Image source: Visual China
Blue Whale News, July 6 (Reporter Wang Hanyi) In just one week, a number of "big events" have occurred in Shiseido Group. First, the company divested its global personal care business, then discontinued its high-end skincare brand BAUM in China, and then established a fragrance business partnership with Max Mara, obtaining exclusive global authorization for the development, production, promotion and distribution of fragrance products.
In the context of slowing growth in the beauty industry, Shiseido is quietly adjusting its strategy and optimizing its brand portfolio to accelerate its response to changes in the market.
Image source: Screenshot from the official websites of Tmall and Shiseido
Divestment of personal care business
Recently, Shiseido Group announced that it has reached an agreement with CVC Capital Partners (CVC), a private equity firm, to transfer all of its shares in FineToday Holdings Co., Ltd. (FineToday Group) to CVC. The transaction closes on June 30, 2024, marking the complete exit of the Shiseido Group's personal care business, which has been in place since 1959.
The FineToday Group manages the Shiseido Group's personal care brands, including 10 brands, including FINNO, KUYURA, SUPER MiLD, and TSUBAKI.
As early as 2021, Shiseido Group decided to sell its personal care business and reached a preliminary agreement with CVC for 160 billion yen (about 9.8 billion yuan). Subsequently, the Shiseido Group restructured its personal care business and established Fine Today Shiseido (later renamed FineToday) in a joint venture with CVC.
In May 2024, FineToday Group announced plans to list in Tokyo, with a target valuation of $2 billion to $3 billion. In the announcement, Shiseido Group mentioned that in view of the steady expansion of the FineToday Group's business and the effective management structure, "we believe that our original purpose has been achieved, and we have decided to transfer the ownership of the shares of the FineToday Group to CVC." ”
In fact, the Shiseido Group did not abandon its personal care business because of poor performance. During the pandemic in 2020, the personal care business was the only division of the Shiseido Group to achieve positive growth, with an increase of 3%, accounting for 12% of total revenue. By the end of 2021, China had overtaken Japan as its largest market in the world. According to the analysis of industry insiders, the main reason is that Shiseido Group should focus on its core business and take the road of high-end.
The Shiseido Group's premiumization strategy began with Vision 2020 in 2015 and established a strategy to prioritize high-end brands. From 2015 to 2017, the proportion of high-end beauty sales increased to 42%. From 2018 to 2020, the Shiseido Group acquired high-end brands while divesting non-core businesses. During the "WIN 2023" strategy, the proportion of high-end beauty sales will further increase to 61%.
At present, Shiseido Group is implementing the "SHIFT 2025 and Beyond" strategy, continuing to increase its focus on the high-end market, demonstrating its continued commitment to the high-end strategy.
In addition, the Shiseido Group has set a long-term goal for 2030 with sales of 2 trillion yen and an operating profit margin of 18%. Compared to 2023's sales of 973 billion yen and an operating profit margin of 4.1%, this requires significant growth in sales and operating profit over the next seven years.
From the perspective of the global consumer market, the phenomenon of consumption grading is obvious, and the growth of low-end and high-end demand is accelerating. In this regard, Bai Yunhu, a management expert in the cosmetics industry, told the Blue Whale News reporter: "The low-end means the productized market that just needs the market, the sinking market, and the cost-effective market; High-end, which represents value-added demand, focuses on brand, quality and experience. From the perspective of these two demand directions, the 'return on investment' of the low-end market is not as good as that of the high-end market. Therefore, for a global leading company like Shiseido, it is a better investment strategy to divest some low-end demand category markets and focus on high-end demand markets. ”
Of course, this is not to say that Shiseido will not get involved in the field of personal care; It is only a strategic adjustment to the existing low-end personal care brands. From the perspective of focusing on the high-end market, Shiseido should have the willingness to invest in high-end personal care and other brands on the track of blessing perfume fragrance. Bai Yunhu added.
In other words, the development of high-end brands will help Shiseido Group avoid fierce competition with mass brands in the Chinese market and take advantage of the dominance of foreign brands in the high-end market to find opportunities.
Focus on the core high-end
In the decision to close the store of BAUM, a subtle change in Shiseido's corporate strategy can also be perceived.
