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Shiseido Company, Limited

Shiseido Company, Limited

7-5-5, Ginza
Chuo-ku
Tokyo, 104-0061
Japan
Telephone: (+81-3) 3572-5111
Fax: (+81-3) 3289-1235
Web site: http://www.shiseido.co.jp/e

Public Company
Founded:
1872 as Shiseido Pharmacy
Incorporated: 1927
Employees: 25,781
Sales: ¥670.96 billion ($5.71 billion) (2006)
Stock Exchanges: Tokyo Over the Counter (OTC)
Ticker Symbol: SSDOY (ADRs)
NAIC: 325620 Toilet Preparation Manufacturing; 446120 Cosmetics, Beauty Supplies, and Perfume Stores; 812112 Beauty Salons

Shiseido Company, Limited is the leading cosmetics company in Japan and the fourth-largest in the world. At home and in more than 60 countries abroad, Shiseido (pronounced "she-say-doe") offers a variety of makeup, skin-care, hair-care, body-care, sun-care, and fragrance products. In Japan and selected foreign countries, the company markets additional products, including toiletries, health and beauty foodstuffs, pharmaceuticals, and fine chemicals. In addition to the flagship Shiseido brand, the company markets products under a number of other brands, including Aqua Label, Bénéfique, d'ici là, Elixir Superieur, Integrate, IPSA, Maquillage, Tsubaki, and Uno. Shiseido has built a network of some 25,000 franchised cosmetics retail outlets in Japan, both standalone and within department stores and supermarkets; additional retails outlets are located overseas, particularly in China. Going beyond company-controlled outlets, Shiseido products are distributed through approximately 83,000 stores in Japan and about 39,000 overseas. The company also runs various salons, upscale boutiques, and restaurants. Of Shiseido's sales, about 79 percent come from its cosmetics division; about 9 percent from its toiletries division, which is comprised of soaps, hair-care products, mass-market cosmetics, and fine toiletries; and the remaining 11 percent from a catch-all "others" division which includes beauty salon products, health and beauty foods, pharmaceuticals, fashion goods, and fine chemicals. Increasingly global in its emphasis, Shiseido now derives nearly 30 percent of its sales from outside of Japan. The company's various products are manufactured at eight plants in Japan and a dozen abroad.

BEGINNINGS AS WESTERN-STYLE PHARMACY

In 1872 Yushin Fukuhara, former head pharmacist for the Japanese Admiralty, opened the Shiseido Pharmacy on the Ginza in Tokyo, a bold stroke that created Japan's first Western-style pharmacy. The characters in the store's name and the store's philosophy were derived from classic Asian philosophy. Shiseido's name implies "richness of life," which, according to Confucian thought, can be reached only through harmony of mind, body, and soul. The small store, in a populous shopping area, attracted purchasers of traditional remedies as well as curiosity-seekers interested in the novelty of Western imports; personalized service and high-quality products won their loyalty. In the 1880s Shiseido began to manufacture medicines, and in 1888 the company introduced a new product to Japan: toothpaste. Shiseido began selling cosmetic products that were processed by the standards used for medicines in 1897. The first such product was Eudermine skin lotion.

During the late 19th century, Japan was transformed by changes that had swept the country since the lowering of the two-centuries-old international trade barriers in the mid-1850s: some women still wore traditional white rice powder, hair lacquer, and stylized brows; others wore the lip salve, rouge, and skin-tone powder worn by Western women.

Traditional Japanese cosmetics and medicinal remedies came from herbs, other plants, and minerals that were ground and processed according to recipes that had been part of the Japanese culture since being introduced from China in the sixth and seventh centuries. Similar ingredients and processes were used to produce both lip balm and lipstick. The pharmacist was the purveyor of both.

In Japan, cosmetics for men had their heyday in the courtly and elegant latter part of the first millennium A.D. During the 19th century men still wore theatrical makeuponly males were permitted stage careersbut during the period, many Kabuki performers were poisoned by the lead in their makeup. In order to prevent future tragedies, the Japanese government established strict product and marketing regulations which were so elaborate, frustrating, and time-consuming that few foreign companies tackled the Japanese market. The regulations also hurt domestic companies, however. In the two years it took to license a product, many products lost their timeliness, and thus their appeal.

EMPHASIS ON COSMETICS IN THE EARLY 20TH CENTURY

Japanese shipping was impeded in both the late 19th and early 20th century, due first to the Sino-Japanese War of 1894 to 1895, then to the Russo-Japanese War of 1904 to 1905. Because of the difficulty in obtaining imports, by 1915 Shiseido's cosmetics replaced foreign products in popularity, to the point that the company began to shift its emphasis away from pharmaceuticals and to concentrate almost exclusively on the manufacture of cosmetics. In addition, in 1902 the company opened Japan's first soda fountain. The sale of foods remained a modest but profitable venture.

