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Our reporter Fang Fengjiao (chinatimes.net.cn) reports from Shanghai

On the evening of August 7, Shiseido Group announced a disappointing first half 2024 performance: the company's core operating profit was 19.3 billion yen, a year-on-year decrease of 8.8 billion yen, and its operating profit loss was 2.7 billion yen, a year-on-year decrease of 16.4 billion yen; net profit attributable to the parent company fell 99.9% year-on-year. After the results were announced, Shiseido's stock price continued to fall sharply.

Shiseido attributed the decline in sales to the decline in travel retail, China and the Americas. In fact, from the decline in profits in 2022 to the current losses, Shiseido has continued to be at a low point. As for the reasons, Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, analyzed to the reporter of the China Times that in recent years, economic fluctuations in the world and specific regions (such as China and the Americas) have affected consumer purchasing power; the nuclear wastewater discharge incident has caused a crisis of consumer confidence, reducing the willingness to buy Japanese products; the overall competition in the cosmetics industry has intensified, especially the rapid rise of Chinese local brands. These are all external factors that affect Shiseido's performance.

Industry observer Hong Shibin told the China Times reporter that from an internal perspective, the company may have some problems in product innovation, brand building, channel expansion, etc. In addition to the impact of the external environment, internally, insufficient product innovation, brand aging, and insufficient channel expansion are all reasons for the decline in performance.

It is worth mentioning that on July 30, Shiseido officially announced that Kentaro Fujiwara, former CEO of China and current president and COO of Shiseido Group, will serve as president and CEO of the group, and the appointment will take effect on January 1, 2025. Whether Kentaro Fujiwara can lead Shiseido out of the trough has attracted much attention from the market.

From decline to loss

The report shows that Shiseido Group's sales in the first half of the year were 508.536 billion yen (about 24.908 billion yuan), an increase of 2.9% over the same period last year; however, the company's core operating profit was only 19.3 billion yen, a year-on-year decrease of 8.8 billion yen, a drop of 31.3%; operating profit suffered a loss of 2.7 billion yen, a year-on-year decrease of 16.4 billion yen; net profit attributable to parent company shareholders plummeted 99.9% year-on-year, compared with 11.8 billion yen in the same period last year.

Shiseido's revenue sources are mainly divided into six parts: travel retail, Japan, China, Asia Pacific, Americas, and EMEA (Europe, Middle East, Africa). In the first half of 2024, the core operating profits of these six parts were 7.7 billion yen, 7.9 billion yen, 4.9 billion yen, 2.2 billion yen, 2.6 billion yen, and 3.7 billion yen, respectively.

In the first half of 2024, net sales in China, the Americas, and travel retail (excluding the impact of foreign exchange, business transfers and acquisitions, the same below) decreased by 7%, 5%, and 23% year-on-year, respectively. Net sales in the Japanese domestic market increased by 13% year-on-year, while Asia Pacific and EMEA increased by 6% and 12%, respectively.

Shiseido said the sales decline was mainly due to declines in travel retail, China and the Americas markets. The weakening confidence and changes in purchasing behavior of Chinese consumers, the sharp decline in profitability of travel retail, and the decline in production and freight volume in the Americas all affected sales, which were generally lower than expected.

The group's sales in the Chinese market were 131.7 billion yen (about 6.2 billion yuan), a slight increase of 0.8% year-on-year, a decrease of 7.6% calculated at a neutral exchange rate, and a decrease of 6.6% year-on-year excluding the impact of foreign exchange and business transfers; core operating profit decreased by 600 million yen year-on-year to 4.9 billion yen (about 232 million yuan). It is worth noting that the sales share of the Chinese market has dropped from 26.4% in the same period last year to 25.9%.

Shiseido said in its financial report: "Due to the weakness of travel retail, China and the Americas, sales of some major brands under the Shiseido Group have stagnated or even experienced negative growth."

The report also said that travel retail and the Chinese market declined year-on-year, lower than expected, and the duty-free retail market, including Hainan Island, continued to be challenged by changes in consumer behavior.

In fact, Shiseido has been in a slump in recent years. In 2023, Shiseido's sales were 973 billion yen, down 8.8%, and its net profit fell by nearly 40%; in 2022, its sales were 1067.4 billion yen, up 5.7% year-on-year; its net profit was 34.202 billion yen, down 27.1% year-on-year.

Zhan Junhao, a well-known strategic positioning expert and founder of Fujian Huace Brand Positioning Consulting, said in an interview with the China Times that in recent years, the fluctuations in Shiseido's performance have not only been impacted by external factors such as global economic fluctuations, but the deeper reason lies in the aging problem within the brand. In a rapidly changing market environment, consumers' demand for innovation and personalization is growing, and some of Shiseido's brands have failed to keep up with this trend in time, resulting in the erosion of market share.

