Shiseido’s double-digit profit drive: Firm lays out plans for China, Americas and EMEA

In the last financial year, Shiseido achieved a record-high performance of over ¥1tn ($9bn) in net sales and ¥100bn ($900m) in operating profit, which were initially the targets for 2020.

During the firm’s latest General Meeting of Shareholders, representative director, president and CEO Masahiko Uotani expressed that Shiseido does not intend to rest on its laurels.

“We want to continue to take on bold challenges, aiming for further heights. We will continue to take action on the issues in front of us, without putting them off.”​

In line with this, Uotani said the company has revised its targets for 2019 and 2020.

The company hopes to see a 9% increase to ¥1.17tn ($10.6bn) in constant currency for net sales, as well as an 11% increase to ¥120bn ($1.1bn) for operating profit.

Additionally, it hopes to see its net profit grow 23% to ¥75.5bn ($685m).

Uotani added that although the market environment is uncertain due to situations such as the US-China trade friction, the company would give its all to achieve the targets.

Long-term, the company is targeting to achieve sales of ¥2tn ($18.2m) and operating profit of ¥300bn ($2.7bn).

“Twenty years from now… we want to be a Japanese company that can compete with the top global players. To compete with the global giants in the industry, we think that a big company size and investment capabilities are required.”​

China will soon reach ¥200bn

Last year, Shiseido’s business in China achieved significant growth of 32%.

Uotani believes it will soon achieve ¥200bn ($1.8m) in sales, and is confident it can grow even larger.

“Considering the big market size with 1.4bn people, we believe it is not unrealistic for the China business to grow to be 500bn ($4.5m) yen in the future.”​

To achieve this, the firm will have to strengthen its marketing activities, said Uotani.

“Especially since China has their own culture… We want to localised our activities such as product and promotion development to better adapt and match the Chinese consumers.”​

The company also sees growth potential in China’s e-commerce market.

Currently, 30% of the company’s sales in China are sold through e-commerce.

Uotani believes by 2020, e-commerce sales will account for 40% of China’s total sales.

“We will further strengthen our alliance with partners like Alibaba Group and in 2020... We want to push e-commerce initiatives more.”​

In order to execute these plans and strengthen its China business, Uotani stressed it was imperative to strengthen its organisation.

“It is essential that we have capable local talent and nurture our employees. [Strengthening] the organisation will be the key to strengthening growth in the China business.​

Improving profitability in Americas and EMEA

Aside from China, the company is also focused on strengthening its position in the Americas and EMEA.

“We regard it as a very important business challenge,”​ remarked Uotani.

He added: “We have very important challenges to tackle in the Americas and EMEA. Regional top management and employees have a strong understanding of the need to improve the profitability of the business as their biggest issue... we are doing our best with a sense of urgency.”​

According to Uotani, improving the company’s position in the Americas is contingent on revitalising bareMinerals, a brand which came under Shiseido with the acquisition of Bare Escentuals in 2010.

“Last year, we reshuffled the top management of the brand and under the new leadership, we finally finished closing 80 unprofitable boutiques in an effort to stop making losses. This year, we will proactively launch new advertising and products based on the new brand strategy,”​ said Uotani.

Uotani said that store sales are showing signs of recovery and that the company will be able to stablise the revenue and the earnings by 2020.

To further improve profitability in EMEA, the company plans to grow sales of high margins skin care brands.

This includes Shiseido and Clé de Peau Beauté, which is launching in Europe this fall, starting with the UK.

“The UK is the biggest market in Europe. Even though the country faces economic disturbances due to uncertainties triggered by Brexit, we are implementing structural reform. We will have new top exec in May to further accelerate the structural reform as we think its key to have more stable earnings in the UK.”​

Strengthening supply chain

The final key to Shiseido’s success is fixing its current supply chain and production issues, which have resulted in shortages in the past year.

“As our sales are trending very strong in Japan, China and in Asia, our supply is tight, resulting in shortages to our regret,”​ said Uotani.

“We are doing everything possible to resolve this issue. We have three factories now in Japan, running at full capacity day and night. But as it is not enough, we increased the number of partner factories substantially last year with aim of strengthening our production capacity.”​

Executive Corporate Officer, Norio Tadakawa added that the company has “hit a limit” to increasing production by improving productivity at the existing factories

He commented that this was only a temporary solution and the company is planning to launch three more factories in over the course of the next three years.

The first is scheduled to open by the end of this year.

Tadakawa said: “With the completion of these new factories, we will have six factories in Japan…. We aim to realise craftsmanship that is unique to Shiseido at our domestic factories.”​