SHISEIDO CO LTD IN BEAUTY AND PERSONAL CARE

(WORLD)
May 2017
SCOPE OF THE REPORT

Scope

 All values expressed in this report are in US dollar terms, using a fixed Disclaimer
exchange rate (2016). Much of the information in this
briefing is of a statistical nature and,
 2017 figures are based on part-year estimates. while every attempt has been made
to ensure accuracy and reliability,
 All forecast data are expressed in constant terms; inflationary effects are Euromonitor International cannot be
held responsible for omissions or
discounted. Conversely, all historical data are expressed in current terms; errors.
inflationary effects are taken into account. Figures in tables and analyses are
calculated from unrounded data and
Baby and Child-Specific USD15.3 billion may not sum. Analyses found in the
briefings may not totally reflect the
companies’ opinions, reader
Bath and Shower USD38.7 billion discretion is advised.

Microwaves
Refrigeration
Home Colour Cosmetics USD61.0 billion
60,669
Appliances
Laundry Small Japanese beauty and personal
Large Cooking Home Laundry Microwaves care company Shiseido Co Ltd
Beauty and
144,010
121,107
Appliances Appliances 60,669 Deodorants USD20.2Appliances
billion
Jewellery ranked ninth globally in 2016.
132,745 121,107 1,724,022 The company is undergoing a
Personal Care Fragrances USD46.5 billion strategic overhaul to rebuild
current businesses in Japan and
USD443.9 billion Hair Care USD72.2 billion
China, and grow sales
internationally. Key focuses
abroad include nurturing the
Men’s Grooming USD47.8 billion Shiseido brand to become a
global leader and reinventing
bareMinerals. Domestically,
Oral Care USD42.3 billion Shiseido is working to rebrand
its personal care business.
Skin Care USD116.1 billion Shiseido is intensifying its focus
on innovation through R&D, as
well as investing in digital.
Sun Care USD9.3 billion

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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
STRATEGIC EVALUATION

Key company facts

 Shiseido is the world’s ninth ranked

beauty and personal care (BPC)
player, with a solid geographic
presence in every region, after adding
Latin America to the mix with the
acquisition of the Dolce & Gabbana
(D&G) fragrance licence in 2016.
 In 2016, the majority of its value sales
derived from Asia Pacific, in particular
its domestic Japanese market, which
generated 45% of its 2016 value
sales. This was down from 50% in
2011, as the company has sought to
widen its geographic presence. Sales
in the US generated 16% of its total in
2016, compared to 13% in 2011. As a
result, the US is now its second
largest market, ahead of China.
 Shiseido has a broad category presence; however, skin care remains at its core, generating 46% of 2016
sales. That being said, the company has been steadily gathering exposure in the dynamic colour cosmetics
arena in recent years, with a string of notable names under its belt. The most recent was Laura Mercier in
2016, providing much needed UK coverage. In 2016, colour cosmetics accounted for 29% of sales.

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STRATEGIC EVALUATION

Financial analysis: Q1 2017

 The first quarter of 2017 saw Shiseido’s domestic market continue its Shiseido Co Ltd: Net Sales
recovery, owing to increased consumer spending both amongst locals and Operating Income Q1
and the steady stream of inbound tourists. 2016 vs Q1 2017
250 30
 Strong gains were also seen elsewhere in Asia, including China.
Chinese consumers have been key contributors to Shiseido’s fortunes
of late across the board: at home, online, as inbound tourists to Japan 25
200
and within the prosperous Travel Retail division.

Operating income (JPY billion)

 Further afield, growth was positive but less dynamic. In the Americas, 20

Net sales (JPY billion)

the restructuring of the bareMinerals brand has seen completion and 150
steady results. In addition Laura Mercier progressed moderately, in
line with expectations. 15

 In the EMEA region, sales increased but profit dropped. The Dolce & 100
Gabbana fragrance licence got off to a shaky start, with supply 10
issues, but initial marketing investment is poised to produce gains
later in the year. 50
5
 Prestige continues to drive growth, with Shiseido, Clé de Peau
Beauté, and IPSA being stand-out winners. The success of these
brands was boosted by Chinese e-commerce, while the NARS brand 0 0
achieved double-digit growth through department stores in Asia. Q1 2016 Q1 2017

Net Sales Operating Income

Source: Company release; Q1 = First quarter

ended 31 March

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STRATEGIC EVALUATION

Vision 2020 Phase 1: Progress

 Over 2015-2017, the Vision 2020 strategy has involved restructuring operational fundamentals. This
includes a projected 40% increase in R&D over this period. The Global Innovation Center in Yokohama, set
to open in 2018, will be the largest facility of its kind in the world. Similarly, the company will open its first
new domestic plant since 1983 by 2020, to supply the growing demand for Asian products and innovation
on a global stage. This period has also included enhancing existing brands, reorganising personnel, and
focusing on China, Asia, the EC and Travel Retail segments.
 In May 2016, the company unveiled its new Americas Innovation Center, which will undertake advanced
R&D activities in collaboration with the recently opened Center of Excellence for Makeup. Both facilities are
based in New Jersey, demonstrating headway in Shiseido’s “think global act local” plan. Also in the
Americas, in a bid to streamline and define its distinct offers, Shiseido announced a new division that
gathers its US prestige brands including Laura Mercier and Shiseido, under the Beauty Prestige Group.
 Shiseido embarked upon the second part (2018-2020) of its vision 2020 plan early by developing new
brands, including internet pure-player Playlist, and undertaking M&A activity throughout 2016 and 2017.
The company has made various significant acquisitions, gaining the licence to manufacture and distribute
Dolce & Gabbana Beauty, in addition to acquiring Laura Mercier and ReVive in 2016.
 Shiseido also jumped on the bandwagon of acquiring start-ups in 2017, with personalised make-up brand
MATCHCo and creative agency JWALK. JWALK has the digital prowess needed to help the company in its
customer-centric vision. Shiseido has made clear its ambitions to become the most digitally advanced
beauty company in the world. The company has already made significant steps towards this goal with its
Shiseido+ Digital Academy, a partnership with global innovation agency Fabernovel, as well as establishing
Shiseido Venture Partners, a venture capital arm that will help tap into cutting-edge technology.

