Shiseido's Success in the Chinese Beauty Market PDF

**Why Shiseido Beats Western Beauty Marketers. Chinese Women View and Use Beauty Products Differently, Says Researcher Patricia Pao** *[Patricia Pao](http://adage.com/author/patricia-pao/3443) / [Bio](http://adage.com/author/patricia-pao/3443)\ [RSS feed](http://adage.com/rss-author.php?id=3443) [September 01, 2010](http://adage.com/results?endeca=1&return=endeca&search_offset=0&search_order_by=score&search_phrase=09/01/2010) / AdAgeChina* SHANGHAI (AdAgeChina.com) \-- The definition of beauty has become homogenized by the globalization of media, but there are cultural and societal differences that affect the way women in different countries view and use beauty products, especially in China. Chinese women are much heavier users of skin care products, for example. Skin care holds a 70% share of beauty consumption there. In the U.S., by contrast, the use of skin care, color cosmetics and fragrances is fairly evenly divided. Chinese women\'s skin ages differently than that of their American counterparts too. As a result, they require different product attributes. While western complexions show their age through fine lines and wrinkles, Asian skin ages through dark spots. As a result, Chinese women are demanding that their skin care products lighten these spots and even out skin tone. (Lightening products are not the same as whitening products that also have become popular throughout Asia.) **Education is an important tool** Beauty is still relatively new to Chinese women, so education is a valuable tool for consumers\--and an opportunity for marketers. Mao Zedong forbid the use of cosmetics until the 1980s, so beauty information was virtually non-existent until then. While today\'s western woman generally is initiated into the beauty ritual by her mom, Chinese women are dependent on outside sources for their beauty information. Beauty companies have stepped in to fill the void and offer training and education programs to their consultants\--the hired guns advising women at counters in department stores\--and the customers. Amore Pacific, for instance, has a \"lunch-and-learn\" program created specifically for secretaries. Manufacturers have invested in training beauty consultants and product tie-ins with Taiwanese beauty-related television programs. The payoff from these programs is evidenced by the fact that Chinese women are more likely to use all the products recommended to them. Toner use is particularly high (75%) compared to the U.S. market, according to a recent study by the Pao Principle, which interviewed 1,014 Chinese women who use beauty products, mostly aged 20-29. **Skin care starts early** Chinese women value a radiant, glowing complexion. Unlike many American women, they understand that using effective products early in life can positively impact their skin so good skin care habits start early. About 43% of the panelists in our study reported first using skin care products before 17 years of age, with 16.5% using skin care products before the age of 15, suggesting global beauty companies should position skin care messages for tweens. Few are doing so, however. With the exception of acne products, most current communications strategies are aimed at an older population. Skin care is also a loyal category. When women find something that works, they generally stick to it, so speaking to women in their early teens should increase market share through increased trial and (hopefully) continuous repurchase. \"Chinese believe that Japanese technology is the most cutting-edge\" While skin care use starts at an early age, color and fragrance usage normally is delayed until a Chinese woman enters university. Color cosmetics and fragrance usage is frowned upon by a girl\'s family. It not considered seemly for a \"nice girl\" to wear these products until she at least finishes high school. Her family wants her to focus on her studies and not be distracted by extraneous influences. It is important to them that she gains entrance into a top university. Eight-four percent of our panelists first used color cosmetics between the ages of 18 and 25, and 74.8% started using fragrance during the same time span. Unlike the U.S., mass and prestige brands live in the same environment. Due to the need for service and information, brands such as Maybelline, L\'Oreal, Creame de la Mer and Estee Lauder live side by side in Chinese department stores\--because the department store environment is well suited for education and training. Well over half of panelists in our study reported purchasing their skin care, color cosmetics and fragrance products in department stores. **Privacy concerns** While beauty brands may share the same channel, they are segmented by age and income. Prestige consumers are concentrated in Shanghai. They are older and tend to own their own business or work in middle management for a state-owned enterprise or a multinational corporation. Mass users are primarily students. The power of word of mouth in China is huge. Forty percent of respondents cited friends and family as their primary source of information about beauty products. Many mainland Chinese prefer to keep their thoughts, opinions and personal information private. They find it difficult to trust outsiders because of their long history and previous experience where information was used against them. Chinese culture is centered on the family and many find it difficult to trust those outside this inner circle. Interestingly, in limited cases, medical advice is also valued in selecting items such as toners, moisturizers, anti-aging products, foundation and mascara. When asked why they used a particular skin care or color cosmetics product, 20% of panelists said that it was because a doctor advised them to use it. Just as doctor brands dominated the U.S. market over the past ten years, doctor-created or endorsed brands have great potential in China. **Shiseido tops western brands** Unlike western women, who like to experiment with small, indie brands, the Chinese beauty consumer prefers to use big, well-known global brands. Shiseido was the most-used skin care brand by our panelists, due to the fact that Chinese believe that Japanese technology is the most cutting-edge. They also believe that Japanese skin is close to theirs and that Shiseido has the best understanding of their skin care needs. I believe Shiseido\'s strong global brand image is another big reason for its success. For example, Amore Pacific, which is the top-selling brand in South Korea, has not been able to make in-roads into the Chinese market, because of its low brand awareness in both the U.S. and in Europe. In contrast, Shiseido is well known and respected in all of these markets. Maybelline was the favored color cosmetics brand among our panelists, which is not surprising as L\'Oreal Group has aggressively focused resources on all elements of the marketing mix in China. Specifically, sharp pricing, creative promotions, heavy ad campaigns featuring global and local celebrities and models and constant innovation have driven market share\--although I wonder how long L\'Oreal can sustain its current level of media investment. With fragrances, Chinese women clearly prefer designer products as evidenced by the huge popularity of Chanel No. 5, which was the most-used fragrance by the respondents in our study. They hugely admire the Chanel franchise and consider it an honor to have Chanel No. 5 adorn their dressing table. Below are some results from the Pao Principle\'s latest study about beauty products in China. **Which skin care brand do you use the most?** Shiseido 8.2%\ Olay 8.0%\ L\'Oreal 8.0%\ Nivea Body 6.8%\ Clinique 5.4%\ Estee Lauder 4.2%\ Aupres 3.1%\ Avon 3.0%\ Lancome 3.0%\ Mary Kay 2.7% **Which color cosmetics brand do you use the most?** Maybelline 21.0%\ L\'Oreal 11.6%\ Lancome 7.1%\ Dior 6.4%\ Bobbi Brown 4.1%\ Clinique 3.4%\ Estee Lauder 3.0%\ NYC NY Colour 2.8%\ Avon 2.5%\ Chanel 2.5% **Which fragrance brand do you use the most?** Chanel No. 5 13.1%\ Dior Addict 2 6.8%\ Elizabeth Arden Green Tea 5.7%\ Burberry Brit for Women 4.3%\ Miss Dior Cherie 4.3%\ Gucci Envy 3.9%\ Bulgari Green Tea 3.5%\ Coco 3.3%\ Anna Sui Secret Wish 3.0%\ Anna Sui Dolly Girl 3.0%\ Chance 3.0% *Patricia Pao is CEO of the Pao Principle, a global business consulting firm based in New York.* 【**Reference 1**】 - Shiseido news release September 2011 **Shiseido's Global Vision: China at the Helm of Broad based Expansion Strategy** Shiseido is committed to achieving comprehensive growth by drawing on the strategic assets and talents of its strategic portfolio. Guided by the four growth strategies announced as part of the current Three-Year Plan, Shiseido is positioning itself as a Global Mega-Brand with an acute focus on Asia and expanding in emerging markets. China is a standing example of how the group can proactively capitalize on its resources with the entry of Bare Escentuals into Asia and launch of e-commerce business in September. For more detailed coverage of recent China growth activities, please see attached release. Amid recent M&A movement in beauty and luxury markets, Shiseido has surfaced as a brand growth accelerator. With a priority on nurturing endorsers including Leslie Blodgett of Bare Escentuals and Francois Nars of *NARS,* Shiseido has achieved authentic brand growth by offering access to a global logistic and production network as well as world-leading R&D capabilities. While respecting original brand and corporate identities, the respective skills and assets of all partners are integrated on a global scale. **Global brand *SHISEIDO*** With the highest visibility and reach of the group, the global brand *SHISEIDO* is strongly advancing in two segments that are overachieving targets and broadly disseminating the brand's values, capability and identity: premium skincare and serum. In the US and Asia, the premium skincare market maintains double digit growth, reaching 30% in China alone, while serums remain a key first-purchase item that can communicate brand's unmatched technology. **Bare Escentuals** With *bareMinerals* from Bare Escentuals, Shiseido reaches a market segment not covered by other brands -- entry prestige, natural makeup and skincare with a unique business model that fosters high brand loyalty and relationship building expertise. Acquired in March 2010, Bare Escentuals has achieved increased sales and revenue as well as boosted Shiseido's share in the global market in just 18 months. The acquisition deepens Shiseido's reach to a new customer segment in the US and under the shared value of "Customer-First Strategy" helped develop a more diverse corporate culture receptive to different values and approaches. Global Multi Brand synergy has integrated the values and heritage of the two brands in various ways. ***NARS*** Approaching 10 years since joining Shiseido, *NARS* is steadily increasing share and has maintained a strong identity throughout the partnership. The iconic brand is wholly identified by the vision of Francois Nars, who remains the driving creative force of the brand's identity and future direction. **BeautéPrestige International (BPI)** Securing a strong presence in the prestige fragrance segment, BPI is a creative house that deftly evolves fashion identities to fragrances. The diverse brand portfolio is regularly energized by strategically releasing flank lines to excite sales and nurture the franchise, as seen with the impact of l'eau d'Issey *florale* on the *Issey Miyake* brand. Recent launches are reigniting g the momentum of the house. **\[Reference 2\]** **Shiseido Develops New Businesses in China** Shiseido is developing new businesses in China, which is positioned to serve as a main growth engine under its current Three-Year Plan (April 2011 - March 2014) that began this fiscal year. In line with four growth strategies announced---Global Mega-Brand, Asian Breakthrough, New Frontier and Customer-First (see page 3 for further details)---Shiseido is working to facilitate new growth and achieve sustained double-digit growth in sales, exceeding the rate at which the Chinese cosmetics market is growing by strengthening the foundations of its businesses through such means as launching a new e-commerce service. The information included in this news release was originally