BEIJING -- Shiseido
Co. of Japan announced ambitious expansion plans for China, showing how the
world's cosmetics companies increasingly are relying on China for growth.
Shiseido, Japan's largest cosmetics company,
aims to open 200 stand-alone stores in Chinese cities over the next decade,
Ryuko Shioya, the company's head of public relations for Asia/Oceania, said in a
telephone interview. The goal will be to extend the brand's reach beyond the
biggest cities, where Shiseido sells through counters inside 360 department
stores.
"Because the Chinese economy is growing
so fast, we want to expand our China stores to spread our brand to smaller and
midsize cities," Ms. Shioya said.
The stores will sell skin-care and makeup
products under the Aupres brand, a line that Shiseido created for China in 1994.
The goods are manufactured at the company's joint-venture factory in Beijing.
The first stand-alone store opened near Beijing last week, and the second will
open in downtown Shanghai in May, Ms. Shioya said. The stores will be owned and
operated by Shiseido Liyuan Cosmetics Corp., a joint venture in which Shiseido
owns 65% and a cosmetics company owned by the Beijing city government holds the
rest.
The search for Chinese strategies is becoming
increasingly important. Sales of cosmetics and toiletries here reached $5.5
billion in 2002, according to market-research company Euromonitor PLC, with
skin-care products the main engine of growth. While China has more than 4,000
cosmetics manufacturers, foreign brands dominate, accounting for about half of
sales by volume but almost 90% of sales by value, according to Euromonitor.
Leading companies besides Shiseido include Procter & Gamble Co., Avon
Products Inc., Amway Corp., L'Oréal SA, and Unilever PLC.
For Shiseido, China is beginning to deliver
on its potential. The company estimates retail sales of its products during
fiscal 2003 ended March 31, reached $190 million, a 34% jump from a year
earlier. About half of those sales were in its best-selling Aupres line, whose
most expensive product is a face cream that sells for the equivalent of $31. The
remainder of its sales in China range from the company's cheaper, locally
produced lines to expensive imports under the Shiseido and Clé de Peau Beauté
brand names. The company, which says its Chinese operations are profitable, aims
to increase sales in the country to close to $940 million by 2008, about five
times the current level.
In setting up its own chain of stores,
Shiseido is moving beyond the traditional reliance of cosmetics companies in
China on department-store counters. It isn't the first, though; Avon has more
than 5,000 stand-alone stores around the country that are owned and operated by
individuals who pay Avon start-up fees and receive products and training in
return. - By LESLIE CHANG Staff Reporter of THE
WALL STREET JOURNAL March 23, 2004
'This exclusive, independent Shiseido
cosmetics chain store format has been fully developed in Japan, where it has an
80-year history,' says Mr Saito through an interpreter. He was in town to attend
yesterday's launch of Shiseido's new White Lucent line of advanced skin
whitening products.
Unlike places like Singapore, where cosmetic
brands are already saturated in department stores, the possibilities for a
different retail format in China are vast and will work well, he says.
That's because the ambience in a small store
setting helps build rapport between the trader and customer, and allows greater
opportunities for Shiseido customers to know its products.
'This is the type of business that is not
possible in a department store . . . it's a more energetic style of selling.'
In September, the first such speciality store
in China opened in Shanghai. The 110 sq m outlet will serve as a model for its
other chain stores.
'We want three stores by year-end, so two
more will open soon, maybe one in Beijing and another in Shanghai.'
The plan is to have 5,000 outlets in the
country by 2008.
Currently, sales from China - in which
Shiseido has had operations since 1981 - account for only 3 per cent of the
group's total turnover. This is small change, considering the kind of potential
that every starry-eyed business person has dreamt about in the land of over a
billion people.
In Shiseido's case, plans are afoot to
increase China sales fivefold, from the current 20 billion yen (S$316.3
million), to 100 billion yen by 2008.
'We really see China as having the most
potential in terms of growth by 2008,' emphasises Mr Saito.
This will go a long way in bolstering the
group's total turnover, of which 75 per cent comes from its lacklustre domestic
market.
Whereas Japan only registered a 2 per cent
growth in the last financial year ending March 31, revenue from China and Hong
Kong showed the fastest growth at 25 per cent.
And it is overseas sales like this that has
helped turn Shiseido's two years of losses around.
Dragged into the red due to high inventory,
stock recalls, operating expenses and investments in supply chain management and
point-of-sales (POS) computerisation systems, the group managed to successfully
implement a structural reform which resulted in a record 24.5 billion yen net
profit in FY 2003.
Shiseido's motto now, is 'sales front first'
- a back-to-basics focus on the storefront and its interface with the customer.
'So the key performance index is not the
sales number, but the achievement of customer satisfaction,' says Mr Saito. 'It
is not just about having products at the counter, but handing it over to the
customer and making her happy.'
Shiseido advocates omotenashi - which means a
spirit of hospitality in traditional Japanese style - throughout its operations
worldwide.
This is aided by its new computerised system
linking the 25,000 doors in Japan, which can yield a daily recap of sales -
compared to monthly in the past - so staff can troubleshoot and develop
solutions more quickly.
It also introduced state-of-the-art skin
analysis machines costing 700,000 yen a pop at its counters, and further
developed its members' clubs.
The world's fourth largest cosmetics company
(according to Women's Wear Daily estimates) is also in the midst of
consolidating its long list of brands.
Mr Saito, however, will not be drawn into
making any firm comments about its plans.
'Currently, we would like to strengthen our
Shiseido brand and make it really solid. As for growth in terms of buying or
selling of other brands, there are different timings for such decisions and we
have an open mind when it comes to brand reorganisation.'
The group's brands range from the luxury end,
Cle de Peau Beaute and prestige market Shiseido and Ipsa, mid-market Ettusais,
men's brand, Zirh and mass market Za, Whitia and Uno, to made-for-China only
labels like Aupres and Pure Mild China.
'I think the challenge here in Asia is for us
to be number one and keep it that way,' he says. 'As for the West, we have to
challenge them in the sense of competing against the Estee Lauder group in
America and L'Oreal group in Europe. But it's not a 'me too' mentality. We don't
want to be the same as them. We have technology and culture that is very much
our own. With our R&D strength, we've always provided the latest innovations
in our skincare products and consider ourselves a market leader. And we can be
proud of that.' - By Corrine
Kerk Singapore
Business Times 22 Nov 2003
