Shiseido gets in shape for recession

While other companies are suddenly looking to cut overheads, trim the fat from their operations or find other ways to batten down the hatches to survive the global economic turmoil, Japanese cosmetics giant Shiseido Co claims it sees the downturn as an opportunity.

"Last year, the financial crisis started in the US before spreading around the world and has been felt in every country,” said Shinzo Maeda, president and ceo of Shiseido, speaking at the Foreign Correspondents Club of Japan in Tokyo. “But because we were able to consolidate our product lines last year, we have been able to maintain fairly good results at the highest end of the market. That means we can regard the present situation in different ways,” he said. “When we are faced with a testing time in business, we can use that to revive our sense of seeking lofty ambitions and give our staff new resolve and strength that goes to the very base or our operations.”

Shiseido was in many ways fortunate to have acted to reformat much of its business before the economic storm hit, drawing up a ten-year road map for the company in 2007. Putting parts of that plan into operation has undoubtedly prepared it for the present crisis, which has been especially damaging to the Japanese economy.

The company, which was founded in 1872, has reported better earnings figures for the five years to 2008, with the fiscal 2007 net sales total coming in at ¥723.5bn (US$7.95bn). Of that figure, overseas sales accounted for 36.4% and the company wants to increase that to around 46% in the near future. It revised down its fiscal 2008 group sales estimate to ¥720bn from ¥730bn because of the downturn, with consumer markets being especially weak in the US, but because of cost cutting, revised up its recurring group profit estimate for the year to March to ¥67bn (US$736m) from ¥66bn, while keeping its net profit projection at ¥36bn (US$395m).

“Results have exceeded our predictions, partly because of the intense reform programme we have followed in the last three years,” said Maeda. “Our aim was to break down the company as we knew it and rebuild it into a far stronger entity. We believe we have been very successful.”

That however is not enough, he said. As far as Maeda is concerned, Shiseido is merely “at the starting line”. In the next ten years, Shiseido will become a “serious global player, representing Asia but with its roots in Japan,” he claimed. Maeda has been with the company since graduating from Tokyo’s elite Keio University in 1970.

“We have many goals, one of which is that we will never lose sight of our origins,” he said, emphasising an ongoing commitment to high quality products, enrichment that goes beneath the surface of a customer and the spirit of ‘omotenashi’, roughly translated as a sense of hospitality between Shiseido’s staff and its clients, providing them with a better lifestyle.

Detailing the company’s plans, and in spite of the current global economic problems, Maeda said it has set a goal of ¥1trillion (US$10.9bn) in sales in ten years’ time, of which 50% would be derived from overseas sales. This would be achieved through some radical departures from previous business practices. Instead of tailoring its advertising campaigns and products to a specific market, for example, Shiseido is currently designing clear and unified images for what the company stands for and its product lines, which will then be applicable to all markets. Part of that will be a complete redesign of its sales points in department stores, the uniforms of its sales staff and its very approach to sales.

In January, the company launched a new line of make-up products in Japan that will soon be released in other markets, while a high-end new skin care lotion is scheduled for release in the autumn, followed by the renewal in spring next year of the remaining skin care lines.

Shiseido will also be employing the “city concept” to its marketing campaigns, targeting around 40 specific cities where the brand has good potential for growth, said Maeda. The Russian market is ready for this sort of approach, he added, with consumers located primarily in the two cities of Moscow and St Petersburg. At the same time, a “city cultivation” approach will take a deeper, multi-brand approach to a target market that already has a degree of recognition for the brand, such as Thailand’s Bangkok. And ultimately, the company intends to increase its presence in emerging markets, such as Vietnam, India and the Middle East.

Looking further into the future, the company plans to broaden its lines to include products that have all the quality hallmarks of Shiseido, but at “a more accessible price”.

The firm is hoping to see annual growth of 20% in Asian markets alone, with China a key element of that increasing sector. As well as promotional efforts, cosmetics education schemes are being introduced that should broaden the purchasing public to as many as 400 million people in China alone by 2020. Similarly, new sales channels are being developed to take Shiseido products into parts of China that do not at present have department stores. Maeda also confirmed that the company would consider purchasing distributors in key markets, such as India and the Middle East, to increase its presence. A distributor has already been bought in Russia and a production facility is under construction

in Vietnam.