Shiseido’s struggles: Japanese giant reports net sales declines in Q4 and 2020 against tough COVID-19 conditions

The maker of brands such as SHISIEDO, Clé de Peau Beauté and NARS pulled in net sales of JPY267.2bn (USD2.6bn) for the fourth quarter (Q4) of 2020, down 6.2% from the previous year. Operating profit dipped 42.4% to JPY6.1bn (USD58.3m)

The company attributed the losses to global economic conditions, which have remained challenging due to the COVID-19 pandemic.

Domestic drop

Domestically, the market suffered from the drop in consumer traffic as a result of temporary retail closures under a state of emergency, shortened operating hours following its lifting, and consumers staying at home.

The restrictions of entry into Japan, reductions in international flights, as well as the Japanese government’s cancellation of visas to citizens from around 150 countries decreased demand from inbound tourists.

To address changes in consumer values and purchasing behaviour, the company launched a raft of new products that aligned with current consumer needs prompted by the COVID-19 pandemic, such as hand creams and transfer-proof BB creams.

At the same time, the firm worked on omnichannel initiatives and strengthened digital marketing, which drove double-digit growth of e-commerce sales.

However, it did not make up for the reduced consumer traffic from temporary retail closures under the state of emergency and shortened operating hours that followed after. This negatively affected sales, mainly for prestige and premium brands.

As a result, year-on-year net sales decreased by 29.7% while operating profit fell 86.3%.

Sharp decline overseas

Overseas, the company saw sharp deceleration from February and March onwards when COVID-19 hit.

In Asia-Pacific, the firm made positive strides by continuing to expand its made-in-Japan brands such as SHISEIDO, Elixir and Anessa, as well as increase its counters in South Asia.

Online sales also grew overall driven by SHISEIDO and Senka brands and the partnerships with major e-commerce platforms in the various regions.

The company noted that Vietnam saw relatively little impact, with sales outperforming year on year due to steady recovery.

However, overall performance was hit by COVID-19, particularly in South Korea and Thailand, resulting in net sales decreasing 15.3% YoY while operating profit declined 56.3%.
In the Americas, the company made efforts to strengthen its earning base by restructuring bareMinerals and strengthening marketing of the prestige skincare brand Drunk Elephant.

However, performance, especially in the offline channel, was significantly affected by measures to curb the spread of COVID-19. Meanwhile, e-commerce sales were strong, driven by Drunk Elephant.

Overall, net sales decreased 25.7% YoY, while operating loss deteriorated by JPY14.7bn (USD1.4bn) from the previous fiscal year to JPY22.3.bn (USD213.2m)

While the number of COVID-19 cases stabilised in the EMEA region over the summer, it resurged from September onwards, triggering new movement restrictions.

This drove the growth of the firm’s e-commerce business which outpaced the market, partly due to the performance of SHISEIDO skin care.

Launches of Clé de Peau Beauté in Italy and Spain, and of Drunk Elephant in Germany, also contributed to sales.

Overall, however, the performance was strongly affected by the COVID-19 outbreak, resulting in 20.4% YoY decline in net sales. Operating loss deteriorated by JPY11bn (USD105.2m) from the previous fiscal year to JPY13.2bn (USD126.2m)

China business remained resilient

While China was severely hit by COVID-19 early on in the year, the market started to recover from April onwards.

Prestige brands such as SHISEIDO, Clé de Peau Beauté, IPSA and NARS grew significantly and expanded their market shares on the back of new counter openings and strengthened investment in e-commerce.

According to Shiseido, China’s Singles’ Day sales in November, more than doubled YoY and as a result, the ratio of e-commerce sales in China exceeded 40%.

This drove net sales up 9.0% YoY. However, operating profit contracted 37.1% YoY to JPY18.4bn due to higher marketing expenses.

The recovery of the China market also contributed to the firm’s travel retail business as the number of domestic tourists to Hainan Island remained high.

Additionally, demand in Korea’s downtown duty-free stores and in e-commerce saw consumer purchases in Asia grow YoY.

However, the considerable reduction of international flights due to the spread of COVID-19 saw net sales declined 19.8% YoY while operating profit contracted 53.2% YoY.

On the professional side, the business was affected by stay-at-home policies and closures of hair salons in Japan, China, and the wider APAC region.

Even though China’s travel retail sales were positive thanks to its online channels, overall net sales dipped 13.1% YoY and the company posted an operating loss of JPY34m (USD325k), mainly due to lower margins accompanying a decline in sales.