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Shiseido cancels Dolce & Gabbana contract in cost-cutting move

Sales of high-end brand underperformed other cosmetics lines

Shiseido produces and sells Dolce & Gabbana's perfume and cosmetics around the world under a licensing agreement. 

TOKYO -- Japanese cosmetics maker Shiseido has terminated a product-licensing contract with Italian fashion house Dolce & Gabbana as part of a business restructure amid slumping sales due to the coronavirus pandemic.

The changes will go into effect at the end of the year, the company said in a statement on Wednesday. The move is expected to result in an extraordinary loss of roughly 35 billion yen ($321 million) for the financial year through December, including the impairment of trademark rights.

Shiseido manufactures and sells Dolce & Gabbana branded perfume and cosmetics globally under a paid licensing contract inked in 2016. The aim was to develop markets in Europe and the Americas.

But operations in Western markets have perennially bled red ink due to pricey cost structures and high levels of marketing investment. The pandemic worsened business conditions as more people work from home and avoid going out for entertainment.

Last year, Shiseido's sales of Dolce & Gabbana products sank 28%. The fallout exceeds the 17% decline by the company's Cle de Peau Beaute line and 12% downturn by the eponymous Shiseido brand.

Shiseido announced a three-year plan in February that involves exits from peripheral and noncompetitive businesses. The company decided to sell off its everyday necessities unit, including the Tsubaki hair care brand, to European equity firm CVC Capital Partners. The company plans to chart a path to growth next year, which will involve acquisitions.

The Dolce & Gabbana line has also been subjected to the chopping block. Shiseido is considering a proposition to continue producing and selling Dolce & Gabbana products for at least 12 months following the conclusion of the licensing deal. In France, the termination of the contract will be finalized with input from employees as legally required.

Shiseido projected in February that it will earn a consolidated net profit of 11.5 billion yen this year. The company will elaborate on the effect of the cancelation of the Dolce & Gabbana contract on its finances when it announces first quarter earnings on May 12.

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