Previously considered to complement the Shiseido Group's mid-to-high-end brands, BAUM's product line includes facials, hand care and fragrances, with prices ranging from 240 to 890 yuan. However, in Shiseido's brand portfolio, BAUM's response in the Chinese market is not as good as that of core brands such as "Shiseido", "CPB", and "NARS". The sales volume of its Tmall flagship store, except for the slightly higher sales of hand cream and essential oils, the sales of other products are generally low, and there is a large gap with the core brand products with sales of more than 10,000.
In recent years, BAUM's main natural skincare concept has faced fierce competition. With the rise of Clean Beauty, many domestic and foreign brands have entered the game, such as Hua Hui Ko, Xi Muyuan, etc. According to the 2023 Clean Beauty Trend Report, the compound growth rate of Tmall's clean beauty market from 2021 to 2024 will reach 18%.
After spotting BAUM's underwhelming performance, Shiseido turned to support its sister brand, Drunk Elephant. Drunken Elephant is an American brand acquired by Shiseido in 2019, which is more popular among young people for its avant-garde design and colors. In April this year, Shiseido introduced Drunken Elephant to the Chinese market, opened a Tmall flagship store, and plans to cover 300 stores in Sephora by the end of 2024.
While introducing mature brands and withdrawing from inefficient brands, Shiseido's adjustment strategy reflects its tilt in resource allocation. In addition to closing, another option for the brand portfolio is to join forces with luxury brands. On July 4, Shiseido Group and Italian luxury fashion brand Max Mara established a long-term perfume business cooperation.
Prior to the licensing of Max Mara, the Shiseido Group already owned fragrance brands such as ISSEY MIYAKE, Serge Lutens, and Narciso Rodriguez. According to the financial report for the first quarter of 2024, the overall sales of the Shiseido Group increased by 3% year-on-year, of which the fragrance business increased by 21%, which became an important driving force for performance growth along with the Key to the Skin (CPB) and Drunk Elephant (Drunk Elephant).
Globally, China is one of the few perfume markets with huge growth potential. According to a 2022 report by the Boston Consulting Group, the penetration rate of China's perfume market is only about 5%, far lower than the 42% in Europe and 50% in the United States. In its financial report for the first quarter of fiscal 2024, the Shiseido Group disclosed that the fragrance business achieved a significant growth of 21%. The global perfume market has continued to grow in recent years, and in Europe, perfume has become the focus and growth point of Shiseido's business
It is worth noting that the growth of the perfume market is not unique to Shiseido. The Estée Lauder Companies' Le Labo doubled sales in the Asia-Pacific region, and LVMH's Fragrances & Cosmetics division posted organic growth of 7%. From Kering's acquisition of CREED, to Estée Lauder's perfume studio in Paris, to LVMH's relaunch of the Fendi fragrance line, perfume has become a new growth point for the beauty industry.
According to Euromonitor data, the global perfume market size is between 57 billion and 61 billion US dollars, and the Chinese perfume market is expected to reach 30 billion yuan in 2025, with a growth rate three times that of the world. According to the 2023 Perfume Fragrance Consumer Insights White Paper, 72% of consumers believe that perfume helps relieve stress, and consumer education for high-end fragrances is accelerating globally.
Luigi Maramotti, Chairman of the Max Mara Group, said: "It is a great opportunity for Max Mara to have such a visionary collaboration with Shiseido on the perfume business. ”
Masahiko Uotani, Chairman and CEO of the Shiseido Group, said, "I am confident that this partnership will not only enable the further growth of our fragrance business, but also create more value through synergies. ”
According to Alberto Noé, President and CEO of Shiseido EMEA, the partnership agreement will help Shiseido strengthen its fragrance brand portfolio and drive new opportunities for growth globally.
Judging from Shiseido's latest financial report, in the short term, the effect of strategic layout adjustment has not yet appeared. According to the financial report data, in the first quarter of 2024, Shiseido's sales were 249.5 billion yen, a year-on-year increase of 3.9%, with a loss of 3.3 billion yen. In 2023, Shiseido Group's full-year net sales will be 973 billion yen, down 8.8% year-on-year; Operating profit was 28.1 billion yen, down 39.6% from the same period in 2022.