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STRATEGIC EVALUATION

SWOT: Shiseido Co Ltd

STRENGTHS WEAKNESSES

Strong brand equity Innovation and quality Domestic focus Mass positions
 Shiseido’s strong brand  The company has a  Shiseido has reduced  Shiseido’s extensive
equity, especially in skin strong R&D network, its dependence on its brand portfolio includes
care and colour and a thorough domestic market, but a number of low-priced
cosmetics, is partly approach to technical Japan, which remains skin care, colour
based on its Japanese innovation that results in mature, competitive and cosmetics and hair care
provenance, and is a high quality beauty economically weak, still products that undermine
sharp competitive edge products. This has been generated 45% of its the company's
in international BPC. further strengthened 2016 sales. competitiveness,
through the regional although it has been
Centers of Excellence. working to reduce these.

OPPORTUNITIES THREATS

New emerging markets Evolving lifestyle trends
 Latin America, where  Shiseido could benefit
Shiseido holds a from a greater focus on
negligible share, could brand and product
be a development positioning to reflect
target, in addition to lifestyle changes; for
other growth markets in example, leveraging its
the Middle East and partnership with Pierre
Asia Pacific, such as Fabre in Japan to
Saudi Arabia and India. capitalise on the global
wellness trend.
Market concentration Shifting competition
 International expansion  Many of Shiseido’s
will bring the company brands have a strong
into increasingly direct heritage and
competition with commerciality. However,
multinational rivals, the prestige market is
which are aggressively moving towards agile
buying share and will and niche digital-native
become long-term brands.
threats.

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STRATEGIC EVALUATION
Strategic objectives and challenges
International development
 Shiseido has successfully reduced its dependence
on its domestic market, and continuing with this will
be a strategic objective until 20201. In the short
term, its focus will be on building sales in China,
particularly with the Aupres brand and in the US
with bareMinerals, and in Travel Retail. However,
in the long term, the company will look to increase
its presence in other emerging markets, with Latin
America an obvious target, along with further
expansion in the dynamic Middle East.
Implementing Vision 2020
 The company’s implementation of its Vision 2020
strategy will be a priority over the forecast period.
Substantial investment in R&D and marketing will
be required. In order to pay for this, far-reaching
re-organisation is necessary. Shiseido has already
begun to acquire new brands, and has indicated it
also plans to develop its own, as well as
completely overhaul its existing brand strategies.
© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD
Scaling back to focus on essentials
 Shiseido has identified an overcrowded brand
portfolio (especially in Japan) as one of its strategic
weaknesses, and will seek to rationalise it. The
sale of Carita and Decléor to L’Oréal in 2014, and
the closure of its Indian subsidiary, with its Za skin
care brand, are part of this. More, undoubtedly, will
come. Identifying where to cut will be a key
objective, and the company could lose its mass-
aligned brands and raise overall price points.
New technological hurdles
 Shiseido has a very strong reputation for
innovation. Developing new products will be an
objective over the period to 2020, not least
because competition from regional players, notably
South Korean companies such as AmorePacific, is
emerging at speed. Its new Global Innovation
Center, set to open in 2018 in Yokohama, and
focusing on dermatology, will be the largest of its
kind in the world, and its success is paramount.
PASSPORT 8
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
COMPETITIVE POSITIONING

Shiseido outpaces the industry

Shiseido Co Ltd: Competitive Performance Against the Global Beauty and Personal
Care Market 2011-2016
10

8
Y-o-y growth

6 C
4

A B
2

0
2011/2012 2012/2013 2013/2014 2014/2015 2015/2016
Shiseido Co Ltd – BPC World – BPC

A: 2011-2012: The company B: 2013-2014: The Chinese C: 2015-2016: Shiseido

grows but only moderately during
this time period, domestically still
feeling the effects of the upheaval
caused by the great earthquake
and tsunami in 2011. Overseas
growth is more positive but
ultimately its over-exposure to its
home market is to its detriment.
backlash against Japanese
cosmetics, and a general tough
market environment dents growth
in this key market. Europe also
experiences minimal gains due to
unfavourable economic
conditions, and all other regions
reach, at best, mid-single digit
growth.
experiences its best performance
over the review period. With a
more favourable economic
climate in Japan, strong
acquisitions and streamlined
divisions globally, the company is
poised to achieve its 2020 Vision.

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COMPETITIVE POSITIONING

Change at the top shifts competitive threat

 The global BPC market remains consolidated with

the top 10 companies accounting for 45% of value
in 2016. As of 2016, Procter & Gamble is no longer
Shiseido’s closest competitor, following the
divestment of a large part of its beauty division.
 L'Oréal is now the biggest threat to Shiseido on a
world stage, particularly in China and the US, in
skin care and colour cosmetics respectively.
 Domestically, Kao still poses a challenge, but its
beauty sales have been decreasing in recent
years, becoming a weaker rival. Kao has
expressed its intentions to expand internationally,
much like Shiseido, and could become a more
global threat.
 Local players are also raising their game, such as
Pola Orbis Holdings, where all the company’s sales
overlap with Shiseido. Following the 2016 success
of Shiseido’s Benefique Deep Block Essence, with
infrared-blocking technology, Pola Orbis launched
its own acclaimed version.
 Korean powerhouse Amore Pacific also cannot be
overlooked, as its overlap with facial care in China
increased by USD723 million over 2008-2016.