Shinzo Fukuhara, the son of Yushin Fukuhara, led Shiseido during this period and became Shiseido's first president in 1927. Shinzo Fukuhara had spent five years studying pharmacology at Columbia University in New York City, and had visited France for one year. In France, he made important ties with artists whose ideas influenced the development of Shiseido's marketing, advertising, and packaging. Shiseido's marketing director, Noboru Matsumoto, had also studied in the United States, at New York University.

Tokyo's growth helped the family business grow and prosper, even through World War I, when production and delivery of the company's products were adversely affected by wartime restrictions. It was after the war, in 1923, remembered in Japan as the year of the great Kanto Earthquake, that Shiseido took a daring step that would eventually expand its business far beyond the city and make it a national concern. At Matsumoto's urging, the company opened a series of retail outlets for Shiseido products in a franchise operation, in principle not unlike the franchise concept Ray Kroc of McDonald's Corporation introduced in the United States some 30 years later.

COMPANY PERSPECTIVES

Shiscido commenced operations as Japan's first western-style pharmacy in Tokyo's Ginza district in 1872. The name Shiseido derives from a Chinese expression meaning "praise the virtues of the great Earth, which nurtures new life and brings forth new values."In line with this expression, our founding spirit of "serving our customers and contributing to society by integrating all things on Earth to create new value," lives on in our corporate mission of "identifying new, richer sources of value to create beauty in daily lives and culture." This policy has led to high-value-added products and services in the cosmetics and other businesses promoting people's beauty and well-being.

Shiseido had built its business as a family-run operation, paying special attention to the needs of its customers in Tokyo and the surrounding area. Repeat business resulted both from product excellence and personalized service. Special needs were recorded along with transactional details so that reminders could be tailored to each customer and timed to catch orders for replenishment. The franchised shops were to replicate the Tokyo store, with stock variations responding to lo-cal tastes and needs. The idea caught on because most franchisees, like the founding family, were willing to work long hours to earn customer loyalty.

In addition to over-the-counter retail sales, franchise owner-operators began conducting a mail-order business in 1937. They called it the Camellia Club, referring to the art nouveau-inspired flower logo designed by Matsumoto that Shiseido began using in 1915. The 25,000 franchise stores continued to do a steady large-volume business, with club members reaching about 9.6 million by the late 1980s. By then, the stores issued credit cards to members and kept in touch through a monthly magazine featuring fashion and beauty pointers.

The company's size ballooned quickly, outgrowing its status as a limited partnership. Reorganized as a corporation in 1927, Shiseido was listed on the Tokyo Stock Exchange. Neither the depression nor the following years of Japanese military buildup and war did much to flatten the company's growth curve.

By the 1940s Shiseido had become a trendsetter in the cosmetics industry. Even the bombing and devastation of many manufacturing sites during World War II did not result in the company's destruction. With the economic policies introduced by General Douglas Mac-Arthur during the postwar years, Shiseido reorganized, and in 1949 the company was again listed on the Tokyo Stock Exchange.

Regaining its position as the country's cosmetics leader in the early 1950s, a position not seriously tested until the 1970s when foreign companies began to challenge Shiseido in earnest, Shiseido opened thousands of additional outlets, prospering with the franchisees as the economy's upsurge produced newly affluent customers. In 1952 the company set up a wholesale network for sales of soap, toothpaste, and sundries. The following year the Shiseido Institute of Beauty Technology was opened.

OVERSEAS EXPANSION BEGINNING IN 1957

In 1957 Shiseido began international operations when it initiated manufacturing and sales operations in Southeast Asia. In 1960 the company began marketing in Hawaii. International operations boomed in the 1960s, as subsidiaries were established in Hawaii, New York, and Milan. Others opened during the following two decades in Singapore, New Zealand, Bangkok, Australia, France, West Germany, and the United Kingdom. In 1965 Shiseido began marketing products that were formulated especially for export markets.

During the early 1970s Shiseido introduced its broad product line in the United States, but the expected sales volume failed to materialize. About ten years later, Yoshio Ohno, at that time director of overseas operations, took a different, more successful approach: Shiseido offered an exclusive product line to each of several top-flight fashion retailers, including Bloomingdale's in New York and Bullock's in Los Angeles. By the mid-1980s these lines were earning $75 million annually and growing by 40 percent each year. This strategy succeeded not only in the United States, but in other countries as well.

