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Shiseido ready to bounce back under leader from outside

A Shiseido beauty consultant uses a tablet computer to serve a customer.

TOKYO -- After a decade in the wilderness, Shiseido is aiming for a comeback.

     The Japanese cosmetics maker is overhauling its product lines and business structure. The company accounts for 20% of market share in Japan, only half of its peak. It now faces one of the toughest challenges since its founding in 1872.

Shiseido President Masahiko Uotani

     All eyes are on a barrage of reform efforts being spearheaded by President Masahiko Uotani. In April last year, Uotani became Shiseido's first president hailing from outside the group in its nearly 150-year history.  

    Uotani had served as president and chairman of Coca-Cola (Japan). Under his aggressive reform drive, Shiseido is looking to get out of its sluggish performance in the past few years.

     Tsubaki, Shiseido's hair care product line, was reintroduced in March after a complete makeover. Popular Japanese singer and actor Masaharu Fukuyama will wash the scalp and hair of a woman visiting a cottage by the sea in commercials for the product line.

     The Tsubaki line hit the market in 2006 and was a huge success. According to the cosmetics company, it "changed everything but the product name" for the revamp and released the new Tsubaki line six months ahead of the schedule.

Taking responsibility

The company has also begun assigning managers to each product line. These people are responsible for everything from product development to sales of a particular brand.

     In the past, the head office was in charge of product planning and development, while sales units were responsible for marketing products. "Our product development began with technology," said Uotani, "not with customers." Shiseido has also started managing earnings by product line, a common practice at many businesses.

     Yuka Yokota has been appointed as a senior brand manager of the company's core Elixir cosmetics line. "Initially, our discussions took time," she said. "But once decisions are made, we are implementing them faster."

Shiseido relaunched its core Elixir cosmetics line last fiscal year.

     After companywide discussions, Shiseido relaunched the Elixir line last October. Its sales recorded a growth of between 5% and 10% in the year ended March 31. 'I was surprised by the strong performance,' Yokota said

Listen to the market

To revamp the Elixir line, Shiseido took pains to listen to the counsel of retailers and other people on the frontline of sales.

   Conducting consumer surveys has long been used to reflect customers' demands in new product development. But this practice ignores the sales staff that actually deliver products to consumers. "After this, we changed the design of fonts and some other things," said Yokota.

     The changes appear to have cheered up the sales force. "Previously, Shiseido was slow to take action even if our sales representatives made proposals," said Hajime Endo, head of cosme next, an operator of cosmetic chains under market design company istyle. "Now, the company responds more quickly."

     Under its business strategy through fiscal 2020, announced last December, Shiseido aims to achieve an operating profit of more than 100 billion yen ($814.7 million) and a return on equity of over 12% for fiscal 2020. The company will increase sales promotion expense by 100 billion yen for three years starting from fiscal 2015.

     Even with huge advertising expenditures, cosmetics businesses can bring in fat profits, if branding helps expand sales. However, in the past 10 years, Shiseido's domestic sales fell by 100 billion yen. "Even though we managed to generate profits by cutting promotional costs, we continued to lose customers," said Chief Financial Officer Norio Tadakawa.

     To help fund its rising sales promotion budget, Shiseido will cut costs elsewhere. The company intends to save 60 billion yen over three years by reducing component costs.

Catching up

In fiscal 2014, which ended in March, Shiseido set up a team to revamp its Chinese operations. China is Shiseido's core overseas market. Disposal of unsold inventories at local department stores and other outlets has pushed down Shiseido's bottom line by 6 billion yen of late. But Uotani is trying to bolster Chinese operations, including online.

     A year has passed since Uotani launched his reform drive, and the attempt is starting to take shape. Shiseido's operating profit for fiscal 2014 stood at 27.6 billion yen, down 44% from a year earlier. The figure exceeded the company's forecast of 25 billion yen, thanks in part to growing Japan demand from foreign visitors and solid sales of new products released since January.

     With the company moving its fiscal year-end from March to December, direct comparisons against previous years cannot be made. But the company expects its operating profit for this nine-month fiscal year to be 28 billion yen, far below its record high of 63.5 billion yen for fiscal 2007. At this point, Shiseido's path to reform under Uotani has only just begun.

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