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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
MARKET ASSESSMENT

Shiseido still lacking presence in growth hot spots

 Shiseido has a fairly solid geographic footprint, with shares in nine of the 10 markets set to see the
strongest growth in absolute terms between 2016 and 2021. Although some of this exposure is negligible,
as in Brazil and Indonesia, it crucially holds a 3% share in China, enough to make it Shiseido’s third largest
market. China is set to generate just under one quarter of value growth in BPC globally over 2016-2021.
 Shiseido occupies a largely mass positioning in China, and launching more of its premium brands could
give it a competitive edge. Following the popularity of the mid-priced Elixir skin care brand in Japan
amongst Chinese tourists, in 2017 Shiseido took the brand direct to China through a string of upmarket
standalone stores, and moved its production to Japan to be able to boast a “made in Japan” tagline.
 The company’s most notable absences are in Brazil, Indonesia and India. Although Brazil is still recovering
from a difficult few years politically and financially, it remains more dynamic than the US, Shiseido’s second
largest market, owing to a large digitally-savvy millennial population, matching Shiseido’s digital ambitions.
Indonesia offers strong prospects in beauty and personal care. Shiseido has only s small share in this
market, and must work hard to understand local needs to compete with the hugely popular local mass
offerings that appeal to local consumers, potentially by investing in innovation in the halal space.
Shiseido Co Ltd: Company Value Share 2016 in the 10 Largest Forecast Absolute

2015 & CAGR 2016-2021

Value Growth Markets 2016-2021

Company value share

20,000 15
USD million rsp

15,000
10
10,000
5
5,000
0 0
China US Brazil Indonesia UK Japan India Thailand South Korea Mexico
Absolute Value Growth (USD million) 2016-2021 % CAGR 2016-2021 Shiseido Co Ltd 2016 Market Share

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MARKET ASSESSMENT

Developing premium and functional positions, cutting mass ones

 64% of Shiseido’s beauty and personal care sales in 2016 came from its mass brand portfolio, down from
70% in 2011.Shiseido has made no secret of its plan to nurture and invest in its prestige portfolio to tap into
the most lucrative segments of markets such as China and the US.
 Skin care accounted for 46% of Shiseido’s sales in 2016, although the company commands a greater
share of the global colour cosmetics and sun care markets than skin care. Shiseido is making significant
investments in a dermatological research centre that will allow it to add value to its products via
functionality, and has made it known that it will explore dermatological function for colour cosmetics in
particular, and take a more segmented approach to skin type and colour.
 The company should also continue to rationalise the mass part of its skin care portfolio and drive up price
points, much like it is doing in China with its Elixir brand, which is priced around 30% higher than in Japan.
 Baby and child-specific products is predicted to see the fastest growth over 2016-2021. Shiseido has a
negligible presence in this category. Already the company has begun to build in this category by launching
three new sun protection products under its Anessa brand in Japan in 2016, using its sweat and water-
resistant technology to target the lucrative child space.
Shiseido Co Ltd: BPC Presence 2016 and Growth Prospects 2016-2021 by Category
6%
CAGR 2016-2021

5% Sets and kits Colour cosmetics

Sun care
4% Fragrances Skin care
3%
2% Deodorants Men’s grooming Hair care
1% Depilatories
Bath and shower
0%
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
Market size 2016 (USD million)
Note: Bubble size represents company share of category in 2016, range displayed: 0.2-4.5%

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MARKET ASSESSMENT

East Asia base is key competitive advantage

 Shiseido enjoys major competitive advantages through its roots in East Asia and its proximity to the
Chinese market, as its products are well aligned to local consumer preferences. Asia Pacific is anticipated a
CAGR of 4% over 2016-2021, making it the key opportunity for any BPC player. Shiseido remains over-
dependent on Japan; however, the first phase of its Vision 2020 strategy, involving growing the Chinese
business and restructuring key businesses in the Americas, has minimised this risk to an extent.
 Asia Pacific generated 71% of Shiseido’s 2016 sales, down from 76% in 2011, as it started to focus on
global growth. While the region is mature, there is strong demand for the type of functional skin products
that the company offers.
 The Middle East and Africa offers dynamic prospects through to 2021, but Shiseido is still struggling to
build a presence here. Acquiring the D&G fragrance licence could prove to be significant in getting a
foothold in the region, considering the weight that fragrances hold amongst consumers, and the fact that
D&G currently ranks ninth amongst the region’s premium fragrance brands.
Shiseido Co Ltd: Beauty and Personal Care Presence 2016 and Growth Prospects
2016-2021 by Region
5%
CAGR 2016-2021

4%
Latin America Asia Pacific
Middle East and Africa
3%
2% Eastern Europe North America
Australasia
1% Western Europe
0%
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000
Market size 2016 (USD million)
Note: Bubble size shows company share of region in 2016. Range displayed 0.1-4.8%

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MARKET ASSESSMENT

Focus on a market-specific approach

 A key part of the company’s development strategy Shiseido Co Ltd: Sales by Category in
has been to adopt a far more segmented, market- Top Three Markets 2016
specific approach than it has traditionally undertaken. 100%

The aim is to “think global, act local”, in order to

90%
transform its conventional, domestic, head office-
based organisation. Shiseido will seek to transfer 80%
authority to its front-line sales teams.
70%
 Brand categories will be based on consumer
purchasing styles and geographical areas, and the 60%
company will aim to establish regional headquarters in

Sales
each area, which will receive broad authority and 50%
responsibility, ranging from marketing to sales.
40%
 The aim is to make the company more responsive to
international consumers and markets. A major brake 30%
on growth for the company has been an inability to
react quickly to change. Its markets differ greatly. 20%

Within the US, Japan and China, for example, which

10%
combined generated 78% of its total beauty and
personal care turnover in 2016, skin care generated 0%
17%, 48% and 74% of local sales, respectively. China Japan US
Bath and Shower Colour Cosmetics Deodorants
Greater attention to consumer preferences and
Depilatories Fragrances Hair Care
expectations on a local scale should deliver both Men's Grooming Skin Care Sun Care
geographic and category opportunities going forward. Others