announced at the Shiseido China Business Strategy Conference held in Shanghai at 3:30 pm (4:30 JST) on September 14. **Introduction of E-Commerce Initiatives** As the number of Internet users continues to grow worldwide, Shiseido will commence full-fledged efforts to introduce e-commerce initiatives for the Chinese market to realize its New Frontier Strategy. The aim is to expand points of contact with new customers in addition to existing sales channels in China, which surpassed the United States as the country with the most Internet users in 2010. On September 15, Shiseido will launch a website for *PURE&MILD Soi*, a new series of products developed specifically for the Chinese mail-order market under its *PURE&MILD* brand, which is currently offered primarily at supermarkets, hypermarkets and cosmetics specialty stores. The new line of products (14 skincare products, 14 items, price range: RMB90 - RMB230), with environment-friendly features that include packaging (cases) made from bagasse paper\*, targets young, post-80s consumers who prefer natural products and lead consumption in China. The mail-order business goes beyond a shopping website, incorporating a new call center that will field customer inquiries, and an online counseling service that will allow professionally trained call center staff to propose products and beauty techniques that are optimized for the skin types and needs of individual customers. By accumulating information in a customer database for later analysis, Shiseido seeks to boost customer satisfaction. \*Bagasse paper: Non-wood paper made from fiber remaining after sugarcane is crushed in the production of sugar. **Developing the Bare Escentuals Brand in Hong Kong** The Global Mega-Brand Strategy is one of four growth strategies that seek to transform Shiseido into a Global Multiple Brands Company. It aims to have individual brands generating from ¥50 billion to ¥100 billion in sales by focusing on developing three brands in the prestige category: global brand *SHISEIDO*, *Cléde Peau Beauté*and *bareMinerals* from Bare Escentuals, Inc. *bareMinerals* products will be sold through a Shiseido sales company (Shiseido Hong Kong Ltd.) for the first time as a synergy effect resulting from Shiseido's acquisition of the company in March 2010. Shiseido will hold an event to announce the products in Hong Kong on September 28 prior to launch at two department stores in the territory in October. **Introducing the *TSUBAKI* Global Mega-Brand in China** In the masstige category of its Global Mega-Brand Strategy, Shiseido is currently offering two brands: *Za*, a total skincare and makeup brand, and *SENKA*, a skincare brand. Shiseido will introduce the *TSUBAKI* hair care brand in December 2011 in an effort to expand a new product category in the masstige domain. Products currently being sold in Japan under the brand will be locally adapted to better meet the needs of Chinese women and made available at about 10,000 hypermarkets and drugstores. Shiseido will build a fourth production facility at Shanghai Zotos Citic Cosmetics Co., Ltd. to boost production of these *TSUBAKI* products. **Trialing a Collagen Drink** With the Chinese health food market experiencing dramatic growth, Shiseido is working toward the release of a collagen drink in the healthcare business as a new business domain. Recognizing that there is also high demand for such products in Japan, Shiseido is planning to conduct a trial with a beauty beverage formulated with collagen under its *PURE&MILD* brand for individuals seeking beautiful and resilient skin. The move is part of Shiseido's Asian Breakthrough Strategy, which seeks to enhance its presence and achieve future growth. Of the 8,000 stores that carry *PURE&MILD* brand products, the initiative will be implemented at 1,600 high-end shops able to offer customers counseling. Shiseido will boost the presence of new and existing brands in China by prioritizing investment in these new initiatives. In the department store channel, Shiseido will increase the competitive edge and prestige of global brand *SHISEIDO*, *Cléde Peau Beauté*and *AUPRES*. In the cosmetics specialty store channel, which includes more than 5,000 retailers, Shiseido will seek to increase same-store sales by promoting the *URARA* brand and introducing *d'icilài*, a prestige brand designed for cosmetics specialty stores in Japan, at stores with leading sales figures. In addition to these business development initiatives, Shiseido will proactively fulfill its role as a corporate citizen in Chinese society by continuing the CSR activities realized up until the present. These include the Shiseido Future Beauty Project, which was launched on the 30th anniversary of the start of its business in China; SHISEIDO LIFE QUALITY MAKEUP*,* which is directed toward individuals with significant skin concerns such as birthmarks and vitiligo through collaboration with Chinese dermatologists; and tree-planting activities. **Beauty giant Shiseido snaps up technology startups to draw young shoppers** Bruce Einhorn and Lisa Du / 2018.04.18 / Bloomberg Shiseido Co., the Japanese firm that sells Laura Mercier cosmetics and Dolce & Gabbana fragrances, sold ¥1 trillion (\$9.3 billion) worth of beauty products last year, mostly in traditional stores where customers can sample brands in person. That's a problem for Masahiko Uotani, Shiseido's chief executive officer. Consumers in their teens and twenties often prefer to shop online, beyond the reach of in-store salespeople. Uotani's solution? To partner with --- and even buy up --- small startups in Silicon Valley and other tech hubs to gain expertise in artificial intelligence, augmented reality and other technologies. His ambition is to help shoppers replicate online the experience of trying on cosmetics in a store, and use data from smart devices to create personalized makeup for customers. "Particularly with the younger generation, often they don't go into the stores," Uotani said in an interview. "The way they buy, the way they share their excitement with their friends, is completely different from older generations." Technology is upending the \$440 billion global beauty industry. While only about 6.9 percent of sales were online in 2016, according to market research provider Euromonitor International, e-commerce is becoming more important as online sales soar in China and other markets. China will likely cross \$1 trillion in online retail sales in 2018, according to Forrester Research. Such sharp changes in shopping habits in Asia's biggest economy and across the globe have big brands scrambling to keep up. France's L'Oreal SA said on March 16 it would acquire for an undisclosed sum a Canadian tech company, ModiFace, which has more than 70 employees. ModiFace develops software that allows consumers to use augmented reality to see how they would look with different types of blushes and eye shadows. L'Oreal has also partnered with French telecommunications entrepreneur Xavier Niel to create an accelerator for beauty-tech firms. French luxury giant LVMH is working with Niel, too. The company announced on April 10 a program, La Maison des Startups, to support entrepreneurs at Niel's Paris-based campus for new companies developing technologies and services for perfumes and cosmetics as well as wine, fashion and other LVMH businesses. In China, e-commerce already accounts for 25 percent of Shiseido's business, said Uotani, and in three years will rise to almost 40 percent. For Shiseido worldwide, 15 percent of sales will happen online by 2020, up from 8 percent last year, he said. Shiseido on Jan. 11 disclosed the acquisition for an undisclosed sum of the R&D team and other assets of Olivo Laboratories, a startup specializing in artificial skin technology that's based in Watertown, Massachusetts, close to Harvard and MIT. The artificial skin hasn't been commercialized as yet, although the company says it can be used in various ways, including as a base layer under makeup. Other Shiseido acquisitions include MatchCo, a California startup purchased for an undisclosed sum in 2017. MatchCo develops software customers can use with their smartphones to create customized foundation products that match their skin tones. "The first generation of e-commerce was really about replicating the store experience but with cosmetics there's an extra layer of uncertainty for the customer," said Dave Gross, MatchCo co-founder and general manager. "So in that sense there's a big problem to solve related to helping the customer find the right products." To help address that problem, Shiseido in November bought Giaran, a startup which develops AI technology, for an undisclosed sum. With its simulation technology, Giaran wants to enable consumers on their phones or computers to remove and apply makeup virtually so they can see how they look before making purchases. Analysts predict that more beauty companies will be on the prowl for technology. "We will definitely see more," said Deborah Aitken, an analyst with Bloomberg Intelligence in London, who said companies need to respond to the shift of customers, especially in Asia, to shopping for cosmetics and other beauty products online. L'Oreal added more than 1,700 staff to work on digital issues over four years, CEO Jean-Paul Agon said in 2017. In December, Estee Lauder Cos. announced a partnership with beauty technology startup Perfect Corp. to introduce an augmented reality program for the cosmetics company's 17,000 beauty consultants. Shiseido intends to boost its R&D staff to 1,500 by 2020, up from 1,000 in 2014. It expects to see a payoff on its investments from its existing technology investments soon, said Marc Rey, CEO of Shiseido Americas. "It's not ten years from now," Rey said. "It's really happening." **A look into Shiseido's current strategy in the Chinese market** 2019.04.04 / Beauty Tech At the end of 2018, Shiseido announced the establishment in Shanghai of its "China Business Innovation and Investment Representative Office", a branch under the direct control of their headquarters. This move underlies their strategy to work more with Chinese companies --- particularly startups --- as well as get a better idea of the trends of Chinese consumers, both within and outside China, to drive innovation in their existing businesses. We take a closer look at Shiseido's endeavors in the Chinese market and where they're aiming for. First, it's worthwhile taking a look at the state of the Chinese market. As the country's economy is slowing down, the growth rate of cosmetics sales is starting to see signs of weakness. According to China's National Bureau of Statistics, retail sales for cosmetics in 2018 were up 9.6% over the previous year at 261.9 billion yuan (approx. US\$39.1 billion). It was strong throughout the year, but a look at the monthly progression shows that there was a clear slowdown. Although there was two-digit growth each month up until June, from July that rate started going down and was a modest 1.9% by December. According to Shiseido's consolidated balance sheet for December 2018, compared to the previous year the company's overall sales have increased 8.9% to around 1.09 trillion yen (approx. US\$9.7 billion), and their net income has grown by around 2.7-fold to 61.4 billion yen (approx. US\$550 million). Focusing on just their China sales, there was an increase of 32.3% over the previous period to 190.8 billion yen (approx. US\$1.7 billion) and the operating profit grew by around 2.1-fold to 24.5 billion yen (approx. US\$220 million). Chinese sales made up 17.4% of the group's overall sales, making the market the company's biggest earner after Japan. In China, the high-end brands of Shiseido Group, of which make up their "Prestige" category, saw satisfactory 2018 sales of 83.6 billion yen (approx. US\$750 million), an increase of 51.9%, with sales growth for the brands of Clé de Peau Beauté, SHISEIDO, IPSA, and NARS. Shiseido's "Prestige" collection saw a rise in brand recognition thanks to social media reports of how the goods were being snapped up in droves by Chinese tourists in Japan. This led to soaring demand for "Made in Japan" cosmetics in China and created a sudden rise in sales there. Another factor of which was advantageous for Shiseido was the tariff cuts. Tariffs on cosmetics related to skincare