Laying the groundwork: Shiseido’s focus on ‘skin beauty’ pays off as Q1 2021 operating profits increase

By Amanda Lim contact

- Last updated on GMT

Shiseido Group has reported an operating profit increase in the first quarter of FY2021. [Shiseido Group]
Shiseido Group has reported an operating profit increase in the first quarter of FY2021. [Shiseido Group]

Related tags: financial report, Shiseido

Japanese beauty giant Shiseido Group has reported an operating profit increase of 67.6% year-on-year to surpass US$100m after pivoting towards a focus on skin care following the COVID-19 outbreak.

In the first quarter of the 2021 fiscal year, the firm’s net sales grew 7.5% YoY to JPY244bn (US$2.24bn).

The sales were driven by the growth of the firm’s skin care brands and the growth of e-commerce, particularly in the prestige category.

This follow’s Shiseido’s strategy to focus on skin care and health to stay in line with the changing consumer needs and concerns post-outbreak.

“We are currently implementing a global transformation, positioning skin beauty as our core business. Amid rapid changes in the external environment, we are building a foundation as a skin beauty company and to that end, we are shifting from a focus on top-line growth to a strategy that emphasises profitability and cash flow management.”

This is part of the firm’s plan to make a full recovery by 2023.

“We have positioned 2021 as a year of ‘groundwork’ to realise WIN 2023 and are moving forward with structural reforms centring on our business portfolio, digital transformation, and solidifying the financial base through inventory reductions and other initiatives.”

Sales growth and Japan decline

The firm saw sales growth in all regions except Japan which fell by 12.1% while operating profit declined 37%.

The slow market recovery was attributed to the declaration of a State of Emergency in Japan.

In Japan, the firm focused on strengthening its products, particularly in the skin beauty category to align with new consumer needs triggered by COVID-19.

The e-commerce sales, however, grew in Japan as Shiseido expanded its point of contacts through omnichannel initiatives such as Omise Plus, a dedicated e-commerce platform for cosmetics specialty stores, which launched in March.

Furthermore, the company also launched virtual counselling services and live commerce events.

In China, both offline and online sales grew strongly, outperforming the 2019 fiscal year.

This was driven by higher marketing investments, mainly for skin care brands such as SHISEIDO, Clé de Peau Beauté, and IPSA.

This was also boosted by promotional activities such as International Women’s Day in March and Shiseido’s 40th anniversary in China.

As a result, net sales surged 46.8% YoY, but operating profit contracted 62.7% YoY due to increases in marketing investments and cost of goods sold (COGs).

The rest of the Asia Pacific market saw signs of recovery overall despite the impact of COVID-19 that has persisted in some countries.

The firm managed to increase its market share in Taiwan, while Singapore and Vietnam recorded double-digit growth.

The region’s e-commerce sales double as well, driven by SHISEIDO and the firm’s expansion into major e-commerce platforms in the region.

For its efforts, net sales increased 9.6% YoY while operating profits rose 35.8%, mainly due to higher margins accompanying an increase in sales.

Despite the spread of COVID-19 that affected brick-and-mortar retail and the make-up category, sales in the Americas region were boosted by 4.6% YoY.

As a result, operating loss recovered by JPY3bn (US$27.6m) YoY to JPY6.1bn (US$56m), mainly due to higher margins accompanying an increase in sales as well as improved efficiency of personnel expenses and lower amortisation costs.

While Europe and Middle East (EMEA) region were affected by the pandemic, the company managed to expand Clé de Peau Beauté and Drunk Elephant.

Furthermore, e-commerce sales continued to grow significantly driven by online counselling and digital promotion efforts.

Overall, EMEA net sales grew 19.6% YoY and operating loss contracted by JPY5.6bn (US$51.5m) YoY to JPY90m (US$827.5m), primarily due to higher margins associated with an increase in sales and improved efficiency of marketing investments.

The firm’s travel retail business continued to be affected by the decline of international travel.

However, purchases in Asia grew as the firm strengthened its investments in Hainan Island, China, with an increased number of stores and strong promotions.

Additionally, the performance was also boosted by the expansion of skin care brands IPSA and ELIXIR.

This resulted in a 0.7% increase in net sales, but operating profit declined 4.7% despite higher margins accompanying increased sales in Asia, as the duty-free business in Japan suffered from low profitability.

The professional division, which supplies hair product to salons, saw some recovery with increased footfall to hair salons and the strengthened e-commerce promotions.

As a result, net sales were up 25.4% YoY and operating profit increased 639.7% YoY to JPY400m (US$3.67m) due to improved margins associated with higher sales.

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