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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Borderless marketing will continue to strengthen Japan

 The company continued to report healthy gains in its domestic market in Q1 2016. net sales were up by 3%
in local currency terms. The prestige business, in particular, was strong in Japan, recording double digit
growth. Shiseido outpaced the overall market – mainly due to inbound, rather than local customers.
Shiseido plans to increase brand awareness among inbound visitors and improve visibility both in stores
and in e-commerce upon the visitors’ return to their home markets, namely in China.
 Shiseido has been ploughing investment into child-friendly sun care in Japan. Baby- and child-specific
products are, however, predicted to decline by an annual average of 1%, compared with a 4% CAGR
globally. In this case, it would be worth launching these new products elsewhere where the Anessa brand is
strong and prospects for baby- and child-specific products are good, such as China, where the category is
forecast a 12% CAGR, on the back of the government’s turnaround on the one-child policy.
 Most categories where Shiseido boasts a solid presence are forecast steady positive growth in Japan over
2016-2021. Fragrances will be the most dynamic category, which bodes well considering that the D&G
acquisition increased Shiseido’s share of fragrances in 2016 from 4% to 6%.
Shiseido Co Ltd: BPC Presence in Japan 2016 and Growth Prospects 2016-2021 by
Category
5% Fragrances
CAGR 2016-2021

4% Colour cosmetics
3% Sun care Bath and shower
2%
1% Men’s grooming Skin care
0%Depilatories
-1% Sets and kits
-2% Deodorants Hair care
-3% Baby and child-specific
-2,000 products 3,000 8,000 13,000 18,000 23,000
Market size 2016 (USD million)
Note: Bubble size represents company share of category in 2016 range displayed: 0.1-26%

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Tourism and Olympics to bolster domestic market

 Investing in Japan should prove rewarding for Shiseido, considering Japan Tourist Arrivals
the continuing influx of tourists the country is expected to see. In Forecast 2015-2020
2015, Japan received an estimated 19.7 million tourists. Inbound 33

visitors have been encouraged by loosened visa regulations, notably

in China, but also an increase in the multiple-entry visa period for
travellers from India, Vietnam and Russia. 30

 Tourism will also be aided by the 2020 Olympics to be held in Tokyo,

and Shiseido has a good opportunity to leverage the Olympic
spotlight not only to boost sales in Japan but also to increase brand 27
awareness, which could see a global knock-on effect, especially for
those Asian brands which have struggled to relate to Western

Million trips
consumers. 24
 Shiseido has established its new Shiseido Travel Retail division, a
key pillar of Vision 2020. The travel retail strategy will have a
significant focus on China, particularly the Aupres brand, which is 21
popular with Chinese consumers. This will capitalise on the growing
number of outbound tourists from China, particularly those visiting
Japan. Visitors from China account for the largest proportion of
18
tourists in Japan, according to the Japan National Tourism
Organisation, followed by South Korea and Taiwan.

15
2015 2016 2017 2018 2019 2020

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

China’s growth could hinge on stable global economy

 Considering there is still a risk from a slowdown in emerging markets, including China, and increased
volatility in financial markets further afield, the global economy remains uncertain moving forward.
 Shiseido is highly overexposed in skin care in China. In 2016, 74% of the company’s sales in China came
from skin care, and it could benefit from focusing on other areas of its portfolio in this market. Globally, skin
care accounted for just 46% of the company’s sales in the same year.
 Whilst skin care in China is forecast a robust CAGR of 6% over 2016-2021, this category is highly
vulnerable to fluctuations in the global economy. Skin care in China is projected to grow by USD$8.2 billion
over the forecast period; however, in the event of a global crisis, a large portion of value growth could be
shaved off this projection – around USD5 billion.
 As part of its strategy to restore its share in China, Shiseido could look to invest in its colour cosmetics and
sun care lines under its Aupres and Shiseido brands, which make up the majority of its presence in the
country.
Shiseido Co in China: Sales by Category
2016
Skin Care
Colour Cosmetics
Hair Care
Sun Care
Men's Grooming
Fragrances
Others

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Middle East’s prospects plummet as the Americas shine

 In the Middle East, various macro factors, such as falling oil prices, have weakened consumer purchasing
power, and in 2015 and 2016 consumers started to spend less or opted for cheaper brands. This radically
reduced prospects in the region compared to forecasts made in recent years, and also jeopardises a future
for Shiseido in the region in the immediate future, since current consumer priorities do not match Shiseido’s
premium-centric international expansion plan.
 However, things are looking up elsewhere, including across the entire Americas continent. Demand for
Shiseido in North America is solid and it has great potential, particularly in premium colour cosmetics, which
is forecast a 5% value CAGR over 2016-2021.
 Shiseido maintained a steady share over 2011-2016 in a region that is crowded with competitors, with
colour cosmetics being its core business. Its beauty and personal care position in the region is wholly
premium. The company identified its Nars brand as key to future growth, and will invest aggressively in the
brand to build on its CAGR of 14% over 2011-2016.
 After living in the Middle East’s shadow in recent industry narratives, Latin America is on the road to
recovery and is projected some of the strongest premium growth rates globally. However the region’s
mass-centrism could still act as a substantial obstacle for Shiseido.
Regional Forecast Growth of Premium Colour Cosmetics, Skin Care and Fragrances
CAGR % 2016-2021

2016-2021
6
4
2
0
Middle East and Latin America North America Western Europe Asia Pacific Australasia Eastern Europe
Africa
Premium Colour Cosmetics Premium Skin Care Premium Fragrances

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Premium portfolio an obstacle for promotion-conscious Latin America

 As in other emerging markets, Shiseido’s cutting of many of its mass brands has left it with limited options
for penetrating Latin America. Growth in beauty and personal care in the region over 2016-2021 will be
heavily driven by promotions, an activity in which Shiseido’s prestige portfolio rarely, if ever, participates.

