China Market, Global Brands, News

Shiseido Net Sales Down 9% in 2023 Due to Fukushima Nuclear Wastewater Release Incident

Shiseido released its financial report for 2023, revealing net sales of 973 billion yen, down 8.8% year-on-year. This marks the first time in three years that Shiseido’s net sales have fallen below 1 trillion yen. The Japanese market was the only market to experience growth for Shiseido in 2023.

Japan became the only growing market

In 2023, Shiseido’s net sales were ¥973 billion, down 8.8% year-on-year. Core operating profit was ¥39.8 billion, a decrease of 22.4% year-on-year. Net profit attributable to owners of the parent company was ¥21.7 billion, down 36.4% year-on-year.

Looking at the brands, Drunk Elephant saw a significant increase in sales of 77% in 2023, while NARS achieved a 12% growth. Clé de Peau Beauté experienced a 2% increase. However, IPSA witnessed a significant decline of 30% in 2023. Additionally, Shiseido’s fragrance saw a growth of 21%.

In terms of regional markets, the net sales in the Japanese market for 2023 amounted to ¥259.9 billion, marking a 9.4% year-on-year increase. This makes it the only market to experience growth in 2023 for Shiseido. Additionally, Japan once again surpassed the Chinese market, reclaiming its position as Shiseido’s largest market.

Shiseido highlighted its success in introducing innovative new products and ramping up marketing efforts across various brands, capitalizing on the rebound in consumer demand following the relaxation of COVID-19 restrictions. This resulted in significant growth for Clé de Peau Beauté and SHISEIDO, driven by an expanding base of loyal customers. ELIXIR also maintained steady performance, supported by the relaunch of anti-wrinkle cream and the introduction of an anti-aging cream aimed at enhancing skin firmness through advanced dermatological research and technology. Additionally, Shiseido benefited from the gradual recovery in tourism, with an increase in foreign visitors to Japan.

In 2023, net sales in the Chinese market amounted to 247.9 billion yen, down 4% year-on-year, accounting for 25.5% of Shiseido’s total sales and ranking as the company’s second-largest market. Shiseido attributed the decline in the Chinese market primarily to the discharge of nuclear-contaminated water by the Japanese government.

Shiseido stated that in China, they are transitioning from a growth strategy heavily reliant on extensive promotions to a more sustainable approach emphasizing value-based brand and product communication tailored to consumer preferences. Despite SHISEIDO and Clé de Peau Beauté driving growth in the first half of the year, this growth was overshadowed by reduced consumer spending on Japanese products due to concerns over Japan’s treated water release and weakening confidence in China’s economy, leading to a decline in net sales compared to the previous year. During the “Double 11” e-commerce event, their online sales were notably impacted by these factors, performing below the overall market, which also experienced a sales decline from the prior year.

Additionally, outside of China and Japan, the net sales in the Asia-Pacific region in 2023 amounted to 672.83 billion yen, a slight decrease of 1.1% year-on-year. The Americas market experienced the largest decline, plummeting by 20%, while the EMEA market saw a decrease of 8.9%. Sales through travel retail channels dropped significantly by 19% due to the effects of retailer inventory adjustments in response to stricter regulations in South Korea and Hainan Island, China. Additionally, there was a trend among retailers to revert to a business model that prioritizes catering to tourists.

The short-term impact of nuclear wastewater is difficult to mitigate

In 2023, the overall Japanese cosmetics industry faced challenges, primarily due to the irresponsible actions of the Japanese government and the wastewater discharge incident. The underperformance of Shiseido had been anticipated as early as the 2023 Double 11 shopping festival.

During the Tmall platform’s major promotion period from October 24th to November 11th, the Japanese and Korean cosmetics markets experienced a downturn. None of the top 10 brands in the beauty category included any Japanese or Korean brands.

The societal impact of Japan’s nuclear wastewater discharge incident also sparked a wave of resistance against products originating from Japan and Japanese brands. Many Japanese cosmetics brands suffered significant setbacks as a result. Data from QY Research showed that on the first day of Tmall’s Singles’ Day pre-sale, the gross merchandise volume (GMV) of the top 10 Japanese cosmetics brands, including Shiseido, CPB, SK-II, DECORTE, and Curél, all declined, with 8 brands experiencing a decline of over 50%.

SK-II’s performance in the last quarter of 2023 was particularly poor. During Procter & Gamble’s fiscal year 2024 second-quarter earnings conference call, the CFO mentioned that SK-II’s sales in the Greater China region plummeted by 34% in the October to December period of the previous year, resulting in a mere 1% increase in its beauty business sales.

In fact, in addition to sales figures, Chinese brands have also surpassed the growth rate of leading Japanese cosmetics company Shiseido in the Chinese market. From 2020 to 2022, Shiseido’s sales in China were 235.8 billion yen, 274.7 billion yen, and 258.2 billion yen, respectively, with a compound annual growth rate of 4.64%. Meanwhile, during the same period, Pechoin, which surpassed Shanghai Jahwa to become China’s number one in the third quarter of last year, reported revenues of 3.752 billion yuan, 4.633 billion yuan, and 6.385 billion yuan, respectively, with a compound annual growth rate of 30.45%. It is evident that in the Chinese market, Pechoin’s sales growth over the past three years has far exceeded that of Shiseido.

