Recently, Shiseido announced the acquisition of the American dermatologist-led, science-based prestige skincare brand Dr. Dennis Gross Skincare. According to reports from Kyodo News, this Japanese beauty giant views the acquisition as a move to strengthen its core prestige skincare business, which includes Shiseido and the Clé de Peau Beauté brand. With its performance hitting a plateau in recent years, Shiseido has embarked on various reforms this year, including restructuring the company and its business models, to reverse its downturn.
The sales for 2023 are expected to exceed $300 million
Dr. Dennis Gross Skincare is renowned for its innovative and effective skincare solutions. Founded by former skin cancer researcher and practicing dermatologist Dr. Dennis Gross and his wife Carrie Gross, the brand combines scientific formulations with advanced technology to create a range of skincare products. It’s acclaimed for its highly regarded Alpha Beta Universal Daily Peel and the frequently seen DRx SpectraLite FaceWare Pro LED mask on celebrity social media platforms.
The brand is renowned for its professional-grade treatments and at-home solutions, focusing on addressing various skincare concerns including anti-aging, acne, discoloration, and overall skin health. Dr. Dennis Gross Skincare is committed to delivering high-quality ingredients and clinically proven results, offering a diverse range of products from everyday essentials like cleansers and moisturizers to specialized skincare items such as exfoliants and serums, catering to a variety of skincare needs.
Experiencing double-digit growth annually, the brand reached a revenue of $100 million in 2020. In the same year, Dr. Dennis Gross Skincare received a minority investment from private equity firm Main Post, which also invests in beauty brands like Too Faced and Milk Makeup. Main Post’s investment is projected to double the sales within three years through digital marketing initiatives and international expansion. By 2023, it has been reported that Dr. Dennis Gross Skincare has surpassed $300 million in sales for the year.
When the product initially launched, Carrie emphasized its medicinal roots and named it “MD Skincare.” Regarding marketing, Carrie focused on professional channels, targeting salons and estheticians. As the product gained popularity, retailers like Sephora and Nordstrom requested increased stock.
A year and a half later, Carrie and Dr. Gross decided to abandon the generic branding and pivot to Dr. Dennis Gross as the primary name. The revamped design retained the concept of medical-grade skincare. Following the rebranding, Dr. Dennis Gross Skincare introduced its first and most successful product, the Alpha Beta Peel. This peel aims to reduce fine lines, wrinkles, and dark spots, and minimize pores with an exfoliating mask. Subsequently, Dr. Dennis Gross Skincare continued expanding its product portfolio, launching new items such as mask devices and skincare products focused on SPF and vitamin C + lactic acid.
Masahiko Uotani, Chairman and CEO of Shiseido, said, “This transaction is well-aligned with Shiseido’s 2030 goal of becoming a personal beauty wellness company that supports people in realizing unique beauty and wellness throughout their lives. Dr. Dennis Gross Skincare is the perfect complement to our global portfolio of prestige brands as their core values are aligned with ours in terms of their scientific and innovative approach to beauty and our people-first culture. We are thrilled to welcome the Dr. Dennis Gross Skincare team to the Shiseido family, and I am confident Dr. Dennis Gross Skincare will accelerate our growth in the Americas, a region that has experienced strong business performance, thanks to our portfolio of exceptional brands.”
Dr. Gross, Co-Founder of Dr. Dennis Gross Skincare and Chief Science Officer, and Carrie Gross, Co-Founder and Chief Executive Officer said, “We launched Dr. Dennis Gross Skincare in 2000 with the mission of making a difference in the lives of all people everywhere by helping them achieve healthier skin. ”
“With its long and rich heritage blending beauty with science, Shiseido is the ideal home for Dr. Dennis Gross Skincare, and we look forward to partnering with the Shiseido team as we continue developing innovative products and skincare solutions that deliver visible results.” Dr. Gross added.
Creating synergistic effects with Shiseido to drive global business growth
Shiseido has stated that this acquisition will bring three key benefits to the company, further propelling its growth.
Firstly, it will add a highly complementary brand to its existing portfolio.