KEY DATES

1872:
Yushin Fukuhara opens the Shiseido Pharmacy in Tokyo, Japan's first Western-style pharmacy.
1888:
Shiseido introduces toothpaste to Japan.
1897:
Company begins selling high-quality cosmetics, its first such product being Eudermine, a skin lotion.
1923:
Shiseido starts opening a string of franchised retail outlets.
1927:
Company is incorporated as Shiseido Company, Limited, with stock listed on the Tokyo Stock Exchange.
1957:
International expansion begins.
1981:
Shiseido begins marketing cosmetics in China.
1988:
Company acquires Zotos International, Inc., the leading U.S. supplier of professional hair and salon products.
1996:
Helene Curtis's North American professional hair-care line is acquired.
2001:
Shiseido suffers its first net loss in 55 years.
2003:
Plans to build a retail network in China comprised of approximately 5,000 stores are launched.
2004:
Company initiates its first early-retirement program, paring the workforce by more than 1,300.
2005:
"Megabrand" strategy is launched with the introduction of the Maquillage and Uno brands.

REVAMPING OF PRODUCT LINES

During the 1970s interest in the company's broad product line as a whole began to wane, and Shiseido began to consider new organizational and marketing directions. Many owner-operators who had worked diligently for decades to maintain a loyal customer following were nearing retirement and seemed out of touch with the interests and tastes of the new generation of consumers. To young consumers, the stores lacked the freshness and excitement that earlier generations had found in them. Shiseido refurbished the stores, and new marketing analysis and techniques were applied.

Serge Lutens, a French "international image creator," joined Shiseido in 1980. The following year, the company began marketing cosmetics in China. Segmentation of the broad product line into five age groups for marketing purposes was instituted in 1982, with encouraging results. Other ideas that succeeded as part of this new approach were product diversification and retail diversification among the company's stores. Rather than making each store an outlet for all product lines, stores were organized into subspecialties targeted at specific markets. Some became convenience stores, carrying household products as well as cosmetics. Others carried youth-oriented fashions. High-end beauty consultation services and exclusive product lines, similar to those in the high-fashion centers overseas, were other specialties. Still other stores carried cosmetics and fitness aids for men and women. In spite of this diversification, Shiseido had no intention of departing from its major role in the cosmetics industry; Shiseido stores carried other products primarily to attract customers for the company's beauty aids.

Despite Shiseido's size, the company did not abandon its founder's practice of associating beauty aids with health. For example, products in the Elixir skin-care product line contained an ingredient to protect sunbathers from ultraviolet rays. The company carefully researched all market segments, targeting them with certain products. For the rapidly growing older group, Shiseido introduced Medicated Flowline Active, used to prevent hair loss, promote its regeneration, and aid in circulation of the blood. Cle de Peau Program Care was designed to prevent skin from aging and to help it recover a youthful look. A chain of sports clubs and restaurants and a line of health foods also promoted physical fitness. In 1986 Shiseido acquired Carita S.A., a French beauty salon and beautician school chain, and in 1987 Shiseido opened another beauty salon, Alexandre Zouari, in Paris. The company acquired Zotos International, Inc., the leading U.S. supplier of professional hair and salon products in 1988, and Davlyn Industries, Inc., a U.S. maker of cosmetics, the following year.

Some product lines were discarded despite brisk sales. Environmental concerns caused Shiseido to phase out products such as aerosol spray cans and nonbiode-gradable diapers. New products and product lines continued to spur additional business. Research and development had been important to Shiseido's operations since its earliest days, and during the 1980s pharmaceuticals, as well as cosmetics, were being developed and tested in the company's domestic and overseas research centers. In 1988 pharmaceuticals reentered the Shiseido product family with the introduction of a line of over-the-counter drugs. Shiseido introduced its first prescription drug in 1993 with Opelead, used in cataract surgery and cornea transplants.

During the late 1980s Shiseido entered a three-year reorganization under the direction of President and CEO Yoshiharu Fukuhara, a grandson of Shiseido's founder and nephew of Shinzo Fukuhara. This restructuring strengthened the company's sales network and reaffirmed its long-held leadership position in the field. At the same time, Shiseido also bolstered its research and development operations by opening new research facilities in France in 1988, and in the United States in 1989.

GLOBAL EXPANSION

During the early and mid-1990s, Shiseido stepped up its efforts to become a global power in cosmetics. In part this was a response to price deregulation in Japan, which began in 1991. With the company losing its traditional control over the pricing of its products at the retail level, revenues and profits inevitably began to fall. The effect of deregulation was compounded by the simultaneous rise in Japan of the type of discount chains that were prevalent in the United States. As the decade continued, Japanese trade barriers to imported cosmetics began to fall, and Shiseido faced serious competition at home for the first time in its history.

