Intensifying competition: Shiseido pressured in China by increasing price consciousness among consumers

Speaking during the firm’s 2024 first half (H1) earnings conference, Toshinobu Umetsu, chief executive of Shiseido China, emphasised that the consumer has become increasingly price sensitive.

“Consumers are looking for the channel or touchpoint where they can purchase at the cheapest price. That has become more active and more aggressive among the consumers,” he said.

This has led to an intense price competition among retailers, said Umetsu.

“The brand side wants to protect the price and won’t want to do much price promotion but on e-commerce, the platformers on their own are just chiselling off their margins and issuing lots of coupons… Offline, it’s a similar thing where [retailers] are sacrificing their margins and offering discounts. That is what’s happening in the aggressive price competition in China,” he explained.

This is exacerbated further by the rise of the grey market sellers that are selling product without authorisation from the respective brands, often at lower prices.

“The unauthorised e-commerce market has been expanding. Because they are unauthorised, these are the cheapest, but the retailers peg this price point as their benchmark,” said Umetsu.

He added that a similar thing is happening in the travel retail space as well.

While measures like the daigou ​restrictions have limited the avenues for grey market sellers, it has not stopped the market from flourishing.

“The overall unauthorised routes are shrinking but yet the size of the unauthorised market is growing,” said Umetsu.

Competition from local players

At the same time, Japanese beauty brands in general are still feeling the effects of the Fukushima wastewater release last August.​

“Yes, it's true our brand has weakened a little bit due to the impact of the treated water,” said Umetsu.

This in turn has been a boon for local Chinese beauty brands​, which meet consumer expectations in terms of price, function, and quality.

According to Umetsu, local players have eaten away at Shiseido’s market share in some categories, such as lotions and emulsions, where it has historically been dominant.

In particular, this is affecting its premium brands such as Elixir and Aupres.

“These kinds of brands had a competitive advantage being a Japanese brand, but now it is actually taken over by slightly cheaper local brands,” said Umetsu.

Countermeasures

Umetsu said that the company was currently reviewing its brand portfolio and the local brands to identify the categories where it can continue to “win” in China.

He highlighted the strength of its brands like its flagship Shiseido and high-end lines such as Future Solutions, which consist of high-performance products that can help the firm drive growth.

Additionally, it sees high potential in its prestige brand Clé de Peau Beauté, which has continued to grow by high single-digits.

“Currently, majority of the sales for Clé de Peau Beauté comes from base makeup or the entry face care set and cleansers. But at the same time, there is another higher level line-up, supreme line which we are trying to grow and expand… Right now, we want to solidify the first layer, the entry layers for Clé de Peau Beauté. We think that there will be potential for growth in the second and third layers of Clé de Peau Beauté as a brand,” said Umetsu.