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Sales Decreases Cause Reorganization for Shiseido

Posted: January 31, 2013

Shiseido announced its financial results for the first three quarters ended December 31, 2012. Overall, net sales decreased 1.2% to ¥484.8 billion (compared to the same period in 2011’s ¥490.7 billion), and net income was down 21% at ¥4.56 billion.

The domestic cosmetics business segment reported a 3.2% decline in sale, to ¥252.1 billion. This was mainly because, in the first two quarters, sales fell below the previous corresponding period, when shipments reached a high level in the aftermath of the Great East Japan Earthquake. The global business segment recorded a 4.5% year-on-year increase in sale in local currency terms. Despite solid performances by global brand Shiseido and the Nars makeup artist brands, as well as the fragrance business in Europe, sales were affected by weak demand in China, due to restrained purchasing attitudes toward Japanese products. After translation into yen, sales of the global business segment edged up to 0.8% to ¥225.6 billion. Sales in the others segment climbed 9.9% to ¥7.1 billion, owing mainly to sales growth in the frontier sciences business and higher revenue generated by Shiseido Parlor.

In light of its performance in the three-quarter period under review and overseas sales trends in the fourth quarter, as well as its plant to book an extraordinary loss of around ¥6 billion in the fourth quarter related to the reorganization of its product and R&D bases, Shiseido has revised its consolidated forecasts for the fiscal year ending March 31, 2013. Previously, net sales were set for ¥700 billion but have been revised to ¥680 billion, while net income was set at ¥40 billion and is now ¥10.5 billion.

As to its reorganization plans, in its current three-year plan, Shiseido has endeavored to achieve rapid sales growth and secure profits by making leading investments based on theme of “getting into the growth trajectory.” However, after the worldwide economic slowdown and the changes in China’s business environment, investments are unlikely to product favorable returns. In view of these circumstances, the company has changed its policy to create a significantly profitable structure in which it can steadily increase profits by achieve sales growth at the same rate as its market growth. To develop this robust business structure, Shiseido will carry out a business structural reform by overhauling its organization, infrastructure and operations.

This structural reform will consist of three programs. The first one is to reorganize production and R&D bases, the second to strengthen management of human resources and personnel costs, and the third is to integrate functions on a global scale. In the plan to reorganize production and R&D bases, it will take steps to reforms its global supply chain in an effort minimize the impact of foreign exchange factors amid its increasing share of overseas sales, which are mainly in Asia, and to reduce cost of goods sold and enhance its value creation.

In the plan to strengthen management of human resources and personnel costs, Shiseido will revise its early retirement incentive plan and abolish paid leave prior to voluntary resignation for the preparation for a career change. In the plan to integrate functions on a global scale, it will building on its progress with operational integration in North America by expanding this strategy to other regions.

At its meeting held on January 31, 2013, the board resolves to shut down the Kamakura factory and the Shiseido Research Center (Kanazawahakkei). Products currently manufactured at the Kamakura factory, which will discontinue production in December 2014 and close down in March 2015, will be transferred to the Kakegawa, Osaka and Vietnam factories. Upon the closure of the Shiseido Research Center (Kanazawahakkei), the company’s basic research and product development research functions will be concentrated at the Shiseido Research Center (Shin-Yokohama). The transfer to Shin-Yokohama will begin in May 2013, and the Kanazawahakkei will be shut down in September 2013.

More information on this reorganization plan is available here.

And learn more about Shiseido’s latest financial results by clicking here.