In response to these threats to its home market, Shiseido, which had traditionally targeted the high end of the cosmetics market, made a conscious effort to develop more lower-priced products. The company also divided its domestic cosmetics business into two units: cosmetics, which handled consultation-oriented products, and "cosmenity," which handled self-selected products. The two sectors were differentiated further in April 1996 when the marketing operations of the two units were completely separated.

It was in the overseas market, however, that Shiseido was making serious waves, building and acquiring factories, expanding into new markets, and growing through joint ventures and acquisitions. In 1990 the company established Beaut;aae Prestige International S.A. in Paris to develop and market fragrances. The following year, production of perfumes and skin-care products began at the company's first European factory, located in Gien, France. After some tentative moves in China in the early 1980s, Shiseido became more serious about this rapidly growing market in the 1990s. In 1991 a joint venture called Shiseido Liyuan Cosmetics was set up with Beijing Liyuan Co. to develop, produce, and market premium cosmetics. Two years later production began at a new factory in Beijing, which led in 1994 to the debut of the highly successful, high-end, Aupres line of cosmetics, developed exclusively for the Chinese market. By mid-1997, Shiseido products were available in 130 stores in 32 Chinese cities. By the same time, company products were marketed in more than 50 countries worldwide, with the addition of Lebanon in 1995; Brazil, Cyprus, Israel, and Turkey in 1996; and the Czech Republic, Hungary, Croatia, and Vietnam in 1997. With sales in Asia and Europe increasing, Shiseido moved to increase its capacity by starting construction on a second plant in Taiwan in May 1997, and by reaching an agreement in June 1997 to develop a new production site in France's Loire region, which began operations a couple of years later.

On the other side of the Pacific Ocean, meanwhile, Shiseido was just as busy. In November 1996 the company bought the North American Hair Salon Division of Helene Curtis Inc. from Unilever United States, Inc., thereby adding the Helene Curtis professional salon hair-care lines to those of Zotos. Helene Curtis Japan Inc. was added in early 1997. Manufacturing capacity in North America was a concern, and in March 1997 Shiseido bought its fourth U.S. factory, a New Jersey facility that it converted into one of the largest cosmetic plants in the world.

This heightened activity outside of Japan was intended to help the company reach the ambitious goals set by management in 1996. As part of a "Global No. 1" five-year plan, Shiseido aimed by 2001 to increase net sales from foreign operations to ¥120 billion, from ¥64.5 billion in fiscal 1997. The company also wanted overseas sales, which had grown from only 8 percent of total revenues in fiscal 1997 to 13.4 percent in fiscal 1998, to 25 percent by 2001.

A year filled with noteworthy events, 1997 was also Shiseido's 125th anniversary, and the company marked the occasion by introducing Eudermine, its original product, to markets outside of Japan (1997 happened to also be the centenary of Eudermine's debut). In June 1997 Yoshiharu Fukuhara took over as chairman, while Akira Gemma, a Shiseido veteran with nearly 40 years of experience at the firm, succeeded Fukuhara as president and CEO.

Under Gemma, Shiseido continued its global expansion. The company's marketing reach extended to Kuwait, Russia, Poland, Iceland, and Finland by the end of the 1990s. In 1998 Shiseido opened its first freestanding retail unit in the United States, an outlet called 5S that was located in New York City's SoHo district. The new 5S brand, positioned as a mid-market line, was designed specifically for the U.S. market and encompassed aromatherapeutic fragrances as well as cosmetics. Also in 1998, Shiseido further bolstered its U.S. professional hair-care lines with the acquisition of the hair-salon business of Lamaur Corporation. In the increasingly important Chinese market, the company introduced a new mid-market brand, Za (pronounced zee-eh). The following year, Shiseido began selling a line of Hello Kitty soap, shampoo, and baby powder through a license agreement with Sanrio Company, Ltd., the firm that owned the very popular brand. Also in 1999, the company introduced its cié de peau Beauté line of cosmetics into international markets as a top-of-the-line brand.

SEEKING A LASTING RECOVERY

Adding to its portfolio of brands, Shiseido in 2000 purchased majority control of Laboratories Decléor S.A., the leading aromatherapy cosmetics manufacturer in France, and also purchased the Sea Breeze line of hair-care and body-care products from Bristol-Myers Squibb Company. Sea Breeze had been launched in the United States in 1906. Other overseas brands acquired in 2000 included the professional makeup brand Nars and the male grooming line Zihr. That same year, Shiseido entered into a joint venture with the U.S. firm Intimate Brands, Inc. (later known as Limited Brands, Inc.) to develop a new upscale beauty and skin-care brand. In 2002 this venture began opening up aura science shops, the first of which opened in Columbus, Ohio. The stores were later shut down, however, although the aura science brand was integrated into Limited Brands' Victoria's Secret and Bath & Body Works stores.