and hairdressing, along with specific medical and health products, were cut down to 2.9% from 8.4% as of July 1st, 2018, giving momentum to exports. It was around this time when China's economy started to slow, and ever since a more thrift-oriented attitude has pervaded. However, current sales are steady on high-end items that are seen as worth their high price tags, and consumer confidence is yet to subside. In 2018, Shiseido drew up their "New Three-Year Plan" as their new global strategy, and it places importance on accelerating the growth of the "Prestige" brands and expanding them to more provincial cities, as well as innovation in the digital and e-commerce fields. Nevertheless, high-end products are becoming the lifeline of their business in China. Despite the good conditions, however, one concern is how brands in Shiseido's lower-level "Cosmetics" category (below the "Prestige" category) saw 2018 sales that missed their expected targets. Demand for Made in Japan products ELIXIR and ANESSA was satisfactory, however brands customized especially for the Chinese market did not perform well. No doubt consumers' preference for Made in Japan goods was a factor, though another reason was that such medium-end goods were receiving the brunt of the economic recession. As measures to guard against the unpredictability of China's economy, Shiseido has indicated efforts to invest in marketing that focuses on its major brands, strengthen the capabilities of its organization, reinforce its system of brand departments, and set up a dedicated Alibaba team. Furthermore, the company announced in November last year that it will reinforce the structure of its China Regional Headquarters. All management positions besides the top layer have been assigned to Chinese nationals and localization efforts have been stimulated. To enhance the brand's power to communicate with consumers, they've instated their first CMO (Chief Marketing Officer). **An O2O strategy that links cross border e-commerce with retailers** Shiseido has always laid importance on in-store communication with customers. Even in China, the company has been early to adopt in-store cosmetics counseling. In 2017, coinciding with the complete renewal of their China-exclusive AUPRES lineup, they installed new beauty devices for skin diagnosis in each store. This allowed them to conduct cosmetics counseling with more exact data on the conditions of the customer's skin. While the company's performance had improved through both this in-store service and the enhancement of their e-commerce, in 2018 they revealed their "New Retail" strategy which combines elements of both. A part of this strategy has been a platform they developed called the "Shiseido Official Beauty Star Product Hall". This is an O2O platform that links retailers with e-commerce, and that allows customers to order Japanese products not available in-store using a custom device. The platform features a system restricting purchases only to members, and the store gets paid an incentive in the form of 15% of sales revenue. It was released in March 2018, and in two months has already been established in over 230 stores. The format leads to three-way satisfaction: customers are able to buy products that are not in the store, the store can earn revenue from the incentive, and Shiseido can obtain user data. From here on it's likely the platform will be continually supported. Due to the Chinese Government's restrictions on resellers who purchase by proxy, sales by Chinese consumers in Japan are on the decline, but in its place, there are high expectations for the 'proper' shopping routes that the company's own e-commerce sites and cross border e-commerce. With the support of their new office in Shanghai, Shiseido is well positioned to accelerate its O2O strategy. [[https://medium.com/beautytech-jp/a-look-into-shiseidos-current-strategy-in-the-chinese-market-91c63fd34793]](https://medium.com/beautytech-jp/a-look-into-shiseidos-current-strategy-in-the-chinese-market-91c63fd34793) **Shiseido and Alibaba to co-create products for Chinese consumers** Jenny W. / 2019.04.08 / Inside Retail Asia Japanese cosmetics giant Shiseido on Sunday become the world's first multinational cosmetic company to open a dedicated office in Hangzhou to work with Alibaba Group and co-create products specifically tailored for Chinese consumers. The Shiseido and Alibaba office, within walking distance of the Alibaba Xixi headquarters, will house a team of around 20 Shiseido employees by next year. The purpose is to tighten collaboration with Tmall, Alibaba's B2C marketplace and better position Shiseido in China, said the makeup company's China region CEO Kentaro Fujiwara. "China is Shiseido's biggest and most-important market \[outside of Japan\]. By combining Alibaba's strengths in digitisation and consumer engagement with Shiseido's world-class standards in research and development, we can create products that can precisely capture the appetite of the Chinese consumer," he said. "I hope this unprecedented collaboration will pave the way for further innovations for the entire \[Shiseido\] group." According to Shiseido, its China business saw the fastest acceleration in 2018 with sales growth of 32.3 per cent year-on-year to RMB 11.6 billion (US\$1.73 billion). China accounted for 17.4 per cent of Shiseido's total net sales last year, making it the profitable country market, following its home market Japan. Shiseido said it expects e-commerce to generate 40 per cent of its China sales by next year. "Without a doubt, whether it be e-commerce or digital innovation, Alibaba is the leader. Alibaba is one of the most important strategic partners for Shiseido China as well as for the entire group," said Fujiwara. Mike Hu, president of Tmall's fast-moving consumer goods division, said Shiseido's leadership position in the industry and its quick adaptation to digital transformation is a common value shared by Alibaba. "Our primary mission is to enable others, and we are always eager to work with the world's leading companies to help them bring their best products into the China market in the most effective and efficient way. This definitely includes Shiseido, a reputable brand that is synonymous with high standard and high quality," he added. "The opening of the Shiseido and Alibaba office represents an important and historical milestone of our long-term collaboration," Hu said. One of Shiseido's cosmetics brands, Za, opened a Tmall flagship store in September 2011. Since then, 12 flagship shops and 15 major brands also launched on the platform. Fujiwara said there is a plan to bring Shiseido's mother-and-baby product brand into China later this year via Tmall. **Just for China** Together with Alibaba's dedicated product and market-research arm, the Tmall Innovation Center, Shiseido will launch two China-only products in September under its haircare brand, Aquair. The two products -- Mild and Refreshing Shampoo and Essence Oil for Split Ends -- will be sold exclusively on Tmall. "By leveraging TMIC's expertise in analysing consumer behaviour and preferences, TMIC was able to help Shiseido reduce the concept-to-launch time by several months. Traditionally, for fast-moving consumer goods companies, such a process could take around 18 to 24 months," said Miya Duan, GM of Tmall Brand Marketing. Duan explained that TMIC tracks consumer shopping behaviour over a period time instead of basing its conclusion on a one-time snapshot. "This helps TMIC to have a more-accurate perspective on what consumers like and want. Such insight is crucial for brands as they determine what products to introduce to China and how to position the brand in order to generate the biggest appeal," she said. Moreover, the performance of the products online can help brands format their offline strategy, Duan added. To date, TMIC has collaborated with over 800 brands to provide them with customised services based on the brand's individual needs and demands, from consumer insights, pricing and packaging to marketing campaign and offline sales. **China's pursuit of beauty** With nearly 700 million monthly active users, Tmall is the preferred platform for many global cosmetic brands that want to capitalise on China's fast-rising demand for high-quality beauty products. In 2018, sales of beauty products on Tmall rose more than 60 per cent year-on-year. The uptrend mirrors the growth seen in China, where online sales of cosmetics, skincare and personal-hygiene products increased 46 per cent, 40 per cent and 37 per cent year-on-year, respectively, according to a joint report by Tmall and research house Kantar. Recognising Tmall's strength, top brands such as Giorgio Armani Beauty, LVMH-owned Givenchy and YSL Beaute all opened flagship store on Tmall last year. Tom Ford is expected to open one later this year. [[https://insideretail.asia/2019/04/08/shiseido-and-alibaba-to-co-create-products-for-chinese-consumers/]](https://insideretail.asia/2019/04/08/shiseido-and-alibaba-to-co-create-products-for-chinese-consumers/) **Japanese cosmetic giant Shiseido gambles on \'Made in Japan\'** Etienne Balmer / 2019.12.05 / The Japan Times OTAWARA, TOCHIGI PREF. -- On wasteland once used for earthquake drills in the small town of Otawara, Tochigi Prefecture, Shiseido has built its first domestic factory in 36 years, hoping to capitalize on a boom for "Made in Japan" cosmetics. Japan's cosmetics industry faces huge competition not only from established players such as L'Oreal and Estee Lauder but increasingly also from the "K-beauty" craze from South Korea. Nevertheless, Japan is more than holding its own, with exports nearly quadrupling since 2013 to ¥546 billion (\$5 billion), according to Finance Ministry figures, and nearly two-thirds of that going to China and Hong Kong. The domestic industry is also benefitting from an explosion of inbound tourism in recent years ahead of the 2020 Tokyo Olympics --- due in particular to a relaxing of visa requirements for Chinese tourists who follow the latest Japanese cosmetic fads. Shiseido chief executive Masahiko Uotani said that a focus on the high end of the market and a time-honored attention to detail set them apart from the foreign brands seeking to dominate globally. "We are focusing on prestige, premium brands. Consumers in those categories see the value of Japanese culture," said Uotani. "So strategically, we are telling consumers: Those brands are from Japan, it's Japanese R&D. And that is becoming a very important competitive value." In addition to the new plant in Otawara, Shiseido plans to open two more in Japan before 2022 with a total investment of ¥120 billion --- the fastest pace of expansion in the firm's 150-year history. Otawara's mayor said the plot for the new factory had been barren since the 1990 tech bubble burst. "We used to use it to hold exercises to prepare for natural disasters," Tomio Tsukui explained. The 1,000 jobs the plant creates will make Shiseido the biggest private employer in the town, Tsukui said, attributing the move to a drop in the value of the yen that has made localizing production more profitable. Norio Tadakawa, Shiseido production manager, has a different explanation. "There are six sake breweries" around Otawara, he pointed out. That is due to the high-quality water around the region --- also a fundamental component in making cosmetics. The three new Shiseido factories in the country will feature the latest in Japanese technology --- from advanced robotics to artificial intelligence --- but will also rely heavily on human intervention, especially for the highest-range products. "Where it's possible, we are introducing robots, AI and digital production capacities. But we still need people; employees that have high craftsmanship and skills," Uotani said. In Otawara, for example, while machines fill the bottles, lines of employees in white, blue or pink overalls fix the tops. There are too many different types of containers to automate the process. Despite the higher labor costs, Shiseido is not the only company to bring back production to its home base. In 2017, Kose Corp. sold its factory in China to boost its presence in Japan. The gamble on high-cost, high-quality domestically produced goods appears to be working, said Mitsue Konishi, senior innovation analyst at GlobalData. "With quality