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Leveraging Brazil’s mobile-first millennials

Brazil: Digital Consumer Landscape  Evidently, maximising its premium portfolio is vital and
2011/2016/2021 targeting millennials could be the answer. Within Latin
80%
America, Brazil accounts for 31% of the premium BPC
Households

60% segment. Crucially, as of 2016, Brazil has the fifth largest

40% millennial population in the world, at 51.9 million people, and
20% these also come with above average usage frequency of
0% BPC products and high incomes compared to their parents.
% of households % of households % of households
with possession with possession with possession
 These consumers are digital natives, many of them skipping
of personal of laptop of smart phone the desktop generation entirely and going straight to
computer
smartphones. This has led Brazilian millennials to become
2011 2016 2021
largely channel agnostic, researching and purchasing
across touch points, from social media to pure play e-tailers,
to subscription boxes and direct sellers.
 Within Brazil, premium fragrances command the majority of
the premium marketplace. There is opportunity for Shiseido
to grow Dolce & Gabbana’s 2% share in Latin America,
especially considering the archaic marketing strategies of its
rivals, in contrast to Shiseido’s heavy digital investment.
 The Carolina Herrera brand, owned by Puig, leads premium
fragrances in the region with 12% of value, and spent just
15% of its marketing budget for the blockbuster launch of its
Good Girl fragrance on digital and social media, with the
remaining 85% on traditional forms of advertising.

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

India remains promising in premium colour cosmetics

 India still holds promise for the Shiseido within Female Disposable Income Per Capita Growth
colour cosmetics. The Indian colour cosmetics Projections vs Female Per Capita Spend on
market is set to grow by a CAGR of 9% over Premium Colour Cosmetics 2016-2021
8
2016-2021, but perhaps most significant is the
number of women accruing larger disposable
incomes and spending more on colour 7

Female disposable income per capita % CAGR

cosmetics. Women’s prioritisation of the extra India

money in their pocket in India is clear, and China

6
spend per capita on colour cosmetics is
Philippines
predicted to rise well ahead of average
Vietnam
disposable income growth between 2016 and 5
Indonesia
2021.
 Shiseido’s prioritisation of its prestige brands 4 Malaysia
has narrowed its scope in India, which is a
mass-centric market. A move to Thailand
3
premiumisation is occurring, with premium set
to grow faster than mass, but from a smaller Taiwan
base. 2 Singapore
 Shiseido could look at incorporating more South Korea
culturally relevant ingredients into its products, 1 Japan
in a bid to increase Indian appeal, similarly to
Hong Kong
Estée Lauder’s Pure Color Envy Liquid Lip
Potion. This product claims lip balm benefits 0
-2 0 2 4 6 8 10 12
through its use of nourishing oils – oils being a
Female spend per capita on premium colour cosmetics % CAGR
mainstay of Indian beauty regimes.

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 24

GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Mass position in skin care a risk for Shiseido

 Outside Asia Pacific, the company only adopts premium positions for its skin care. However, within its
domestic region, it has gradually introduced mass and masstige ranges in a number of countries, including
Japan and, especially, China.
 Although a mass skin care portfolio in China may provide some resilience in the face of consumers trading
down in the event of a global recession, it also has its pitfalls.
 Adopting a mass positioning in China to build market share quickly might have made sense initially, but the
expanding middle classes in China are increasingly brand conscious and less price sensitive. As a result,
premium positioned skin care is set to outstrip mass products over 2016-2021, and the company should be
looking to leverage its premium products and the Shiseido brand to exploit this. Reducing its exposure to
the mass market, as it aims to do in Japan, would also make strategic sense.
 Although other mass-dominated countries in Asia Pacific, such as India and Indonesia, could grow sales for
the company, it risks compromising brand equity at the top of its portfolio, as well as getting stuck in highly
competitive price positions. Its best skin care opportunities lie in focusing on its top brands by strengthening
localised research and marketing.
Shiseido Co Ltd: Premium/Mass Breakdown in Company’s Leading Skin Care
Markets 2016 and Forecast % CAGR 2016-2021
Retail value (USD million)

CAGR 2016-2021
2,500 12%
2,000 10%
1,500 8%
6%
1,000 4%
500 2%
0 0%
Japan China Taiwan US Hong Kong
Mass Skin Care 2016 Premium Skin Care 2016 Mass - Forecast % CAGR 2016-2021 Premium - Forecast % CAGR 2016-2021

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 25

GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Shiseido responds to the wellness trend

 Shiseido has recently demonstrated its responsiveness to the wellness movement by launching a digital
athleisure beauty portal. The online hub will dispense advice on post-exercise skin care, as well as sun and
hair care tips.
 On the back of the burgeoning wellness movement, consumers are increasingly of the belief that wellbeing
must be managed holistically, and that beautiful skin is achieved through healthy skin. Dermocosmetic
brands are those which are medically aligned and offer preventative measures. However, Asia Pacific has
traditionally exhibited a greater proclivity for natural/herbal remedies, rather than those developed with
pharmaceutical rigour.
 Shiseido seems to believe that there could be a market for dermocosmetics in Asia Pacific, but products
will need to meet the needs of culturally diverse consumers, as their skin care needs may differ from those
of Caucasians. For example, darker skin tends to be more prone to acne, scarring and hyperpigmentation,
as well as skin “ashing”.
Shiseido Co’s Top Three Markets:
 Retail channel preferences give some insight into the % CAGR 2010-2016 for Health and
scope for dermocosmetics, and it seems there could Beauty Specialist Retailers
be some appetite in key Asian markets. Chemists and 15

