Shiseido has reported a nearly 40% slump in earnings in 2023, impacted by China’s sluggish recovery post-Covid.
Operating profits dropped to ¥28.1bn, down from ¥46.5bn, with weakening sentiment towards China’s economy in the second half of the year being cited as the main factor.
The conglomerate said Japan's decision to release treated radioactive water back into the ocean last year also impacted sales.
The release of the water has been met with opposition in China, which is one of Japan’s largest importers of seafood, and sparked protests across the country.
Shiseido said this resulted in consumers also pulling back on purchases in Japan.
Additionally, softer demand in travel retail led sales to decrease by 8.8% to ¥973,038, attributed to tighter regulations on product inventory in China and in South Korea.
Kentaro Fujiwara, President and COO of Shiseido, said the company now plans to focus on improving its operations in China.
This includes less of a reliance on large-scale events in the country, as well as reducing price promotions.
“We will drive synergy through an integrated approach for China and travel retail, to aim for stronger brand equity and optimised investment for Chinese consumers,” added Fujiwara.
Despite the challenging market conditions in China, Shiseido said its performance in the American markets fared better and was supported by strong demand for Drunk Elephant products.
Shiseido’s eponymous flagship brand, as well as cosmetics brand NARS, also saw stable growth in the country.
Operating profit increased by ¥3.5bn to ¥11.2bn in the US market as a result, which the company said was driven primarily by higher gross profit from the increase in sales.
For the brand owner’s EMEA business, fragrance house Narciso Rodriguez had a robust year, and benefited from the launch of its new All Of Me edp in 2023.
NARS, meanwhile, also saw strong performance, and was supported by new digital marketing strategies and an accelerated rollout of new products.
Shiseido acknowledged that the current business environment will remain challenging in 2024.
This is primarily due to inflation, volatility in foreign exchange rates and rising geopolitical risks.
However, Shiseido is confident the market will improve, and is expecting the consolidated net sales of ¥1trn for the fiscal year 2024.
“In 2024, the group will execute cost reduction measures on a global basis, aiming to deliver positive results as early as possible, while maximising growth by leveraging our global brand portfolio,” Shiseido said in a statement.
“We will also reinforce strategic marketing investments to drive revenue growth with a particular focus on the Americas, EMEA and Asia Pacific businesses.”
Shiseido is not the only cosmetics company to be affected by the weaker demand in China.
Last week, Japanese beauty owner Kao Corporation reported a sales decrease of 1.2% to ¥1.53bn in 2023, due to a sluggish recovery of the Chinese market post Covid.
Estée Lauder Companies also saw sales fall by 7% to $4.28bn during three months to 31 December 2023.
The business was primarily impacted by challenges in its Asia travel retail segment, as well as softer demand for prestige beauty in mainland China.