Additionally, in the financial report of another Japanese consumer goods giant, Kao Corporation, its cosmetics business also experienced a decline. In 2023, Kao Group’s sales amounted to 1.5326 trillion yen, a decrease of 1.2% compared to the previous year, with operating profit at 60 billion yen, down by 45.5% year-on-year. The net profit attributable to the parent company was 43.9 billion yen, a decrease of 49.0% compared to the previous year.

In 2023, the sales of its cosmetics business decreased by 5.1% from the previous fiscal year to 238.6 billion yen, with sales volume declining by 7.3%.

In China, sales experienced a significant decline primarily because key opinion leaders voluntarily reduced their activities, sales promotion efforts were restricted, and other factors related to local backlash against Japan’s discharge of ALPS-treated water from the Fukushima Daiichi Nuclear Power Station. However, in the European market, despite its weakness, sales saw an increase attributed to the consistent performance of new products from Molton Brown and successful promotional campaigns for both new and existing products from the SENSAI brand.

Operating income decreased by 19.5 billion yen compared to the previous fiscal year, reaching a negative value of 5.4 billion yen, mainly due to the recording of 10.7 billion yen for provisions related to product returns, disposal of raw materials, and other expenses associated with structural reforms. Core operating income amounted to 5.3 billion yen, marking a decrease of 8.8 billion yen compared to the previous year.

Overall, it appears that Japanese cosmetics companies, including Shiseido, will continue to be affected in the short term due to the nuclear wastewater incident, and this impact may even persist in the long term due to the rise of Chinese brands.

Expanding into the North American and Indian markets

As a representative of a Japanese beauty and cosmetics firm, Shiseido has initiated plans to pivot its attention towards the North American market.

In October 2019, Shiseido purchased the American brand Drunk Elephant for $845 million. Shiseido stated in a press release that “Drunk Elephant will be able to leverage Shiseido’s global platform and resources to expand into new and existing markets both in the Americas and internationally including Europe and Asia.”

Ron Gee, president, and CEO, of Shiseido Americas, and global leader, of M&A for Shiseido, stated, “Today, the Americas region continues to be dynamic, resilient, and most of all, a compelling opportunity for growth.”

Furthermore, Shiseido has ventured into the Indian market. In mid-October last year, Shiseido introduced its first cosmetics brand in nearly a decade by bringing the popular NARS cosmetics line to local beauty stores in India. Then, on October 18th, the Shiseido Group announced the opening of its first standalone India boutique store in Mumbai, India, and appointed Indian Bollywood actress Tamannaah Bhatia as the inaugural brand ambassador for Shiseido’s skincare range in India.

At the end of last December, Shiseido announced the acquisition of the American dermatologist-led skincare brand, Dr. Dennis Gross Skincare, for $4.5 billion, according to reports from Kyodo News. The Japanese beauty brand saw this acquisition as a strategic step to enhance its core prestige skincare portfolio, which encompasses Shiseido and the Clé de Peau Beauté brand.

Simultaneously, Shiseido stated that this acquisition would drive growth and profitability in key markets in the Americas.

Shiseido asserted that acquiring a high-growth, profit-enhancing skincare brand would facilitate the sustained expansion of its operations in the Americas, a region of strategic importance for the company. This move enables Shiseido to diversify its geographic footprint while addressing imbalances in revenue sources. The Americas accounted for 11.3% of Shiseido’s global sales in the first nine months of 2023.

With Shiseido encountering performance bottlenecks in Asia, the company has begun shifting its focus gradually toward the Americas and the Indian market.

In addition, Shiseido underwent a series of reforms in 2023, starting with enhancing brand assets. Shiseido’s emphasis on enhancing brand equity involves not only global brands like “SHISEIDO” and “Clé de Peau Beauté” but also the expansion of Asian brands such as “ELIXIR,” perfume lines, men’s grooming brands, and the strategic development of new brands. Moreover, on December 6th of this year, Shiseido inaugurated the Global Brands Value Development Center and Global Product Value Development Center under the Brand Value Research Institute. This move underscores the company’s commitment to establishing a sustainable and robust development framework aimed at creating products with substantial brand value.

Regarding ongoing investments in innovation, Shiseido announced in May of the previous year its strategic focus on “Clean & Dermatology” and “Inner Beauty” as the next areas for growth.

With a specific emphasis on “Inner Beauty”, Shiseido unveiled plans in September of this year to venture into the wellness industry through the launch of its new brand, SHISEIDO BEAUTY WELLNESS (“SBW”), scheduled for February 2024. This brand is designed to support individuals in achieving their unique beauty and wellness objectives. SBW is collaborating with TSUMURA & CO. and Kagome Co., Ltd. for joint research and development of its products, initially distributing them in Japan. Expansion into the Asian market, including China, is planned for 2025.

In the face of declining performance, Shiseido has been continuously reforming its corporate strategy, both in terms of its business operations and organizational structure. However, whether these reforms can regain the trust of Chinese consumers, who have lost faith in Japanese cosmetics due to the nuclear wastewater incident, remains to be seen.