CAGR % 2011-2016
pharmacies experienced dynamic growth over the
review period in both Japan and China. In fact, in 10
Japan, these outlets made significant growth headway
over beauty specialists. 5
 Shiseido is already well positioned to begin leading
this movement in Asia Pacific, owing to its local 0
partnership with Pierre Fabre Laboratories Japon to China US Japan
import and market Avène products in Japan. Taking Beauty Specialist Retailers Chemists/Pharmacies
this joint venture elsewhere in Asia could prove fruitful. Drugstores/Parapharmacies

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Fragrances reshuffle maintains fashion focus

 The company is primarily a producer of brands under licence, including Issey Miyake, Ellie Saab and, most
recently, Dolce & Gabbana. This follows the divestment of the licence for Jean Paul Gaultier to Puig in
2016, a company that was also in the running for the D&G licence.
 Shiseido has made reinforcing its fragrances business a strategic priority and made it known that it aims to
grow sales by 7% by 2017 compared with the year ended March 2015. By 2016, Shiseido had already
achieved that goal, with the category generating 7% of Shiseido’s total BPC sales.
 Shiseido has an exceptionally strong brand portfolio that includes many fashion brands; however, whilst the
company continues to invest in designer associations, other global players are looking to niche to drive
premium fragrances.
 In 2016, Estée Lauder acquired Le Labo, By Killian and Frederic Malle, whilst L’Oréal added Atelier
Cologne to its portfolio. Puig added L'Artisan Parfumeur and Penhaligon's.
 97% of Shiseido’s sales are premium positioned (its mass products are all from the Shiseido brand in
Japan) leaving it vulnerable to the sluggish forecast growth in its key fragrance markets. Looking to add
niche fragrance purveyors to its portfolio could offer better good prospects in the premium arena.
Shiseido Co Ltd: Company’s Top Fragrance Markets 2011/2016 and Forecast
% CAGR in Premium Fragrances 2016-2021

CAGR 2016-2021
400 10%
USD million

300 8%
6%
200
4%
100 2%
0 0%
US Italy UK Spain South Africa
2011 Sales 2016 Sales Forecast % CAGR 2016-2021 (constant)

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GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Fragrance competition shifts for Shiseido

 Whilst the acquisition of the D&G

fragrance licence significantly boosted
Shiseido’s fragrance standing and became
its most valuable brand, opposition in the
space has shifted to French giants L'Oreal
and LVMH, with their similarly positioned
designer brands Yves Saint Laurent and
Christian Dior.
 In 2017, LVMH bought a majority stake in
luxury perfume brand Maison Francis
Kurkdijan. The niche player expands
LVMH’s presence amongst the wealthy
elite in international markets, as well as at
home in France. One market the
investment opens up for LVMH is Taiwan,
where Maison Francis Kurkdijan has four
standalone boutiques.
 From Shiseido’s perspective, this is
another blow in key markets where it was
already dwarfed by LVMH’s presence and
expertise, and makes the case for
Shiseido to pursue a similar investment or
acquisition of a luxury fragrance house.

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 28

GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Facial make-up offers scope for function

 Facial make-up generated 51% of Shiseido’s colour Beauty Survey: Important “Functional
cosmetics sales in 2016. These products offer Claim” Product Feature 2015/2016
substantial opportunities for the company, as it 50

% of respondents
increases its investment in R&D. It has stated that its 40
dermatological research will drive development in 30
both skin care and colour cosmetics. 20
 Globally, Shiseido remains the most important brand, 10
but its North American bareMinerals brand, with its
0
explicitly functional, mineral-based position, can Even skin Long lasting Sun Hydrating Skin
expect to see increasing demand, as consumers tone protection brightening

seek greater functional value from facial make-up. 2015 2016

 86% of 2016 value in colour cosmetics for Shiseido

was generated by premium-positioned products. The Shiseido Co Ltd: Colour Cosmetics
company has sought to realign its portfolio since Presence 2016 and Growth Prospects
2010. This may limit its possibilities in a number of 2016-2021 by Category
6% Lip products
key markets. Latin America, for example, is set to
CAGR 2016-2021
5%
see a CAGR of 5% over 2016-2021 in premium 4%
colour cosmetics, but this segment only generated 3% Nail products
2% Facial make-
1% of Shiseido’s colour cosmetics sales in 2016, 1%
Eye make-up up
compared to 39% in North America. Developing 0%
010,000 5,000
15,000 20,000 25,000 30,000
sales in emerging markets will be a challenge, and
Market size 2016 (USD million)
growth adding value remains the best strategy. Note: Bubble size indicates company share of category in 2016. Range
displayed: 0.8-6.2%

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 29

GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Hair loss treatments to help solve a problem like Japan?

Hair Care in Japan: Leading Companies’  In Shiseido’s domestic market, hair care is the third
Market Shares 2011-2016 largest category behind skin care and colour
20%
cosmetics, valued at USD5,943 million in 2016.
15% However in recent years, the company has been
losing share, mainly to smaller players but also to
Share

10%
Unilever.
5%  In 2016, it was announced that Shiseido was
0%
developing a “cure” for baldness for commercial
2011 2012 2013 2014 2015 2016 release in 2018, which could prove to be
Kao Corp Unilever Group Shiseido Co Ltd Procter & Gamble Co, The
worthwhile investment for the company.
 Hair loss treatments are providing some respite for
the floundering Japanese hair care market,
Euromonitor International Beauty Survey: growing healthily by 4% in 2016, as the wider hair
Application of Hair Loss Treatments – industry suffers at the hands of Japan’s ageing
1-5 Times Per Week 2016 population.
8%
 There is scope to breathe new life into the wider
6% hair routine from the perspective of age.
Respondents

Considering that personal care routines typically

4%
become minimal with age, which is working to
2%
Japan’s disadvantage, such innovations could
encourage more extensive regimes amongst the
0% dominant older population.
15-19 20-29 30-39 40-49 50-59 60+