Although Shiseido has achieved certain results in the Chinese market, it faces challenges such as weak travel retail and fierce market competition. In particular, as Chinese consumers' recognition of local brands increases, the rapid rise of domestic beauty brands has brought considerable pressure to foreign brands such as Shiseido. However, this also provides new opportunities for Shiseido. Zhan Junhao believes that by deeply understanding the needs and preferences of Chinese consumers, Shiseido can adjust its product strategy and launch customized products that are more in line with the needs of the Chinese market. At the same time, strengthening cooperation with local retailers and partners is also an effective way for Shiseido to expand its share in the Chinese market.

Earlier, Shiseido's future head, Kentaro Fujiwara, said in an interview with the media that a new business strategy including fundamental measures will be announced at the end of November this year. In order to achieve sustained growth, the positioning of tourism retail business such as airport duty-free sales and China business will be adjusted. In the future, it is hoped that the European and American business will grow further.

Transformation pain period

The long-term slump has put Shiseido in the pain of transformation, and at the same time, there have been personnel changes in the group.

On July 30, Shiseido officially announced that Kentaro Fujiwara, former CEO of China and current president and COO of Shiseido Group, will serve as president and CEO of the group, and the appointment will take effect on January 1, 2025. Masahiko Uotani, current chairman and CEO of Shiseido, will retire. Masahiko Uotani will also serve as a senior consultant of Shiseido Group after January 2025, providing consulting, talent training support, foreign-related activities and other assistance according to the requirements of management.

In the future, how Kentaro Fujiwara will lead Shiseido to correct its performance and regain consumer confidence will be a big test.

China is a very important market for Shiseido, but there is no doubt that Shiseido has encountered challenges in its development in the Chinese market. Hong Shibin believes that Shiseido has both opportunities and challenges in the Chinese market. Despite the overall sluggish performance of the Chinese market, Shiseido's sales in the Chinese market have continued to increase slightly, indicating that it still has a certain brand influence and market share in the Chinese market. However, with the rise of domestically produced beauty products in China, the market competition pressure faced by Shiseido is also increasing. In the future, Shiseido needs to continue to strengthen brand building, improve product quality and consumer satisfaction, increase the proportion of online sales, and expand emerging channels to cope with the impact of domestically produced beauty products in China.

Respondents believe that insufficient product innovation, aging brands, and insufficient channel expansion are all problems faced by Shiseido. Hong Shibin suggested that the company strengthen product innovation and develop new products that meet consumer needs, while strengthening brand building, enhancing brand influence, expanding sales channels, and increasing the proportion of online sales. In addition, the company also needs to undergo a strategic transformation, from single cosmetics sales to diversified development, to increase new profit growth points.

Jiang Han, a senior researcher at Pangu Think Tank, told the China Times reporter that Shiseido should continue to cultivate the Chinese market, understand and meet the needs of Chinese consumers, strengthen brand publicity and promotion, and enhance brand awareness and reputation. At the same time, it should actively respond to the rise of Chinese local beauty brands and maintain its competitiveness by improving product quality and strengthening R&D innovation.

Wang Peng suggested that Shiseido should optimize its channel strategy: strengthen e-commerce channel construction, increase the proportion of online sales, and optimize offline store layout to improve customer experience. Adjust product line structure: focus on high-end brand development, reduce redundant product lines, and improve overall profit margins. At the same time, launch new products that better meet consumer needs for the Chinese market. Control marketing and management expenses: reduce expense rates and improve profitability through refined management. At the same time, increase investment in brand research and development to enhance product competitiveness. Strengthen organizational structure adjustment: create a more integrated and agile organizational structure, improve internal communication efficiency and the ability to respond to market changes. Strengthen localized innovation to better adapt to the needs of the Chinese market. Improve brand trust: In response to the trust crisis caused by external factors such as the nuclear wastewater discharge incident, take active measures to enhance brand image and consumer trust. For example, strengthen product transparency and safety publicity.

The high-end beauty market is characterized by continued growth in demand, intensified brand competition, accelerated digital transformation, and a clear trend of localization. Wang Peng believes that in the future, with the further development of the global economy and the continuous changes in consumer demand, the high-end beauty market will continue to maintain a steady development trend.

Shiseido revealed that in the face of current development issues, the group will announce a new business strategy in late November 2024, and our reporter will continue to pay attention.

Editor-in-charge: Xu Yunqian Editor-in-chief: Gong Peijia