ingredients, luxurious formulations, elegant packaging and craftsmanship, cosmetics with the 'Made in Japan' tag are gaining appeal in Asian and Western markets," she said. But the flip side of Japan's attention to detail is that development and quality checks take longer, pointed out Shima Yamanaka, analyst at SMBC Nikko Securities. "The product timeline of Japanese companies is very long. Safety and quality are high but the product checking takes a long time," she said. For example, Japanese firm Kao unveiled on Wednesday a "spray-on skin" they claim is the world's first, but which took 10 years to bring to market. Even Shiseido's Uotani admits that nimble South Korean firms have the advantage on this front. "They are good competitors.... They are quite efficient, their development time is quite short, which allows them to be very reactive to the market," he said. [[https://www.japantimes.co.jp/news/2019/12/05/business/corporate-business/shiseido-made-in-japan/\#.XkDCTGgzaUk]](https://www.japantimes.co.jp/news/2019/12/05/business/corporate-business/shiseido-made-in-japan/#.XkDCTGgzaUk) **China Closes In On Japan At Beauty Giant Shiseido** By Kevin Rozario / 2021.05.14 / Forbes Shiseido's geographic balance has shifted considerably in the space of a year---so much so that China could soon challenge Japan as the beauty company's biggest region for sales. In the first three months of 2021, Japan still held the top position with sales of \$687 million (75.3 billion yen), down 12% on the same period last year. But China's growth of 47% has propelled it to just under \$600 million (65.3 billion yen). For comparison, in the first quarter of 2020, Japan's sales were approximately double that of China, which had been impacted by lockdowns when Covid-19 first struck. Nevertheless, how that gap has closed indicates just how far Shiseido's home market has fallen---and how fast China has risen When Masahiko Uotani took over as Shiseido's 16th president and CEO in 2014, the former CEO of Coca-Cola in Japan quickly unveiled a strategic plan called Vision 2020. At the time Shiseido had suffered almost a decade of quite flat sales and declining profitability. This was thanks to an over-reliance on Japan where sales were declining year-on-year, but the country still accounted for 50% of revenue at the time. Uotani set about turning an inward-looking company into one that embraced consumers worldwide using a matrix model across brands and regions which revamped the business from the ground up. His plan was hugely successful. By 2019 the company had turned the Shiseido brand into a \$1.8 billion juggernaut and the overall business crossed \$10 billion in sales. Meanwhile sister high-end houses such as Clé de Peau Beauté, Laura Mercier and NARS, drove the prestige division to a 46% share of company revenue. Under Uotani's tenure up to 2019, Shiseido's share price rocketed by more than 330%. *Expanding the non-Japan business* At the same time, Shiseido increased business outside Japan to 60%, helped by double-digit growth in China, EMEA and travel retail. In the first three months of 2021 those non-Japan sales rose again to just shy of 70%, driven mainly by China. Comparing Q1 2021 with Q1 2019 all of Shiseido's six region's have shrunk apart from China which was ahead by 24%. Thanks to strong sales in Hainan, travel retail showed the smallest decline at 1%. Japan, on the other hand, declined by almost a third due to a Covid-driven state of emergency imposed from January 8 to March 21. Another was announced at the end of April, ahead of the forthcoming Olympic Games in Tokyo which will affect sales in this quarter. Despite China's powerful sales momentum, the cost of doing business there and the commercial investments required in such a competitive market led to operating profit contracting year-on-year by 63% to \$18.3 million in the three months to March. This was less than half of the \$45 million generated in Japan where operating profit also declined, but less steeply at 37%. China's high costs take the gloss off its runaway sales growth, and will be something Shiseido needs to watch carefully. The company is expected to continue investing there to maintain share in such a critical market. However, for this year at least, the company does not expect China to overtake Japan, despite the mainland achieving year-on-year sales gains for four quarters running, while Japan has seen at least five quarters of double-digit contractions. Shiseido's full-year outlook---taking into account the impacts from its personal care spin-off and partial termination of a license with Dolce & Gabbana---is for revenue to hit \$9.7 billion with net profit of \$324 million. Of the sales figure, Japan is expected to contribute \$3 billion with China still in second place at \$2.6 billion. **How Shiseido Cornered China's Skincare Market** By Julienna Law / June 14, 2021 / Jing Daily Key Takeaways: - - - Shiseido sure knows how to party. On March 9, the Japanese beauty giant set off 300 drones to dance across Shanghai's night sky, spelling out "40th Shiseido China" in honor of its corporate anniversary. On the ground, it delighted guests with an exhibition charting its accomplishments in the country since 1981. But the big 4-0 isn't the only thing Shiseido has to celebrate. Over the past year, China has quickly become one of its top markets, helping the skincare pioneer bounce back from the pandemic. Although Japan defended first place with sales of \$687 million in the quarter ending March 31, China trailed closely behind at just under \$600 million --- a stark contrast from last year, when sales were nearly half that of Japan's. With Chinese consumers demanding more high quality beauty products, J-beauty imports to China jumped over 30 percent to \$4.3 billion in 2020, overtaking South Korea and other major suppliers. Below, Jing Daily breaks down why J-beauty has surged in the country and how Shiseido stands at the forefront of these changes. **Staying out of trouble** But first, some context: J-beauty's lead over competitors such as K-beauty isn't solely based on its own merits. There are political issues to consider too: In 2016, South Korea's decision to allow the deployment of a US missile defense system on its soil sparked notable outrage from China, spurring sanctions on cultural imports that continue to be felt today. In fact, it was only in mid-2019 that Beijing eased its economic grudge against retail giant Lotte, as other Korean conglomerates like Samsung and Hyundai dramatically scaled back operations in the country. Andrew Atkinson, senior marketing manager at China Skinny, explained that these political complications helped J-beauty gain some separation from K-beauty. "The \[THAAD missile\] stoush, ensuing crackdown in 2019 on Daigou traveling back from Seoul specifically --- there were viral posts at the time of travelers being met on arrival and handed out 20,000 RMB tax bills for what was in their suitcase --- and COVID-19 obviously have all impacted Korea more than Japan," he said. However, with K-beauty exports to China up 24.5 percent to \$3.81 billion in 2020, the sector still offers stiff competition. "Overall, Korea is still incredibly strong compared with most other origins, Japan has just surged more without these issues," Atkinson added. **Doubling down on strengths** In this uneven playing field, Shiseido has clawed its way ahead of K-beauty and J-beauty rivals alike by restructuring around its core strengths. In February, the company unveiled a new strategy to achieve full recovery by 2023 --- and, ambitiously, become the "world's No. 1 skin beauty company by 2030" --- by making prestige skincare its driving force. Not only does this move align with post-pandemic trends (which favors skincare over color cosmetics), but it also caters to Chinese consumers who have become increasingly skincare educated and, as a result, hungrier for high-end items. "The skincare high-end segment is much more promising than the middle or low-end," Steffi Noël, a project leader at Daxue Consulting, told Jing Daily. "Chinese consumers, including Gen Z, increasingly perceive skincare as a long-term investment and are willing to spend more money on highly functional products." So far, the pivot is paying off. The parent company of Tory Burch and Nars saw group sales rise 6 percent to \$2.2 billion in Q1 2021, while net sales in China surged 41 percent compared to 2020 and 24 percent versus 2019, surpassing pre-COVID levels. Building off this momentum, Shiseido recently debuted two prestige skincare lines in China, the Ginza and Baum, in addition to revamping its men's skincare category. **Harnessing data and technology** However, Shiseido isn't just riding the skincare wave --- it's helming the ship. Living up to its motto of "beauty innovations for a better world," the 149-year-old company has become one of the most active names in the beauty device market, which is expected to be worth \$80.7 million by 2031. Carol Zhou, head of the China business innovation and investment team at Shiseido, said that advancing technology has been key to providing more personalized services and gaining a competitive edge in China. For starters, months before L'Oréal launched Perso, Shiseido had already released its own smart skincare device, Optune, which uses AI to detect a user's skin condition from an image. The group later partnered with beauty device company Ya-Man to debut EFFECTIM, a new anti-ageing skincare brand that employs cutting-edge technology to enable long-term, customized care. And most recently, it joined forces with tech firm Accenture to create "unprecedented beauty experiences" online and in stores, including skin diagnostic tests and virtual makeup try-ons. Whether it's innovative gadgets or serums, Shiseido's digital transformation has ultimately reinforced J-beauty's perception as highly functional. And according to Noël, this focus on utility is another reason the sector has grown more popular than K-beauty in China. "Japanese brands will communicate much more on ease of use, the texture, the 'long-lasting' side or pure efficiency of the products rather than on the colors or fancy packaging." **Localizing e-commerce efforts** This digital transformation doesn't just stop at R&D; it also applies to how products are marketed and sold. Rather than simply participating in China's e-commerce activities, Shiseido localizes its efforts to better resonate with consumers. On the first day of Tmall's 618 presale, the eponymous Shiseido label saw sales exceed \$33 million by leveraging livestreaming. Meanwhile, its parent managed to boost first quarter sales by dressing some of its best-selling items in festive, limited-edition packaging to ring in the Lunar New Year and International Women's Day. One word of caution before relying too heavily on shopping holidays: "It is a lot harder to build a brand that means something to a Chinese consumer than simply targeting Singles' Day and getting action via discounting," Atkinson said. "The China marketing game is tough, and you need to be active, consistent, and well-resourced to keep up or you'll get forgotten about quickly." That's why Shisiedo has built an extensive network of Chinese influencers to maintain engagement. Not only does the industry heavyweight rely on top-tier celebrities, such as Zhang Ziyi, Liu Yifei, and Huang Xuan, but it also engages with smaller KOLs to reach more niche demographics. The Shiseido brand, for example, has tapped the idol trainees of variety show Youth With You 3 --- capitalizing on China's fan economy --- and even used its own beauty consultants as micro-influencers. As Noël advises, "Don't go just to giant KOLs or celebrities, think twice!" **Chasing big beauty dreams** These are just a few of the tactics Shiseido has used to gain steam in China. Looking ahead, Zhou expects the country to become "a global innovation hub" and continue driving growth for the company. "China has a very unique ecosystem, with a booming consumer and capital market combined with an insatiable taste for anything new, \[making it\] the perfect place for new innovations." And as Shiseido rises through the ranks via tech advancements, localization, and craftsmanship, the "Made in Japan" label will similarly be elevated alongside it. That said, whether Shiseido can