Largely because of the prolonged Japanese economic slump, during which time consumption of personal goods fell off dramatically and competition intensified, Shiseido suffered four straight years of declining sales, between fiscal years 1998 and 2001. In fiscal 2001 the company reported its first net loss in 55 years, a ¥45.09 billion ($372.3 million) shortfall stemming from a ¥69.07 billion ($570.3 million) writeoff of a shortage in retirement and pension obligations. Soon after reporting these dismal results, Gemma was named chairman and was replaced as president and CEO by Morio Ikeda. The new leader's first year was a rough one thanks to the continuation of the slump in domestic consumption as well as costs incurred because of new regulations requiring Japanese cosmetic makers to list all ingredients on product labels. Sales declined slightly, dropping for the fifth consecutive year, while Shiseido incurred another net loss, this one totaling ¥22.77 billion ($177.5 million). On a positive note, overseas sales surged 25 percent and now comprised 22 percent of total sales, up from the 18 percent level of the previous year. In the meantime, brand expansion continued with the late 2001 acquisition of the U.S. brand Joico by the Zotos International subsidiary, and the launch in 2002 of the FITIT mid-market cosmetics brand.

Shiseido returned to the black in fiscal 2003 as a result of inventory reductions, aggressive cutting of operating expenses in Japan in part by drastically cutting its array of cosmetic brands, and the introduction of a point-of-sale system to its extensive network of domestic retail outlets in order to better track and manage sales and inventories. The firm was aided by growing overseas sales in Asia, particularly in China, where Shiseido had established itself as the leading prestige cosmetic brand and enjoyed a 25 percent jump in sales for the year. In September 2003 the company announced plans to create a cosmetics store network in China similar to the one it had built at home. Shiseido aimed to manage a chain of approximately 5,000 stores, mainly located in coastal cities, by 2008 and to boost annual sales in China from about ¥20 billion to ¥100 billion.

In 2004 Shiseido continued to overhaul its domestic operations. In March the company announced plans to close two domestic manufacturing facilities, located in Kyoto and Tokyo, by 2006. In December 2004 Shiseido launched its first-ever early-retirement program, leading more than 1,300 employees to leave the company by March 2005. The retirement program resulted in a special loss of ¥30.99 billion ($295.1 million) for fiscal 2005 as well as a return to red ink, a net loss of ¥8.86 billion ($84.3 million).

In mid-2005 Ikeda moved up to the chairmanship, while Shinzo Maeda was promoted from general manager of corporate planning to president and CEO. In addition to continuing to oversee the push into China and further restructuring efforts centered on improving profitability, Maeda was charged with implementing a new "megabrand" strategy aimed at shoring up Shiseido's position at home. Through this initiative, Shiseido sought to further streamline its once-bloated brand lineup by creating big brands that could capture the number one position in Japan in each category. The Maquillage brand, which took its name from the French word for makeup, was launched in August 2005 as a blending of two former makeup brands, Piéds Nus and Proudia. The men's brand Uno was reintroduced that same month, followed by the debuts of the skin-care brand Aqua Label, which was aimed at the self-selection market centered on drugstores, in February 2006, and the hair-care brand Tsubaki, in March 2006. All of these soon ranked as the top brand in their respective categories. Scheduled for launch later in 2006 were Elixir Superieur, a new low-end to mid-range skin-care line, and Integrate, a new makeup line.

While this aggressive rollout continued, Maeda also had to contend with a newly enlarged domestic competitor as Kao Corporation secured for itself the number two position in Japanese cosmetics by acquiring the cosmetics arm of Kanebo, Ltd. in early 2006. This deal promised to create further competition in China as well because Kao immediately announced aggressive plans for that burgeoning market. Thanks to its restructuring efforts and megabrand strategy, Shiseido appeared better positioned to deal with this new challenge.

