Shiseido targets acquisitions to expand focus beyond China


Shiseido will step up acquisitions of skincare brands to diversify its footprint beyond China following a radical restructuring of its assets during the Covid-19 crisis, its chief executive told the Financial Times.

Masahiko Uotani said in an interview that Japan’s biggest cosmetics group was preparing for a boost on the expected return of Chinese tourists to Japan by next summer. But he added that Shiseido would escalate acquisition efforts in the US and Europe, and was also ready to explore markets such as India and Africa once the pandemic was under control.

The company remains bullish that rising consumption and the growth of the middle class will continue to drive sales in China, its biggest market, where it generated 30 per cent of its revenue in the first six months of 2021.

Uotani said the resumption of Chinese tourism would buoy sales in Shiseido’s home market as he forecast the easing of border restrictions in the months following the Winter Olympics in Beijing in February.

But analysts have noted that the Japanese group’s heavy dependence on China posed a risk amid rising concerns about the impact of Beijing’s “common prosperity” drive and crackdown on the tech, education, gaming and property sectors, among others.

“We believe the longer-term potential is extremely high in China and we will firmly capture this opportunity,” Uotani said. “But as our dependence increases, there will be questions on contingency and portfolio management, so we want to strengthen our efforts even further in the US and Europe.” 

The diversification strategy comes as Uotani has declared the “near completion” of Shiseido’s restructuring spree, which followed a sharp fall-off in demand because of Covid lockdowns and travel curbs.

In August, Shiseido agreed a $700m sale of bareMinerals and two other US cosmetics brands to private equity firm Advent. It also offloaded its personal care business to CVC for $1.5bn in February.

The asset sales underpinned Uotani’s plan to focus on higher-margin skincare products, where Shiseido hopes to become a global leader by 2030.

“We are exploring mergers and acquisitions so that we can respond to every kind of skincare need,” Uotani said. He added that the group would expand investments in digital technology and data analysis in response to a growing consumer focus on wellness triggered by the pandemic.

After slimming down its product offerings, Shiseido expects to return to a net profit of ¥35.5bn ($310.5m) this year, after suffering losses of ¥11.7bn in 2020.

Historically, Shiseido has struggled to establish a presence in the US, underscored by its disappointing $1.9bn acquisition of Bare Escentuals, the New York-based natural make-up company, in 2010. It wrestled with integrating the brand and was forced to take a $623m writedown in 2017.

But the Japanese group plans to build on the success of cosmetics brand Nars and skincare line Drunk Elephant to expand its international footprint beyond Asia, where it generates more than 60 per cent of its revenue.

As part of those efforts, Uotani has aggressively hired local talent in the group’s target markets, and adopted English as the company’s official language in 2018.

“We now have a pretty solid line-up of local talent to address the markets in Europe, the Middle East, the US and Latin America,” Uotani said. “We had a short pause with corona, but once it’s over, which regions we are going to enter will become a critical strategy going forward.”