become the world's top skin beauty company remains to be seen. Though it leads in the J-beauty sphere, it'll still have to beat out the likes of L'Oréal, Unilever, and Procter and Gamble to take first place. But perhaps if the Tokyo-based titan can take on China for 40 years, it can take on anything. **Shiseido's Innovation Journey in China: A Conversation with Carol Zhou** By Tom Zhang / 2021.09 / Prophet In the past five years, a new generation of direct-to-consumer local disruptors has been booming in the consumer sector in China. These brands are growing at an unprecedented rate, and many have reached growth rates that are tens or even hundreds of times the industry average. They adapt and react fast to consumer trends, they're more resourceful in leveraging platforms to explore new initiatives, and their increasing influence and marketing power are giving large international players a run for their money in the ever-fierce competition for the Chinese beauty consumers. In the first half of 2021, Shiseido China achieved a remarkable 44% revenue growth. Shiseido's online and offline sales both increased, in part, due to the brand's ongoing efforts in capturing consumer trends and continued focus on brand value. Viewing China as an important source of innovation, Shiseido announced a special investment fund in August, Shiseido Beauty Innovations Fund, partnering with Boyu Capital. The investment will focus on emerging beauty and wellness brands, as well as investment opportunities in related upstream and downstream technology companies. Recently, Tom Zhang, senior engagement manager at Prophet, and Carol Zhou, Shiseido's senior vice president of China Business Innovation & Investment, discussed the brand's innovation journey in the China market, insights on the domestic beauty industry and her predictions for the Chinese beauty market. Carol has served as head of Shiseido's China Business Innovation & Investment since early 2019. With China's diversified business ecosystem as a backdrop, Carol is committed to accelerating innovation and uncovering new business models to drive growth for Shiseido on a global scale, positioning the brand as a global leader in beauty innovation. Before Shiseido, Carol has held numerous senior management positions in multinational companies including Unilever, L'Oreal, Amway, Burberry and Marriott International, where she has built brands across regions and business domains. Carol attended New York University's Stern School of Business and holds an MBA degree from Hong Kong University of Science and Technology. *From your perspective, what are the key trends in China's beauty industry in the next two to three years?* Currently, China's beauty consumers are in a phase of exploration. As consumers become more sophisticated, they will be more knowledgeable in terms of ingredients and the science behind the brands. Increasingly, customers will no longer blindly believe in marketing stories but do their own research and look toward experts with real data. We will see more brands working with medical authorities, such as research institutions, doctors and scientists to lead the development of the industry and consumers from the perspective of scientific ingredients and formulas. I see a movement toward dermatologist brands and products/services. Next, the trend of personalization will continue to develop. Although technology and regulations are temporarily limiting, and the product experience and user journey are not yet perfected, I believe that personalization is the future direction of skincare. Everyone is unique and our skincare should be too. Many brands are already customizing their products and services with this in mind, and I see tremendous development in the future. With advancements in digital and gene tech, the future for a personalized experience and product design is limitless. Health and wellness, propelled by COVID-19, is becoming top of mind for consumers around the world. There will be further integration of topical skincare with ingestible to provide a holistic beauty approach for consumers. *In the face of these opportunities, how can Shiseido lead innovation?* In the two and a half years since I joined Shiseido, the strategy has evolved. In the beginning, we aimed to broadly explore new trends and opportunity areas. Now, we are doing a detailed audit of Shiseido's strengths, and identifying the intersection of market white spaces and organizational capabilities to better seize these opportunities. Take the aesthetic medicine category as an example. Shiseido, as an industry leader, can play an important role in the development of this field. However, we will not focus on businesses that are clearly beyond our organizational core capabilities, such as injection-based medical devices. But we can explore how to integrate Shiseido into the overall aesthetic medicine ecosystem by innovating around the subcategory of postoperative recovery with products and/or services. Speaking of personalization, it is actually deeply rooted in Shiseido's innovative DNA. More than 100 years ago in 1917, Shiseido launched the 7 Colors Powder, a face powder product that consumers could mix and match to achieve a refined look based on their unique complexions. We are also actively exploring personalized beauty devices and services. With the ongoing advancement of technology, we will continue to optimize the experience, providing specialized and convenient smart devices and genetic-level skin diagnoses in the future. Nutricosmetics (beauty foods) is another area that we are focused on. Japan's healthy lifestyle and balanced diet are highly renowned around the world. Shiseido can dial up this advantage and share with Chinese consumers our innovation based on superfoods and functional ingredients. *What advice do you have for these brands?* I believe we need to return to the fundamentals and think about what is truly unique about the brand. Why do they exist? The value of a brand must go beyond purely marketing tactics. Shiseido's ability to have lasting success is in large part due to our dedication to creating the best quality products to meet consumer needs. This dedication to "craftsmanship" is why we don't blindly follow market trends, but rather think critically about how we can further refine our products. Although we may not always be at the forefront of trends, we have found the right pace to create a timeless brand. *In leading international beauty giants to drive innovation in China, how do you balance "China speed" with global collaboration?* Based on my own experience in the global headquarters, regional headquarters and China business units of various brands, the tension between them is inevitable. An international brand must have consistency and a global strategy. Then the regions (China) will execute this global vision with local adaptation and interpretation that suit the local appeal. Oftentimes, local regions will complain that they need more local decision-making autonomy, while global headquarters want to maintain more control. The conflict, if managed well, can be healthy. Clear and constant communication allows local teams to coordinate with headquarters in a more streamlined manner, while educating headquarters on local market situations. It also allows the teams to improve their critical thinking and decision-making abilities. **Corporate Strategies and 2022 Results** 텍스트, 스크린샷, 폰트, 디자인이(가) 표시된 사진 자동 생성된 설명 In 2015, Shiseido launched its medium-to-long-term strategy, VISION 2020, for the company to remain vital for the next 100 years. To "Be a Global Winner with Our Heritage," we first invested in Shiseido's high price range skincare, makeup, and fragrance as part of our Prestige First strategy.\ \ In addition to investing in our R&D, supply chain, digital, and IT, which are the foundations for sustainable growth, we built a global matrix organization integrating regions and brand categories based on our "Think Global, Act Local" concept, delegating broad responsibility and authority to each regional headquarters.\ \ As a result of these reforms, we surpassed 1 trillion yen in net sales in 2017, three years ahead of the VISION 2020 target. In 2018, our operating profit rose to 100 billion yen, two years ahead of schedule. And in 2019, we reached our operating margin target of 10%. Despite this steady growth, the spread of COVID-19 in 2020 rapidly changed the business environment and brought to light several management issues. Shift in consumer values and purchasing behavior required urgent changes to our business model, which had been based on high fixed costs footed in high gross profit margins. We reassessed this cost structure and aimed to improve profitability in the Americas and EMEA businesses, reduce our dependence on inbound tourist demand in the Japan business, and address other key issues.\ \ In 2021, we took these challenges and the external business environments into consideration in order to formulate our medium-term strategy WIN 2023. Accounting for 2021 to 2023, WIN 2023 represents the first step toward our 2030 vision to become a \"Personal Beauty Wellness Company.\" Designed to solidify our foundation as a skin beauty company, WIN 2023 included implementing structural reforms to achieve an operating margin of 15%, restructuring our business portfolio, increasing cost competitiveness, and improving productivity and efficiency to enhance profitability.\ \ Regarding our brand strategy, we concentrated our resources on skin beauty, an area of our strength and where strong market growth is expected. We aimed to promote our brands, expand our portfolio, and develop new businesses in this area. We targeted to increase our Skincare Sales Ratio to 80% by 2023 and already achieved over 70% in 2022.\ \ In addition, we positioned digital transformation (DX) as crucial for rebuilding our business foundation, and we have thereby been expanding our skin diagnostic capabilities through data and beauty tech, accelerating e-commerce and omnichannel initiatives, strengthening our data analytics and digital marketing expertise, acquiring and training digital talent, consolidating our organizational structure, and increasing business collaboration with our partners. As a result, our e-commerce ratio grew to 33% in 2022, nearing our 2023 goal of 35%. We also established the R&D philosophy DYNAMIC HARMONY under our new R&D structure, revamped in January 2021, and to work on new strategies to drive innovation. For our supply network, we strengthened our production and logistics and started operations at three new domestic factories in Nasu, Osaka Ibaraki, and Fukuoka Kurume. We improved our profitability and financial base through these initiatives, but our net sales and profits for 2022 continue to be challenging, primarily due to the sluggish recovery of markets in Japan and China because of COVID-19. Since the launch of VISION 2020 in 2015, Shiseido has accelerated selection and concentration, aggressive investment and structural reforms. We approach capital investment in line with our growth strategies to put Prestige First and Focus on Skin Beauty. Accordingly, we have improved our production and distribution by building the Nasu Factory (operating since December 2019), the Osaka Ibaraki Factory and West Japan Distribution Center (operating since December 2020), and the Fukuoka Kurume Factory (operating since May 2022). These plants are responsible for manufacturing skincare products, and they have all contributed to expanding capacity, ramping up in-house production, improving production efficiency, and enhancing environment responsibilities.