Shiseido states that the company expects to see a growing interest in health and beauty as consumers increase their awareness of “skin health.” As a derma cosmetics, doctor-led brand Dr. Dennis Gross Skincare strengthens the company’s position in a rapidly growing skincare segment. By tapping the great potential of the growing market in the U.S. with its unique positioning coupled with a complementary fit with Shiseido’s prestige portfolio, this will be a strategic addition to Shiseido along with the company’s prestige beauty brands SHISEIDO and Clé de Peau Beauté.
Shiseido has consistently regarded Prestige brands as one of its paramount growth strategies. As early as 2015, Shiseido introduced its mid-to-long-term strategy called “VISION 2020,” aiming to ensure the company’s vitality for the next 100 years. Shiseido stated that as part of its “Prestige First strategy,” the company prioritizes investments in high-priced skincare, cosmetics, and perfumes. The strategy involves selecting and focusing on the global prestige product sector while strengthening its product portfolio. The acquisition of Dr. Dennis Gross Skincare aligns with Shiseido’s continuation of this strategic approach.
Secondly, Shiseido stated that this acquisition would “drive growth and profitability in a critical market in the Americas business”.
Shiseido mentioned that acquiring a high-growth, profit-enhancing skincare brand would contribute to the ongoing expansion of its Americas operations. The Americas market holds significant strategic importance for Shiseido. This move aims to diversify Shiseido’s geographical footprint and address the issue of income imbalance. The Americas region accounted for 11.3% of Shiseido’s global sales in the first nine months of 2023.
Facing a stagnation in performance within the Asian market, Shiseido has gradually shifted its focus towards the Americas.
In October 2019, Shiseido acquired the U.S. brand Drunk Elephant for $845 million. Shiseido said 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.”
“As a key strategic priority for Shiseido, we will continue to focus our energies on the Americas region, particularly among our marketing, commercial, and digital functions.”Ron Gee added.
Lastly, Shiseido states that this acquisition will create synergistic effects with Shiseido’s strengths, bolstering innovation and driving global business growth. The philosophy of the Dr. Dennis Gross Skincare brand is rooted in research, dermatology, and technology, aligning well with Shiseido’s rich heritage in skincare, global platform, and research and development capabilities. This, in turn, will support Dr. Dennis Gross Skincare in accelerating its growth in the next phase. Shiseido asserts its commitment to working together to seize opportunities in the rapidly growing global doctor-led skincare market.
On February 10th this year, Shiseido unveiled its mid-term strategy “SHIFT 2025 and Beyond,” where the group considers “Clean & Dermatology” and “Inner Beauty” as the new growth pillars for the next phase. The acquisition of Dr. Dennis Gross Skincare aligns seamlessly with its overall mid-term strategy.
Continuously deepening internal reforms to turn the tide
Since the beginning of this year, Shiseido’s performance has been consistently lackluster, particularly in the Chinese market.
In the first three quarters of this year, Shiseido’s net sales amounted to 722.4 billion yen, marking a 5.3% year-on-year decline. Core operating profit reached 36.825 billion yen, a slight increase of 1.6% compared to the previous period. However, its net profit attributable to shareholders plummeted by 29.4%, totaling 20.517 billion yen.
Zooming in on the third quarter, Shiseido’s net sales were 228.2 billion yen, experiencing a significant decrease of 15.3% year-on-year. Core operating profit dropped sharply to 8 billion yen, marking a staggering 53% decline.
Specifically focusing on the Chinese market, sales in the third quarter witnessed a 9% decline. China is no longer Shiseido’s largest market. Shiseido indicated that its business in China, as well as duty-free store operations, remained weak due to retail partners clearing inventory. Furthermore, following the nuclear wastewater incident at the end of August, Chinese consumers have reduced their purchases of Japanese beauty products.
To reverse the downward trend, Shiseido initiated several significant strategies and continually deepened internal reforms starting in February this year.