                                       Betty T. Moore

                                      Updated,David E. Salamie

PRINCIPAL SUBSIDIARIES

Hanatsubaki Factory Co., Ltd.; Shiseido Sales Co., Ltd.; Shiseido FITIT Co., Ltd.; Shiseido International Inc.; d'ici lá Co., Ltd.; IPSA Co., Ltd.; AYURA Laboratories Inc.; Ettusais Co., Ltd.; KINARI Inc.; Fullcast Co., Ltd.; Shiseido Beautech Co., Ltd.; Beauty Technology Co., Ltd.; ETWAS Co., Ltd.; Orbit, Inc.; AXE Co., Ltd.; Beauté Prestige International Co., Ltd.; InterAct Co., Ltd.; Tai Shi Trading Co., Ltd.; Mieux Products Co., Ltd.; FT Shiseido Co., Ltd.; Amenity Goods Co., Ltd.; Shiseido Irica Technology Inc.; Shiseido Professional Co., Ltd.; Shiseido Beauty Salon Co., Ltd.; Shiseido Pharmaceutical Co., Ltd.; Shiseido Beauty Foods Co., Ltd.; The Ginza Co., Ltd.; Shiseido Parlour Co., Ltd.; Shiseido Kaihatsu Co., Ltd.; Shiseido Logistics Co., Ltd.; Shiseido Information Network Co., Ltd.; Shiseido Astech Co., Ltd.; Shiseido Lease Co., Ltd.; Shiseido Investment Co., Ltd.; Shiseido America, Inc. (U.S.A.); Davlyn Industries, Inc. (U.S.A.); Shiseido International Corporation (U.S.A.); Shiseido Cosmetics (America) Ltd. (U.S.A.); Shiseido of Hawaii, Inc. (U.S.A.); Shiseido Travel Retail America Inc. (U.S.A.); Shiseido (Canada) Inc.; Shiseido do Brasil Ltda. (Brazil); Beauté Prestige International, Inc. (U.S.A.); Nars Cosmetics, Inc. (U.S.A.); Zirh International Corporation (U.S.A.); Decléor U.S.A., Inc.; Zotos International, Inc. (U.S.A.); Piidea Canada, Ltd.; Shiseido International France S.A.S.; Laboratories Decléor S.A. (France); Shiseido International Europe S.A. (France); Shiseido Europe S.A.S. (France); Shiseido Deutschland GmbH (Germany); Shiseido Cosmetici (Italia) S.p.A. (Italy); Shiseido France S.A.; Shiseido España S.A.(Spain); Shiseido United Kingdom Co., Ltd.; Beauté Prestige International S.A. (France); Beauté Prestige International GmbH (Germany); Beauté Prestige International S.A.U. (Spain); Beauté Prestige International S.p.A. (Italy); Beauté Prestige International SPRL (Belgium); Beauté Prestige International GmbH (Austria); Beauté Prestige International B.V. (Netherlands); Beauté Prestige International Ltd. (U.K.); Noms de Code S.A.S. (France); Decléor UK Ltd.; Carita S.A. (France); Carita International S.A. (France); Carita UK Ltd.; Les Salons du Palais Royal Shiseido S.A. (France); FIPAL S.A. (France); 331 International S.A.S. (France); SMB S.A.S. (France); Joico Holding B.V. (Netherlands); Joico Laboratories Europe B.V. (Netherlands); Shiseido Liyuan Cosmetics Co., Ltd. (China); Shanghai Zotos Citic Cosmetics Co., Ltd. (China); Taiwan Shiseido Co., Ltd.; Shiseido (N.Z.) Ltd. (New Zealand); Shiseido China Co., Ltd.; Shiseido China Research Center Co., Ltd.; Beijing Huazhiyou Cosmetics Sales Center (China); Shiseido Dah Chong Hong Cosmetics Ltd. (China); Shiseido Dah Chong Hong Cosmetics (Guangzhou) Ltd. (China); FLELIS International Inc. (Taiwan); Shiseido Korea Co., Ltd.; Shiseido Thailand Co., Ltd.; SAHA Asia-Pacific Co., Ltd. (Thailand); Shiseido (Australia) Pty., Ltd.; Shiseido Singapore Co., (Pte.) Ltd.; Shiseido Malaysia Sdn. Bhd.; Shiseido Philippines, Inc.; Shiseido Travel Retail Asia Pacific Pte. Ltd. (Singapore); Beauté Prestige International Pte. Ltd. (Singapore); Shiseido Professional (Thailand) Co., Ltd.

PRINCIPAL COMPETITORS

Kao Corporation; L'Oréal SA; The Procter & Gamble Company; Unilever; The Estée Lauder Companies Inc.; Kose Corporation.

FURTHER READING

Anai, Ikuo, "Shiseido Aims to Be World's Top 'Beauty Creator,'" Daily Yomiuri (Tokyo), January 1, 1998.

Azuma, Naoto, "Shiseido Gives Cosmetics Business a Makeover," Daily Yomiuri (Tokyo), October 10, 2005.

Born, Pete, "Shiseido Builds a Market from the Ground Up," WWD, May 26, 2006, p. 19.

, "Shiseido Celebrates 125th with Eudermine," WWD, July 11, 1997, p. 13.

, "Shiseido's Vision for Global Expansion," WWD, April 26, 1996, p. 6.