\ \ At the same time, we made progress on strengthening our R&D activities. We built the Shiseido Global Innovation Center in Yokohama (opened in April 2019 and commonly referred to as S/PARK) and the Shiseido China Innovation Center (operating since October 2021) located in Shanghai Fengxian District in the Oriental Beauty Valley, a health and beauty industry-focused economic district. It is crucial to invest in areas like marketing and R&D for our growth. Under VISION 2020 and WIN 2023, we have endeavored to improve profitability and implemented structural reforms, while continuing to aggressively invest in enhancing brand value over the medium to long term by promoting brand selection and concentration. In addition to redesigning our store counters, offering better consumer touch points, offering samples, and conducting promotional activities, Shiseido accelerated its DX investments by building global ERP system and enhancing digital marketing using e-commerce and social networks. For DX, we established Shiseido Interactive Beauty Company, Limited. in 2021 in a strategic partnership with Accenture to operate as a subsidiary to accelerate DX in Japan. Also, FOCUS―our project to globally integrate our systems ―is planned to finish rolling out in all regions by the first half of 2024. ![텍스트, 스크린샷, 폰트, 메뉴이(가) 표시된 사진 자동 생성된 설명](media/image2.png)\ In R&D, we focused on product development centering on our skincare brands and leveraged our expertise in basic research. Shiseido has been aggressively enhancing its R&D. We have announced our plans to raise the R&D budget from the lower 2% range in the first three years of VISION 2020 to around 3% for the medium term in WIN 2023. For structural reforms, we endeavored in the first three years of VISION 2020 to establish the foundation for sound growth. First, we addressed a longstanding issue by optimizing distribution inventory in China and other Asian countries. At the same time, we integrated our back offices and other systems in the Americas and EMEA regions, as well as conducting cost structure reforms.\ \ WIN 2023 is promoting global transformation that will concentrate resources on the premium skin beauty area by focusing on rebuilding our business portfolio, improving profitability, and DX. We implemented structural reforms on a scale exceeding 200 billion yen in sales, starting with the divestiture of the Personal Care business to the termination of our global licensing agreement of *Dolce & Gabbana* and transfer our prestige makeup brands *bareMinerals*, *BUXOM*, and *Laura Mercier*. These transformations have aided us in successfully establishing a robust revenue base for future growth. 텍스트, 스크린샷, 번호, 폰트이(가) 표시된 사진 자동 생성된 설명 Robust sales in the Americas, EMEA, and Travel Retail offset year on year revenue decline in China caused by uncertain environments, including the continued spread of COVID-19 and China's Zero-COVID policy. In Japan, the market for mid-priced products began to recover in the second half of the year; however, delayed recovery in the first half resulted in flat year on year performance. E-commerce sales achieved positive overall growth despite the slowdown of China's largest e-commerce event, Double 11. High-prestige brands and product lines performed particularly well. Looking at the performance of specific brands, we saw *Clé de Peau Beauté* capture steady growth, mainly in China\'s high-prestige market, by strengthening the communication of its functionality and efficacy. Meanwhile, *NARS* and *narciso rodriguez* sustained robust global growth with new products, driving overall performance.\ \ As a result, net sales increased 5.7% year on year to 1 trillion 67.4 billion yen, or 0.9% on a like-for-like basis excluding the impact of currency exchange and business transfers. Our core operating profit increased by 8.8 billion yen to 51.3 billion yen. Key factors driving this increase include our continued flexible cost management across the Company, the reduction of fixed costs under structural reforms, the impact of the yen's depreciation, and our additional investments of 10 billion yen into medium- to-long-term sustainable growth, some of which are already producing results.\ \ Profit attributable to owners of parent was 34.2 billion yen, a decrease of 12.7 billion yen year on year. In 2021, we recorded a 58 billion yen gain in non-recurrent items, in part due to gains on the transfer of our Personal Care business. In 2022, the impairment loss associated with the transfer of manufacturing business for personal care products was partially offset by gains earned on transferring our Professional business, resulting in a loss of 4.8 billion yen in non-recurrent items. Since 2016, we have had in place a matrix organization that cross-matches six regions with brand categories. The regional headquarters are responsible for and have authority over their respective businesses. Guided by a "Think Global, Act Local" approach, these headquarters implement flexible decision-making and marketing activities attuned to the needs of local consumers. ![텍스트, 스크린샷, 소프트웨어, 컴퓨터 아이콘이(가) 표시된 사진 자동 생성된 설명](media/image4.png)텍스트, 번호, 스크린샷, 폰트이(가) 표시된 사진 자동 생성된 설명![텍스트, 스크린샷, 폰트, 원이(가) 표시된 사진 자동 생성된 설명](media/image6.png)**Market Environment** The market slowed down significantly in the first half of 2022 due to lockdowns in Shanghai, etc. In the second half of the year, too, the cosmetics market slowed　down due to intermittent lockdowns in several cities and changes in consumption trends, including the consumers' saving on the rise. The market for Double 11, China\'s largest e-commerce event, also dropped significantly below 2021 levels. [[https://corp.shiseido.com/report/en/2022/strategy/global/]](https://corp.shiseido.com/report/en/2022/strategy/global/) **Shiseido plans comeback in China after double-edged online push** Cosmetics company focuses on rebuilding brand hit by e-commerce price war NIKKEI Asia; HIROMOTO DEGUCHI, June 25, 2023 TOKYO \-- Initially seen as the key to a post-pandemic recovery, Shiseido\'s aggressive push into Chinese e-commerce has instead battered the Japanese cosmetics giant\'s image in the key market and resulted in its first loss there in seven years. The company is now focused on rebuilding its brand in China, with help from an army of in-house beauty consultants. But the company faces an uphill battle as a slowing Chinese economy chills consumer spending. \"If I\'m being honest, we were too focused on short-term returns on investment, increasing online traffic, and our mainstay products, which led us to focus on large-scale promotions,\" Shiseido President Kentaro Fujiwara said at an earnings briefing in February. Fujiwara had led the company\'s Chinese operations until the month before. Shiseido\'s woes date back to December 2020, when the world was still reeling from the initial spread of COVID-19. While there were no signs of a recovery in demand in Japan, China appeared to be gearing up to reopen its economy ahead of other major economies. Shiseido saw China as the only profitable market at the time. It rushed to expand online sales in the country, spending much of its marketing budget to recruit local influencers. The strategy quickly bore fruit. China sales increased around 30% from pre-pandemic levels to 274.7 billion yen (around \$1.94 billion at current rates) in 2021. The figure came to 258.2 billion yen in 2022, overtaking Japan sales for the first time since Shiseido began publishing its China sales in 2015. But even as sales soared, profits actually deteriorated. Competitors followed Shiseido\'s lead, driving price competition on e-commerce sites and forcing Shiseido to repeatedly offer discounts on its products. Items sold at these lower prices popped up for resale elsewhere, hurting Shiseido\'s brand. The company reported a 3.9 billion yen core operating loss in China for 2022, a steep decline from its 29.2 billion yen operating profit there in 2019. China is a core market for Shiseido, generating around a fifth of group sales alongside purchases by tourists visiting Japan. It first entered the country back in 1981, and was considered a notable success story there, even becoming an official product for Chinese Olympic athletes. Shiseido is now working to mount a comeback, pivoting away from its strategy of relying on low prices for a short-term earnings boost, in favor of quietly but steadily expanding contact with customers to market its products on their merits over the long term. Rather than rely on outside influencers, the company is conducting livestreams with its own beauty consultants and researchers, aiming to directly show off technical know-how to customers and bolster the value of the company\'s brand. Promotions for the company\'s \"Maquillage\" mid-range brand featured a livestream where Japanese employees highlighted Japanese trends and introduced products. For its high-end \"Cle de Peau Beaute\" brand, the company will gather local Chinese beauticians to conduct face-to-face sales at pop-up stores. But Shiseido faces the headwind of China\'s slow economic recovery. The unemployment rate for 16- to 24-year-olds in May was 20.8%, the highest on record for the second consecutive month. The desire to save money is also deeply rooted in China, and the consumer price index for all items excluding food and energy in May rose only 0.6% year-on-year. Sluggish profits in Shiseido\'s China business are likely to continue for the April-June 2023 period, partly due to delayed expenses. Meanwhile, the company\'s stock price has remained in the high 6,000 yen range, down 20% from the 8,384 yen recorded in June 2021, the highest since the onset of the pandemic. Compared to the end of last year, Shiseido stocks have risen only 7%, well behind the Nikkei Stock Average\'s 28% climb. \"One of the major reasons \[for the sluggish stock performance\] is that the deterioration of China\'s economic environment is seen as a concern,\" said Katsuro Hirozumi, a senior analyst at Daiwa Securities. Shiseido\'s price-to-earnings ratio is 98.5, more than 40 times pre-pandemic levels, and therefore the share is not considered undervalued. https://asia.nikkei.com/Business/Consumer/Shiseido-plans-comeback-in-China-after-double-edged-online-push **Chinese Market: Growth Engine for Global Beauty Giants** Chaileedo / Aug 11, 2023 / Qing Nie According to a recent report by Yomiuri Shimbun, in 2022, South Korea surpassed France to become the largest importer of cosmetics in Japan. At the same time, after a gap of five years, France once again replaced Japan as the largest importer of cosmetics in China. In 2022, French cosmetics exports to China reached 4.551 billion US dollars, surpassing Japan's 4.506 billion US dollars, accounting for 25.37% of the total import value of cosmetics in mainland China. As the influence of Japanese and Korean cosmetics has waned in the Chinese market, domestic brands and European and American beauty companies such as L'Oréal and Estée Lauder have flourished. The Chinese market is characterized by its dynamic nature and constant evolution, making it intriguing to observe the future development of the cosmetics industry in the years to come. **France has once again become the largest importing country of cosmetics in China in 5 years** According to data from the General Administration of Customs of the People's Republic of China, in the first half of this year, the value of cosmetics imported from France to mainland China reached 2.123 billion US dollars, making it the largest importer of cosmetics in mainland China. Japan ranked second with 1.956 billion US dollars, followed by South Korea in third place with 1.051 billion yuan in cosmetics exports to mainland China. In fact, in 2022, France had already surpassed Japan to become the largest importer of cosmetics in mainland China, with cosmetic exports to China reaching 4.551 billion US dollars, exceeding Japan's 4.506 billion US dollars, accounting for 25.37% of the total import value of cosmetics in mainland China. According to data from the General Administration of Customs of China from 2016 to 2022, the main exporting countries of cosmetics to mainland China include France, South Korea, Japan, the United States, and the United Kingdom. The top three positions have been held by South Korea, Japan, and France in rotation over the past seven years. Specifically, in 2016, France ranked first with cosmetic exports to mainland China just exceeding 1 billion US dollars, while Japan ranked third with 673 million US dollars. However, in the following years 2017 and 2018, South Korea became the largest importer of cosmetics in China, with France ranking second and Japan ranking third. From 2019 to 2021, Japan replaced France as the largest importer of cosmetics in mainland China. In 2019, Japan's cosmetic exports to mainland China exceeded 3 billion US dollars for the first time, reaching 3.134 billion US dollars. In 2020, the amount exceeded 4 billion, reaching 4.292 billion US dollars. Since 2020, France has firmly held the second