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 30

STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
BRAND STRATEGY

Shiseido brand remains at heart of global strategy

 Shiseido is a multi-brand operator. Nonetheless, its Shiseido Co Ltd: Brand Value Sales
eponymous flagship brand generated 60% of sales 2011-2016
in 2016, down from 64% in 2011. The acquisition of
bareMinerals in 2010, as well as a more substantial
Shiseido
mass-market position for the Shiseido brand in
Japan and China, eroded its value share over the
review period. It is primarily a skin care brand, but
it also has a number of sub-brands in other Aupres
products, including colour cosmetics, hair care and
men’s grooming.
 Shiseido is aiming to build global share for the
Dolce & Gabbana
brand at the same time as operating a number of
strong local brands. bareMinerals, for example, is
primarily a North American brand.
 Until 2014, the company actively sought to develop bareMinerals
a multi-segment brand strategy, operating a
number of mass-positioned brands to tap into
emerging markets where disposable incomes vary
Clé de Peau Beauté
greatly. However, it is increasingly seeking to align
itself as a premium-positioned brand operator,
rationalising its portfolio accordingly and offering 0 2,000 4,000 6,000
only premium brands in key markets such as the USD million
US. 2016 2015 2014 2013 2012 2011

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 32

BRAND STRATEGY

Taking Shiseido global with a targeted approach

Shiseido Geographic  The Shiseido brand is primarily a premium positioned brand. The
Brand Presence Share company has developed a strong image of high quality innovation,
2011/2016 based in part on its Japanese origins. 54% of sales in 2016 were
(% value)
generated by skin care, mainly facial moisturisers and anti-agers, two
categories that allow the addition of value via technological function.
 Products are mainly marketed through premium positioned
distribution channels, such as department stores and beauty
specialists. The company has succeeded in reducing the brand’s
dependence on its domestic Japanese market and expanding sales in
international markets, and it it is aiming to accelerate this.
Inner circle
2011  To this end, it announced a comprehensive rebranding of Shiseido
Outer circle from 2016, through which it hopes to achieve a more globally oriented
2016
brand identity. It has described this as “expressing elements of
contemporary Japan fundamental to Shiseido from a global
perspective”, and sees the brand as a potential global beauty leader.
Premium positions in new international markets should drive value
growth, and the company is investing in marketing and product
development.
 It aims to build support for the brand among young consumers by
Rest of World designing brand concepts tailored to target them, and will also
Asia Pacific (excluding Japan) strengthen localised research and collaboration with its regional
Japan teams.

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BRAND STRATEGY

A millennial makeover: Playlist

 In 2016, Shiseido launched a pure-play digital brand,  LVMH has also seen success with its
Playlist, in Japan. The brand targets women aged 25-39 professionally-aligned colour cosmetics brand
years, and aims to tap into a lucrative consumer group Make Up For Ever, which recorded consistent
who are digitally-savvy and are increasingly relied on to double digit y-o-y growth globally over 2011-
boost consumer spending in the country. 2016.
 Playlist’s personalised shopping advice service and  Both the US and UK are ideal next moves for
interactive initiative Artist Kit, which facilitates dialogue Playlist. In the UK, a quarter of the top 20
between make-up artists and customers, joins the like of premium colour cosmetics brands are positioned
Estée Lauder which have been using technology such as professional or make-up artist brands, and all
as AI to power chat bots. achieved double digit growth in 2016.
 The launch in September 2016 coincided with Professionally Positioned Premium
Shiseido’s new collaboration as the official make-up Colour Cosmetics Brands in the UK:
partner of the Amazon Tokyo Fashion Week. Value Growth 2011-2016
200
 Playlist capitalises on the trend for brands with a
professional claim or make-up artist identity, and 150

Y-o-y % growth
encourages experimentation and playfulness. This
reflects the language commonly used in fashion, and 100

echoes the “make-up artist” concept that is undergoing a

50
renaissance, thanks to social media.
 Playlist is also perhaps a sign of Shiseido attempting to 0
Char- Smash- Bobbi Mac Chente-
stake its claim amongst some of the cosmetic players lotte Tilbury box Brown caille
that have long associations with fashion, such as LVMH. 2011-12 2012-13 2013-14 2014-15 2015-16

© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD PASSPORT 34

BRAND STRATEGY

Reigniting bareMinerals brand

 In Shiseido’s 2016 Annual Report and in its Q1 2017 Results, the company again expressed its intention to
re-establish bareMinerals as a serious competitor in premium colour cosmetics.
 Its consistent loss of market share has been a trend seen amongst the top five leading premium colour
brands in the US in recent years, as niche, digital-native and make-up artist brands make strides, owing
largely to social media and mono-brand store strategies.
 Urban Decay now ranks third in the US, having only begun gaining notable share in 2013. On the back of
this, a further loss of share is in the offing for bareMinerals. If the brand is not given an image overhaul
imminently, it could rapidly get washed away in the sea of indie successes.
 The restructuring of Bare Escentuals Inc and head office relocation to New York to be closer Shiseido’s
Americas Headquarters was implemented in 2016 ,and the company will now turn its attention to a growth
turnaround.
 On the consumer-facing side, the company has made moves to retain relevance. In 2017, bareMinerals
announced a deal with YouTube personality Ingrid Nilsen to be the face of its Original and Matte mineral
foundations. The press reported that the deal was worth USD500,000, one of the largest known paid
collaborations between a beauty brand and a digital influencer. Shiseido’s Laura Mercier brand also
claimed this accolade shortly before its acquisition in 2016, allegedly paying Aimee Song USD500,000 to
be the brand’s first digital representative.
Top Five Premium Colour Cosmetics Brands in the US 2011/2016
20
15
% value