Borrus, Amy, "Will Shiseido's Make-Over Leave It Less Glamorous?," Business Week, November 2, 1987, p. 82.

Chang, Leslie, "Shiseido Targets China with 200 New Stores," Asian Wall Street Journal, March 24, 2004, p. A2.

Cody, Jennifer, "Shiseido Strives for a Whole New Look," Wall Street Journal, May 27, 1994, p. A5.

do Rosario, Louise, "Cleaned and Preened," Far Eastern Economic Review, April 1, 1993, pp. 68-69.

, "Make Up and Mend," Far Eastern Economic Review, December 19, 1991, pp. 70-71.

"Fragrance Helps You Live Longer," Economist, October 23, 1993, p. 86.

Fuyuno, Ichiko, "Shiseido's Make-Over," Far Eastern Economic Review, May 22, 2003, p. 40.

Hutton, Bethan, "Acquisitions Behind Surge at Shiseido," Financial Times, November 12, 1997, p. 17.

Ishibashi, Asako, "Shiseido Builds Foundation As Asia's Cosmetics Leader," Nikkei Weekly, July 8, 2002.

"Japan's Shiseido Plans New Cosmetics Line for the U.S. Market," Wall Street Journal, May 23, 1997, p. A11.

Kilburn, David, "Shiseido Blooms Anew: Fukuhara Expands the Vision of Japanese Giant," Advertising Age, October 3, 1988, p. 12.

Ono, Yumiko, "Japan's Shiseido, Intent on Shopping, Finds Little to Buy," Wall Street Journal, September 16, 1999, p. A24.

, "Japan's Shiseido Studies Moves in U.S. Market," Wall Street Journal, April 19, 1996, p. B7.

Prasso, Sheridan, "Battle for the Face of China," Fortune, December 12, 2005, pp. 156+.

Rahman, Bayan, "Shiseido Looks Better with Its Return to Black," Financial Times, January 7, 2003, p. 27.

Schultz, Jennifer, "Facing Up to Change," Far Eastern Economic Review, August 16, 2001, p. 42.

Shirouzu, Norihiko, "Deregulation Jolts Shiseido's Foundation: Cosmetics Firm Looks to U.S. As Home Rivalries Grow," Wall Street Journal, June 14, 1996, p. A10.

"Shiseido Aims to Become Global No. 1 in Worldwide Cosmetics," Cosmetics International, November 25, 1996, p. 10.

"Shiseido Is Seeking to Acquire Its Fourth Factory in the U.S.," Wall Street Journal, December 2, 1996, p. B12.

"Shiseido's New Face in the U.S.," Business Week, May 11, 1981, pp. 100+.

Slavin, Barbara, "Saving Face," Forbes, December 31, 1984,p. 138.

Tanner, Andrew, "Is Beauty More Than Skin-Deep?" Forbes, December 16, 1985, p. 148.

Thornton, Emily, Dexter Roberts, and Mia Trinephi, "Shiseido Is Giving Itself a Whole New Look," Business Week, June 2, 1997, p. 20.

"The Two Faces of Shiseido," Economist, July 10, 1999, p. 57.

"Wrinkled," Economist, November 4, 1995, p. 69.

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Shiseido Company, Limited

Shiseido Company, Limited

7-5-5, Ginza, Chuo-ku
Tokyo 104-10
Japan
(03) 3572-5111
Fax: (03) 3574-8380
Web site: http://www.shiseido.co.Jp/e

Public Company
incorporated: 1927
Employees: 22,045
Sales: ¥588.57 billion (US$5.12 billion) (1997)
Stock Exchanges: Tokyo Luxembourg
SICs: 2844 Perfumes, Cosmetics & Other Toilet Preparations; 5812 Eating Places; 5999 Miscellaneous Retail Stores, Not Elsewhere Classified; 7231 Beauty Shops; 7991 Physical Fitness Facilities

Shiseido Company, Limited is the leading cosmetics company in Japan and one of the largest in the world. At home and in more than 50 countries abroad, Shiseido offers a variety of makeup, skin-care, and hair-care products. In Japan, the company markets additional products, including toiletries, foodstuffs, Pharmaceuticals, and fine chemicals. Shiseido franchises about 25,000 cosmetics retail outlets in Japan, both stand-alone and within department stores and supermarkets. It also runs various salons, upscale boutiques, health clubs, and restaurants. Of the companys sales, about 74 percent come from its cosmetics division; about 16 percent from its toiletries division, which comprises hair-care products, facial cleansers, soaps, bath additives, and fine toiletries; and the remaining 10 percent from a catch-all others division which covers Pharmaceuticals, salon skin-care and hair-care products, fashion goods, fine chemicals, and salons, boutiques, health clubs, and restaurants. Increasingly global in its emphasisalthough not traditionally successful overseasShiseido now derives about 13.5 percent of its sales from outside of Japan. The companys various products are manufactured at nine plants in Japan and ten abroad.