Regarding the company’s overall strategy, in February of this year, Shiseido announced the commencement of a mid-term strategy, “SHIFT 2025 and Beyond,” spanning from 2023 to 2025. Over the next three years, the company, under a new management structure shifted itself from “Defense” to “Offense” and ensured further growth. Shiseido emphasized that to achieve long-term growth, the company is strengthening investments in three priority areas: brand, innovation, and people, and plans to achieve our core operating margin of 12% by 2025 and 15% in the plan’s final year of 2027.
Centered around this mid-term strategy for sustainable growth, Shiseido will primarily focus on Enhance Brand Equity, Continuously Invest in Innovation, and Strengthen Global Talent and Leadership.
Centered around these three objectives, Shiseido has undertaken a series of reforms and investments this year.
Firstly, concerning the Enhance Brand Equity, Shiseido mentioned a focus not only on global brands like “SHISEIDO” and “Clé de Peau Beauté” but also on expanding Asian brands such as ‘ELIXIR,’ perfume brands, men’s grooming brands, and strategically developing new brands. Additionally, on December 6th this year, Shiseido established the Global Brands Value Development Center and Global Product Value Development Center within the Brand Value Research Institute. The announcement highlights that the establishment of these two major centers aims to build a sustainable and robust development structure, creating products with significant brand value. The acquisition of the prestige dermatology skincare brand, Dr. Dennis Gross Skincare, also stands as a significant step in enhancing brand equity.
In terms of Continuously Invest in Innovation, in May of this year, Shiseido announced that the group views “Clean & Dermatology” and “Inner Beauty” as the next growth areas.
Specifically focusing on “Inner Beauty”, in September of this year, Shiseido announced the initiation of its Inner Beauty Business as an initial move into the wellness industry by introducing its fresh brand, SHISEIDO BEAUTY WELLNESS (“SBW”) in February 2024. This brand is dedicated to assisting individuals in seeking their unique beauty and wellness goals. SBW collaborates with TSUMURA & CO. and Kagome Co., Ltd. for joint research and development of its products, initially distributing them across Japan. Starting in 2025, SBW is set to expand into the Asian market, including China.
On December 8th, Shiseido announced the establishment of Shiseido Long Term Investments for the Future (LIFT) Ventures, a newly formed limited liability company, which will be a vehicle for investing in innovative early-stage companies within the beauty wellness space. LIFT Ventures concentrates on investing in new technologies, innovative platforms, burgeoning brands, and fresh business models, among various other focuses. Establishing this specific fund aligns with Shiseido’s ambition to evolve into a company dedicated to personal beauty and wellness. At the same time, the newly formed company revealed its initial investments through the fund in Phi Therapeutics, Inc., a trailblazer in bacteriophage technology, and Patrick Kidd Holdings Pty Ltd, a men’s grooming brand embodying a refined lifestyle approach.
As for the talent, on November 30, 2023, Shiseido unveiled the Shiseido Future University in Ginza, the company’s birthplace. This new facility is dedicated to grooming future leaders for Shiseido. Masahiko Uotani, Chairman and CEO of Shiseido, will serve as the founding dean.
Shiseido stated that driven by the “PEOPLE FIRST” philosophy, the company has amplified its focus on investing in human resources, emphasizing the belief that individuals are a company’s most crucial asset, contributing to its overall corporate value. As a company with a diverse global workforce dedicated to generating value, Shiseido has undertaken diverse talent development efforts. These include implementing a job-grade-based HR system, accelerating globalization efforts, championing diversity, equity, and inclusion (DE&I) within talent initiatives, and conducting training programs aimed at boosting individual capabilities.
Furthermore, Shiseido has made adjustments to its corporate organizational structure. Starting next year, Shiseido will establish the Value Creation Strategy Division and Corporate Governance Department. Additionally, it will inaugurate the Global Brands Value Development Center and Global Product Value Development Center within the Brand Value Research Institute. Moreover, Shiseido will rename the D&I Strategy Acceleration Department to the DE&I Strategy Acceleration Department.
Faced with a downturn in performance, Shiseido has been continually reforming itself throughout this year, both in its operations and organizational structure. However, the extent to which these reforms, given the trust deficit among Chinese consumers due to the nuclear wastewater incident, will successfully regain the trust of Chinese consumers remains to be seen.