10
5
0
Mac Clinique Urban Decay Lancôme bareMinerals
2011 2016

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BRAND STRATEGY

Dolce & Gabbana offsets most of Jean Paul Gaultier losses

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BRAND STRATEGY

Plugging the Dolce & Gabbana gaps

 Whilst Dolce & Gabbana opens up a whole new world of fragrance consumers for Shiseido in the US and
Italy, as well as South Africa, it does have some sticking points. In France and Spain – key Western Europe
markets – D&G fragrance sales decreased over 2011-2016. Adding fuel to the fire for Shiseido is the
divestment of Jean Paul Gaultier, diminishing the company’s presence in these nations also.
 France’s fragrance market is in decline, posting a 2% drop in sales in the premium segment in 2016, but it
remains among the top five largest markets globally, and is expected to do so at least until 2021. Likewise
Spain, which ranked seventh in 2016, has returned to growth, posting premium gains of 6% in 2016.
 The historic and cultural significance of fragrance in Spain should not be overlooked and now is an
interesting time to be pushing in the Spanish fragrance market, as consumers’ tastes are evolving with
newly returned economic confidence. Rather than traditional fresh scents, many Spanish consumers are
experimenting with more floral and oriental scents. Stepping into the oriental arena here, with the likes of
The Velvet Collection, would put D&G up against its now biggest competitor in beauty and personal care,
L'Oréal, with its top performing scent Lancôme La Vie Est Belle.
 China and Taiwan should also rank high on Shiseido’s priority list for building D&G fragrances, considering
that the brand has a negligible presence, whilst most of its major luxury designer competitors are present.
 These are both markets that Shiseido knows well, and understands the consumer and winning marketing
tactics. Considering both China and Taiwan’s penchant for designer fragrance brands, the brand could
penetrate if it uses sympathetic marketing. In the past, the D&G fashion house has come under scrutiny for
an insensitive fashion campaign “DG Loves China” that depicted models mixing with everyday locals, which
some Chinese consumers believed painted an unfavourable image of their country.
 LVMH’s Christian Dior is a huge stumbling block in China and Taiwan, but if successful in attack, the
potential prize could be huge, as in 2016 Christian Dior fragrances raked in USD79 million in China alone.

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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
OPERATIONS

Operational increase will support geographic expansion

 Shiseido’s increasing strategic focus on international expansion means that it is investing in restructuring
and new facilities to support a more carefully consumer-targeted portfolio that will meet local preferences
more effectively. The company’s new matrix organisation is segmented into six regional headquarters, and
gives regional centres the autonomy to make more decisions, capitalising on their local knowledge.
 As of 2017, Shiseido has launched four Centers of Excellence (CoE), occupying regions which have strong
influence in specific and expertise category areas. As it stands, the CoE for skin care resides in Japan, the
Americas for digital marketing and colour cosmetics, and Europe for fragrances.
Manufacturing
 The company currently has a production network of 13 plants across the global market: two sites in France,
three sites in China, three in Japan, three in the US, and one each in Taiwan and Vietnam. Shiseido has
said that it will proactively engage in initiatives that resolve social and environmental issues, particularly the
Sustainable Development Goals (SGDs) adopted by the United Nations.
 In addition, in 2016, the company expanded its Shiseido America site in New Jersey, in anticipation of the
growth in investment behind the Nars and bareMinerals brands. Shiseido has added a substantial R&D
facility, as well as nearly 1,300 sq m (14,000 sq ft) of office space and extra warehouse space.
Research and development
 Shiseido has nine research and development sites worldwide, in locations including Japan, France, the US,
Thailand and China, which employ around 1,000 R&D staff. Its Vision 2020 strategy will see this number
rise to 1,500 by 2020. The establishment of a new research centre, called the Global Innovation Center
(GIC) in Yokohama, is still on track to begin operating at the end of 2018. This centre will undertake
research from a local and global perspective, but all under one roof.

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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
RECOMMENDATIONS
Vision 2020 set to determine short-term growth
Focus on global gains…
 Shiseido has made global expansion a plank of its
Vision 2020 strategy. This involves more dedicated
product development, region-specific marketing
and a more global alignment for the core Shiseido
brand. However, current expansion plans appear to
omit Latin America, a dynamic market that may
merit exploration, whilst most recently, the
company expressed intentions to finally fully
develop operations in the Middle East. The Dolce &
Gabbana brand is prime pickings for penetration in
both these regions.
Rationalising brand portfolio
 Another key part of the Vision 2020 strategy is a
commitment to focusing on core brands, including
Shiseido, Nars and bareMinerals, that the company
believes will build brand equity and deliver long-
term growth. At the same time, it holds a large
number of weaker brands in its Asia Pacific
portfolio that have supported volume growth but
deliver less value advantage. Shedding some of
these, especially in Japan, may sharpen
competitiveness.
© Euromonitor International BEAUTY AND PERSONAL CARE: SHISEIDO CO LTD
…while rebuilding in China and Japan
 In the year ended December 2016, Shiseido
reported that its domestic market achieved target
for the second consecutive year, through capturing
demand from inbound tourists and focusing on
concentration for marketing investment. Whilst its
prestige brands thrived, its personal care business
struggled to stay afloat amongst heightened
competition. As Shiseido did in 2016 with its
sluggish Aupres brand in China, the same needs to
be done with the domestic personal care business;
re-branding, appealing visual merchandising and
strong story communication.
Responding to digital demands
 Shiseido must continue to hone the identity of its
brands, making both products and marketing
relevant to today’s digital native consumers.
Responding to distribution shifts is crucial, as well
as to how and where consumers are influenced
and research their purchases. Shiseido has
expressed its intention to raise the ratio of
ecommerce to over 20% of all sales by the end of
2020.
PASSPORT 41
FOR FURTHER INSIGHT PLEASE CONTACT
Hannah Symons
Beauty & Personal Care Analyst
Hannah.Symons@euromonitor.com
Twitter: HannahSymonsEMI
LinkedIn:/HannahSymons
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