The past couple of years marked Shiseido’s long-term strategic shift to focus on skin care as its core business and aims to become the global leader in skin beauty by 2030.
For Shiseido, skin beauty does not just mean topical skin care products. It also encompasses other categories, including beauty devices and supplements.
Last year, the cosmetic firm sold its low-cost personal care business and shed off three make-up brands, including Laura Mercier, to refocus its portfolio on this long-term strategy.
“We needed to consider the consumer changes and the consumer became more conscious of health and skin. That’s why we thought the focus on skin, which is a strength of our company, will deliver much more vertical differentiation against our competitors as well as better profitability compared to the other categories that we have in our portfolio,” said CFO Takayuki Yokota in a recent presentation hosted by AllianceBernstein.
“Skin beauty brands have a much higher gross margin compared to make-up or fragrance. That benefit is already coming through and we’ll see much more in 2022 and 2023. That’s an assured one,” said Yokota.
He highlighted that the firm may have more room to grow its skin beauty business in the Western markets.
“For the US, a massive size is still on make-up and for EMEA, the biggest is on fragrance – compared with China or Japan, the biggest market is still skin care. We believe in those Western markets; skin care is still in play,” said Yokota.
“By pushing our brands SHISEIDO, Clé de Peau Beauté as well as Drunk Elephant, which we acquired in 2019, we believe we can accelerate our skin care growth in the western markets.”
US clean beauty brand Drunk Elephant is one of the key brands for Shiseido, given its clean beauty positioning. Since its acquisition, Shiseido has been working to expand the brand, particularly in Asia.
“There’s still more to come. There’s are concrete plans that goes into 2022 and 2023. I will say we’re moving really aggressively to expand the business globally,” said Yokota.
Volatile environments
However, the firm is cautious about the volatile economic environment caused by recent events, such as the Ukraine invasion.
In the wake of Russia’s attack, Shiseido announced that it would suspend exports from European hub to its subsidiary in Russia and cease commercial activities in the country.
According to Yokota Shiseido’s sales in Russia account for around 1% to 2% of its total group sales figures.
“It’s quite difficult to say at this moment. We’re monitoring the situation very closely. There might be some kind of supply shortage because of the disruption of supply chain and logistics around materials,” said Yokota.
“The other general risk to consider is the rising energy or oil prices which would lead to packaging or raw material cost increase. This is would not only affect Europe but could impact the whole economy and other parts of the business as well. We’re carefully monitoring the situation so that we can be well prepared.”