position, with cosmetic exports to mainland China totaling 3.887 billion US dollars. In 2021, China imported 4.997 billion US dollars' worth of cosmetics from Japan, close to 5 billion, which was the highest in history for imports of cosmetics from a single country. From 2019 to 2021, the Chinese imported cosmetics market has grown rapidly. Japan's cosmetic exports to mainland China increased from 3.134 billion US dollars to 4.987 billion US dollars, with a growth rate of 59.13%. France's exports increased from 2.858 billion US dollars to 4.577 billion US dollars, with a growth rate of 60.15%. Meanwhile, South Korea began to lag, with its cosmetics exports to mainland China increasing from 3.041 billion US dollars to 3.896 billion US dollars, with a growth rate of 8.55%, which was less than 10%, further widening the gap between France and Japan. In 2022, French cosmetic exports to China reached 4.551 billion US dollars, surpassing Japan's 4.506 billion US dollars, reclaiming the position of the largest exporter of cosmetics to mainland China after a five-year gap. South Korea continued to decline, further widening the gap with Japan and France. In 2022, China imported 2.571 billion US dollars worth of cosmetics from South Korea, falling below 3 billion for the first time since 2017. Meanwhile, the United States reached 2.03 billion US dollars, showing a trend of surpassing South Korea. On April 7th this year, China and France issued a series of cooperative statements, specifically mentioning the facilitation of cooperation between enterprises in the cosmetics industry and the entry of Sino-French cosmetics cooperation into a new field. Additionally, French beauty giant L'Oréal has signed a series of cooperation agreements with Chinese enterprises, including the joint construction of a "digital circular economy model for beauty" with Alibaba. Furthermore, on July 28th, it was reported that France is seeking cooperation and discussions with China on shared standards for cosmetics. It is evident that in recent years, the positions of Japanese and Korean cosmetics in the domestic market have declined, especially Korean cosmetics, which are facing the threat of being surpassed by other beauty products. Alongside the upgraded cooperation between France and China in the cosmetics field, French cosmetics are expected to experience a surge in popularity in China. **The popularity of Japanese and Korean cosmetics in China has gradually declined** Japan is one of the major exporting countries in the global cosmetics trade and has consistently been among the top three importers of cosmetics to China. However, between 2012 and 2013, Japanese cosmetics experienced a decline in exports to mainland China for two consecutive years due to strained Sino-Japanese relations and the negative impact of the controversial Kanebo Blanchir skin whitening product causing skin discoloration. Eventually, with the easing of bilateral relations between China and Japan, bilateral trade resumed, and in 2017, China's imports of Japanese cosmetics increased from \$673 million in 2016 to \$1.208 billion, representing a nearly 80% year-on-year growth. In 2018, the visit of the Japanese Prime Minister to China further promoted trade cooperation between the two countries. The demand for Japanese cosmetics in the Chinese market continued to rise, leading to Japan surpassing France for the first time and becoming the second-largest importer of cosmetics in China. Subsequently, from 2019 to 2021, Japan maintained its position as the top importer of cosmetics to China. Taking Shiseido, a representative Japanese beauty company, as an example, in 2017, Shiseido's sales reached 1.0051 trillion yen, with a year-on-year growth of 18.2% in the Japanese yen. Meanwhile, its sales in China amounted to 144.3 billion yen, representing a 20.1% year-on-year growth, making China its second-largest market at that time. In 2018 and 2019, Shiseido's performance in China continued to soar, with sales reaching 190.8 billion yen and 216.2 billion yen, representing year-on-year growth of 32.3% and 13.3%, respectively. It maintained its position as the second-largest market while widening the gap with the third-largest market, the Americas. However, in 2020, due to the impact of the pandemic, Shiseido experienced its first decline in total sales in the past five years, dropping from 1.1315 trillion yen to 920.9 billion yen, a year-on-year decline of 18.6%. In contrast, the Chinese market defied the trend with a 9% year-on-year growth, becoming the only region where Shiseido's performance increased. In 2021, sales in the Chinese market saw a 16.5% year-on-year growth, once again achieving double-digit growth. Additionally, the Chinese market officially surpassed Japan to become Shiseido's largest market, a position it maintained in 2022. Although the Chinese market holds significant importance for Shiseido, the growth rate and operational efficiency of the company have shown signs of decline. In 2022, Shiseido's annual sales in the Chinese market amounted to 258.2 billion yen, a 6% decline compared to the previous year (18% decline in terms of constant currency basis). Its core operating profit also dropped by 8 billion yen, with a loss of 3.941 billion yen in the Chinese market. Both the performance and operational efficiency of Shiseido in China have shown signs of decline. As for the development of Korean cosmetics in the Chinese market, it has experienced rapid rise and fall. The rise of Korean cosmetics in China can be attributed to two main factors. Firstly, the popularity of the Korean Wave, which refers to the export of Korean culture through various forms such as variety shows and TV dramas. This accelerated the growth of the Korean cosmetics industry. The endorsement effect of Korean celebrities, in particular, has brought tremendous appeal to Korean cosmetics. The second factor is tourism and cross-border consumption. Chinese tourists visiting Korea consider Korean cosmetics as their preferred shopping item. During peak periods, millions of Chinese tourists travel to Korea and enthusiastically purchase Korean cosmetics in duty-free shops. As a result, Korean cosmetics surpassed other countries from 2017 to 2018, becoming the primary importer of cosmetics in China and consistently maintaining a top-three position in terms of cosmetics imports. However, the decline in the popularity of Korean cosmetics in China can be attributed to a series of diplomatic events leading to boycotts of Korean products and restrictions on Korean entertainment in mainland China. Additionally, after the pandemic, there was a significant decrease in Chinese tourists traveling to Korea, resulting in a sharp 34% decline in Korean cosmetics exports to China in 2022. Taking Amorepacific, a representative Korean company, as an example, its revenue reached 5.645 trillion Korean won in 2016, marking a new high in nearly a decade. Due to the growth in China's performance, its overseas business experienced a substantial 35% year-on-year increase. However, in the subsequent years, Amorepacific's growth rate in the Chinese market slowed down, leading to an overall slowdown in performance. It experienced a decline of 9.2% in 2017, followed by growth of only 3% and 5.7% in 2018 and 2019, respectively. In 2020, Amorepacific's revenue plunged by 20% to 4.4322 trillion Korean won, falling below 50 trillion Korean won for the first time since 2016. Its revenue showed some recovery in 2021, with a 9.7% year-on-year growth compared to 2020. However, the Asian region, where China's business accounts for 70% of the revenue, only saw a 2% increase. In 2022, Amorepacific's performance declined by 15% to 4.1349 trillion Korean won, with a significant 24% drop in revenue from its Chinese business, which accounts for 60% of the Asian region's revenue. It is evident that the declining influence of Japanese and Korean beauty brands in Chinese culture, coupled with the strong performance of European and American brands like L'Oréal and Estée Lauder, as well as the rise of domestic Chinese brands, has gradually led to a decline in the prominence of Japanese and Korean cosmetics in China. **The Chinese market is the answer** In recent years, the cosmetics market in China has been experiencing unprecedented prosperity. According to Statista, the revenue of the beauty and personal care market in China is projected to reach \$60.7 billion (436.5 billion yuan) by 2023, with a compound annual growth rate (CAGR) of 5.03% from 2023 to 2028. Traditionally, China's cosmetics market has been dominated by foreign brands. But in recent years, domestic emerging brands were on the rise, while foreign brands such as L'Oréal and Estée Lauder began shifting their focus to the Chinese market. Chinese consumers were no longer solely interested in Japanese and Korean pop culture, and the development of Japanese and Korean cosmetics reached a bottleneck. After the implementation of restrictions on Korean cultural imports in China, South Korea's cultural influence weakened to some extent. Reports indicate that mainstream Korean media outlets have noted the gradual disappearance of Hyundai, Kia, and Korean cosmetics in Chinese TV dramas. Similarly, Japanese cosmetics faced similar challenges in their development in China. Data also confirms this trend, as popular Japanese and Korean beauty brands reached their peak in terms of popularity between 2015 and 2017 and gradually declined afterward. Meanwhile, domestic brands such as Perfect Diary and Florasis emerged and became popular brands on the internet. These domestic brands not only offer affordable prices and a wide range of products but also cater to the Eastern aesthetic, meeting the demand of young people for new Chinese-style trendy makeup. Gradually, the influence of Korean and Japanese brands in the Chinese market has diminished, with domestic brands replacing Korean brands that were once known for their high cost-effectivenesses, such as Etude House eyebrow pencils, Missha wax crayon lipsticks, and Mamonde cushion compacts, on major sales charts. Looking at market share data, the survival status of various brands in the Chinese market becomes clear. According to data from Euromonitor International, among the top 20 brands in the Chinese cosmetics market in 2022, six are domestic brands, including Florasis, Perfect Diary, Carslan, Colorkey, Maogeping, and Judydoll. However, there are no Japanese brands on the list, and the only Korean brand, 3CE, was acquired by L'Oréal Group in 2018. From the perspective of changes in brand market share, domestic beauty brands have been on the rise in recent years. From 2016 to 2022, the market share of the top five domestic brands increased from 9.5% to 15%. The rise of domestic brands is squeezing the living space of Japanese and Korean cosmetics. Unlike Japanese and Korean beauty brands, European and American beauty brands such as L'Oréal value the Chinese market and have performed well during the pandemic. As the global leader in the beauty industry, L'Oréal has always been confident in the Chinese market. In 2015, L'Oréal's sales in China reached 14.96 billion yuan, a year-on-year increase of 4.6% compared to the previous year's 14.3 billion yuan, marking the 19th consecutive year of growth for L'Oréal China. At the same time, China became L'Oréal's second-largest market globally. From 2016 to 2017, L'Oréal's sales in China also achieved double-digit growth. In 2018, L'Oréal's sales in China increased by 33% year-on-year, reaching a 14-year high at that time. China became the group's largest market for three major brands: Lancôme, Helena Rubinstein, and L'Oréal Men Expert. In 2019, L'Oréal's sales in China continued to grow at a high rate, reaching 35%. Thanks to the resilience of the Chinese market, L'Oréal entered a phase of rapid growth starting in 2019. After three consecutive years of revenue growth below double digits, L'Oréal's revenue in 2019 increased by 10.9% to 29.874 billion euros. The Asia-Pacific region achieved a growth of 25.5% due to the strong growth in China and became the only region with double-digit growth. The Asia-Pacific region also became L'Oréal's largest market. In 2020, L'Oréal's sales in China increased by 24%, and the Asia-Pacific region was the only region that achieved growth under the