from the affected brands were accelerated in October. As a result, sales of these products more than tripled.
“When it comes to key products under our core brands,” he continued. “Production and supply determine sales, and it is important to ask ourselves how we can maximise this supply volume given that production and supply significantly influence total sales.”
“I am proud that one aspect which has changed significantly at Shiseido over the past few years is our ability to make speedy decisions and respond to market changes quickly,” he added.
Despite this, the 42% growth from travel retail, along with growth in China and e-Commerce sales, made up for decreased inbound sales in Japan, said Tadakawa.
China: No signs of slowing down
Unsurprisingly, the momentum in China remained steady. According to the company’s release, third-quarter sales grew 31% compared to 32% in the first half. Additionally, sales of its prestige brands rose 1.5 times higher compared to last year.
“Judging from the third quarter and recent conditions, the market does not seem to be slowing down,” said Tadakawa.
“Since it is important for us to maintain and increase this growth momentum, we intend to continue increasing marketing investments aiming for far higher growth than our competitors,” said Tadakawa.
An ongoing example he gave was the appointment of Chinese actress Zhang Ziyi as the Global brand ambassador of Clé de Peau Beauté. He added that Zhang will be appearing on all advertisements in the Asian region.
As the popularity of prestige brands continue to grow, Shiseido hopes to capitalise on it by expanding their prestige portfolio in China by with NARS and IPSA, two brand which are rapidly gaining popularity.
Tadakawa added that the firm will continue to increase investments in e-commerce, a crucial sales channel in China which saw sales more than double. To enhance its digital marketing capabilities, Shiseido has also set up a dedicated marketing team for Alibaba “with the aim of facilitating flexible decision-making and outpacing market growth.”
As for impact of China’s new e-commerce laws, which are due to come into effect next year, Tadakawa affirmed his confidence that impact will be minimal.
“We do not expect the new law to have such a great impact on individual tourists. Even if the new law affects our inbound sales to buyers, we can offset this impact with sales through our cross-border marketing in mainland China and Travel Retail business. Cross-border e-commerce sales have also grown considerably. We will be fine as long as there is no decline in demand among Chinese consumers.”