impact of the pandemic, allowing L'Oréal's group sales to decline by only 6.3%. After overcoming the impact of the pandemic, L'Oréal quickly rebounded in 2021 and 2022, with revenue growth of 15.3% and 18.5%, respectively. The North Asia region also maintained its position as the largest market. The outstanding performance of L'Oréal in the Chinese market has helped maintain its strong performance throughout the pandemic. In addition to L'Oréal, another beauty giant has also benefited from the excellent performance in the Chinese market during the pandemic. Estée Lauder, a leading American beauty company, has also seen success in the Chinese market. In 2019, Estée Lauder reported strong growth in China, with net sales increasing by 27% compared to the previous year. The company's growth in China continued in 2020, with net sales increasing by 37% in the third quarter alone. Estée Lauder's success in China can be attributed to its strong brand recognition, effective marketing strategies, and focus on the preferences and needs of Chinese consumers. Overall, while the influence of Japanese and Korean cosmetics has declined in the Chinese market, domestic brands and European and American beauty companies like L'Oréal and Estée Lauder have been able to thrive. The Chinese market is highly dynamic and constantly evolving, so it will be interesting to see how the cosmetics industry continues to develop in the coming years. [[https://chaileedo.com/chinese-market-growth-engine-for-global-beauty-giants/]](https://chaileedo.com/chinese-market-growth-engine-for-global-beauty-giants/) Shiseido Net Sales Down 9% in 2023 Due to Fukushima Nuclear Wastewater Release Incident ======================================================================================= Chaileedo / 9-Feb-2024 Shiseido released its financial report for 2023, revealing net sales of 973 billion yen, down 8.8% year-on-year. This marks the first time in three years that Shiseido's net sales have fallen below 1 trillion yen. The Japanese market was the only market to experience growth for Shiseido in 2023. **Japan became the only growing market** In 2023, Shiseido's net sales were ¥973 billion, down 8.8% year-on-year. Core operating profit was ¥39.8 billion, a decrease of 22.4% year-on-year. Net profit attributable to owners of the parent company was ¥21.7 billion, down 36.4% year-on-year. Looking at the brands, Drunk Elephant saw a significant increase in sales of 77% in 2023, while NARS achieved a 12% growth. Clé de Peau Beauté experienced a 2% increase. However, IPSA witnessed a significant decline of 30% in 2023. Additionally, Shiseido's fragrance saw a growth of 21%. In terms of regional markets, the net sales in the Japanese market for 2023 amounted to ¥259.9 billion, marking a 9.4% year-on-year increase. This makes it the only market to experience growth in 2023 for Shiseido. Additionally, Japan once again surpassed the Chinese market, reclaiming its position as Shiseido's largest market. Shiseido highlighted its success in introducing innovative new products and ramping up marketing efforts across various brands, capitalizing on the rebound in consumer demand following the relaxation of COVID-19 restrictions. This resulted in significant growth for Clé de Peau Beauté and SHISEIDO, driven by an expanding base of loyal customers. ELIXIR also maintained steady performance, supported by the relaunch of anti-wrinkle cream and the introduction of an anti-aging cream aimed at enhancing skin firmness through advanced dermatological research and technology. Additionally, Shiseido benefited from the gradual recovery in tourism, with an increase in foreign visitors to Japan. In 2023, net sales in the Chinese market amounted to 247.9 billion yen, down 4% year-on-year, accounting for 25.5% of Shiseido's total sales and ranking as the company's second-largest market. Shiseido attributed the decline in the Chinese market primarily to the discharge of nuclear-contaminated water by the Japanese government. Shiseido stated that in China, they are transitioning from a growth strategy heavily reliant on extensive promotions to a more sustainable approach emphasizing value-based brand and product communication tailored to consumer preferences. Despite SHISEIDO and Clé de Peau Beauté driving growth in the first half of the year, this growth was overshadowed by reduced consumer spending on Japanese products due to concerns over Japan's treated water release and weakening confidence in China's economy, leading to a decline in net sales compared to the previous year. During the "Double 11" e-commerce event, their online sales were notably impacted by these factors, performing below the overall market, which also experienced a sales decline from the prior year. Additionally, outside of China and Japan, the net sales in the Asia-Pacific region in 2023 amounted to 672.83 billion yen, a slight decrease of 1.1% year-on-year. The Americas market experienced the largest decline, plummeting by 20%, while the EMEA market saw a decrease of 8.9%. Sales through travel retail channels dropped significantly by 19% due to the effects of retailer inventory adjustments in response to stricter regulations in South Korea and Hainan Island, China. Additionally, there was a trend among retailers to revert to a business model that prioritizes catering to tourists. **The short-term impact of nuclear wastewater is difficult to mitigate** In 2023, the overall Japanese cosmetics industry faced challenges, primarily due to the irresponsible actions of the Japanese government and the wastewater discharge incident. The underperformance of Shiseido had been anticipated as early as the 2023 Double 11 shopping festival. During the Tmall platform's major promotion period from October 24th to November 11th, the Japanese and Korean cosmetics markets experienced a downturn. None of the top 10 brands in the beauty category included any Japanese or Korean brands. The societal impact of Japan's nuclear wastewater discharge incident also sparked a wave of resistance against products originating from Japan and Japanese brands. Many Japanese cosmetics brands suffered significant setbacks as a result. Data from QY Research showed that on the first day of Tmall's Singles' Day pre-sale, the gross merchandise volume (GMV) of the top 10 Japanese cosmetics brands, including Shiseido, CPB, SK-II, DECORTE, and Curél, all declined, with 8 brands experiencing a decline of over 50%. SK-II's performance in the last quarter of 2023 was particularly poor. During Procter & Gamble's fiscal year 2024 second-quarter earnings conference call, the CFO mentioned that SK-II's sales in the Greater China region plummeted by 34% in the October to December period of the previous year, resulting in a mere 1% increase in its beauty business sales. In fact, in addition to sales figures, Chinese brands have also surpassed the growth rate of leading Japanese cosmetics company Shiseido in the Chinese market. From 2020 to 2022, Shiseido's sales in China were 235.8 billion yen, 274.7 billion yen, and 258.2 billion yen, respectively, with a compound annual growth rate of 4.64%. Meanwhile, during the same period, Pechoin, which surpassed Shanghai Jahwa to become China's number one in the third quarter of last year, reported revenues of 3.752 billion yuan, 4.633 billion yuan, and 6.385 billion yuan, respectively, with a compound annual growth rate of 30.45%. It is evident that in the Chinese market, Pechoin's sales growth over the past three years has far exceeded that of Shiseido. Additionally, in the financial report of another Japanese consumer goods giant, Kao Corporation, its cosmetics business also experienced a decline. In 2023, Kao Group's sales amounted to 1.5326 trillion yen, a decrease of 1.2% compared to the previous year, with operating profit at 60 billion yen, down by 45.5% year-on-year. The net profit attributable to the parent company was 43.9 billion yen, a decrease of 49.0% compared to the previous year. In 2023, the sales of its cosmetics business decreased by 5.1% from the previous fiscal year to 238.6 billion yen, with sales volume declining by 7.3%. In China, sales experienced a significant decline primarily because key opinion leaders voluntarily reduced their activities, sales promotion efforts were restricted, and other factors related to local backlash against Japan's discharge of ALPS-treated water from the Fukushima Daiichi Nuclear Power Station. However, in the European market, despite its weakness, sales saw an increase attributed to the consistent performance of new products from Molton Brown and successful promotional campaigns for both new and existing products from the SENSAI brand. Operating income decreased by 19.5 billion yen compared to the previous fiscal year, reaching a negative value of 5.4 billion yen, mainly due to the recording of 10.7 billion yen for provisions related to product returns, disposal of raw materials, and other expenses associated with structural reforms. Core operating income amounted to 5.3 billion yen, marking a decrease of 8.8 billion yen compared to the previous year. Overall, it appears that Japanese cosmetics companies, including Shiseido, will continue to be affected in the short term due to the nuclear wastewater incident, and this impact may even persist in the long term due to the rise of Chinese brands. **Expanding into the North American and Indian markets** As a representative of a Japanese beauty and cosmetics firm, Shiseido has initiated plans to pivot its attention towards the North American market. In October 2019, Shiseido purchased the American brand Drunk Elephant for \$845 million. Shiseido stated in a press release that "Drunk Elephant will be able to leverage Shiseido's global platform and resources to expand into new and existing markets both in the Americas and internationally including Europe and Asia." Ron Gee, president, and CEO, of Shiseido Americas, and global leader, of M&A for Shiseido, stated, "Today, the Americas region continues to be dynamic, resilient, and most of all, a compelling opportunity for growth." Furthermore, Shiseido has ventured into the Indian market. In mid-October last year, Shiseido introduced its first cosmetics brand in nearly a decade by bringing the popular NARS cosmetics line to local beauty stores in India. Then, on October 18th, the Shiseido Group announced the opening of its first standalone India boutique store in Mumbai, India, and appointed Indian Bollywood actress Tamannaah Bhatia as the inaugural brand ambassador for Shiseido's skincare range in India. At the end of last December, Shiseido announced the acquisition of the American dermatologist-led skincare brand, Dr. Dennis Gross Skincare, for \$4.5 billion, according to reports from Kyodo News. The Japanese beauty brand saw this acquisition as a strategic step to enhance its core prestige skincare portfolio, which encompasses Shiseido and the Clé de Peau Beauté brand. Simultaneously, Shiseido stated that this acquisition would drive growth and profitability in key markets in the Americas. Shiseido asserted that acquiring a high-growth, profit-enhancing skincare brand would facilitate the sustained expansion of its operations in the Americas, a region of strategic importance for the company. This move enables Shiseido to diversify its geographic footprint while addressing imbalances in revenue sources. The Americas accounted for 11.3% of Shiseido's global sales in the first nine months of 2023. With Shiseido encountering performance bottlenecks in Asia, the company has begun shifting its focus gradually toward the Americas and the Indian market. In addition, Shiseido underwent a series of reforms in 2023, starting with enhancing brand assets. Shiseido's emphasis on enhancing brand equity involves not only global brands like "SHISEIDO" and "Clé de Peau Beauté" but also the expansion of Asian brands such as "ELIXIR," perfume lines, men's grooming brands, and the strategic development of new brands. Moreover, on December 6th of this year, Shiseido inaugurated the Global Brands Value Development Center and Global Product Value Development Center under the Brand Value Research Institute. This move underscores the company's commitment to establishing a sustainable and robust development framework aimed

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