Beginnings as Western-Style Pharmacy in 1870s

In 1872 Yushin Fukuhara, former head pharmacist for the Japanese Admiralty, opened the Shiseido Pharmacy on the Ginza in Tokyoa bold stroke that created Japans first Western-style pharmacy. The characters in the stores name and the stores philosophy were derived from classic Asian philosophy. Shiseidos name implies richness of life, which, according to Confucian thought, can be reached only through harmony of mind, body, and soul. The small store, in a populous shopping area, attracted purchasers of traditional remedies as well as curiosity-seekers interested in the novelty of Western imports; personalized service and high-quality products won their loyalty. In the 1880s Shiseido began to manufacture medicines, and in 1888 the company introduced a new product to Japan: toothpaste. Shiseido began selling cosmetic products that were processed by the standards used for medicines in 1897. The first such product was Eudermine skin lotion.

During the late 19th century, Japan was transformed by changes that had swept the country since the lowering of the two-centuries-old international trade barriers in the mid-1850s: some women still wore traditional white rice powder, hair lacquer, and stylized brows; others wore the lip salve, rouge, and skin-tone powder worn by Western women.

Traditional Japanese cosmetics and medicinal remedies came from herbs, other plants, and minerals that were ground and processed according to recipes that had been part of the Japanese culture since being introduced from China in the sixth and seventh centuries. Similar ingredients and processes were used to produce both lip balm and lipstick. The pharmacist was the purveyor of both.

In Japan, cosmetics for men had their heyday in the courtly and elegant latter part of the first millennium A.D. During the 19th century men still wore theatrical makeuponly males were permitted stage careersbut during the period, many Kabuki performers were poisoned by the lead in their makeup. In order to prevent future tragedies, the Japanese government established strict product and marketing regulations which were so elaborate, frustrating, and time-consuming that few foreign companies tackled the Japanese market. The regulations also hurt domestic companies, however. In the two years it took to license a product, many products lost their timeliness, and thus their appeal.

Emphasis on Cosmetics in the Early 20th Century

Japanese shipping was impeded just before and after the turn of the century, due first to the Sino-Japanese War of 1894 to 1895, then to the Russo-Japanese War of 1904 to 1905. Because of the difficulty in obtaining imports, by 1915 Shiseidos cosmetics replaced foreign products in popularity, to the point that the company began to shift its emphasis away from pharmaceuticals and to concentrate almost exclusively on the manufacture of cosmetics. In addition, in 1902 the company opened Japans first soda fountain. The sale of foods remained a modest but profitable venture.

Shinzo Fukuhara, the son of Yushin Fukuhara, led Shiseido during this period and became Shiseidos first president in 1927. Shinzo Fukuhara had spent five years studying pharmacology at Columbia University in New York City, and had visited France for one year. In France, he made important ties with artists whose ideas influenced the development of Shiseidos marketing, advertising, and packaging. Shiseidos marketing director, Noboru Matsumoto, had also studied in the United States, at New York University.

Tokyos growth helped the family business grow and prosper, even through World War I, when production and delivery of the companys products were adversely affected by wartime restrictions. It was after the war, in 1923remembered in Japan as the year of the great Kanto Earthquakethat Shiseido took a daring step that would eventually expand its business far beyond the city and make it a national concern. At Matsumotos urging, the company opened a series of retail outlets for Shiseido products in a franchise operation, in principle not unlike the franchise concept Ray Kroc of McDonalds introduced in the United States some 30 years later.

Shiseido had built its business as a family-run operation, paying special attention to the needs of its customers in Tokyo and the surrounding area. Repeat business resulted both from product excellence and personalized service. Special needs were recorded along with transactional details so that reminders could be tailored to each customer and timed to catch orders for replenishment. The franchised shops were to replicate the Tokyo store, with stock variations responding to local tastes and needs. The idea caught on because most franchisees, like the founding family, were willing to work long hours to earn customer loyalty.

In addition to over-the-counter retail sales, franchise owner-operators began conducting a mail-order business in 1937. They called it the Camellia Club, referring to the art nouveau-inspired flower logo designed by Matsumoto that Shiseido began using in 1915. The 25,000 franchise stores continued to do a steady large-volume business, with club members reaching about 9.6 million by the late 1980s. By then, the stores issued credit cards to members and kept in touch through a monthly magazine featuring fashion and beauty pointers.

The companys size ballooned quickly, outgrowing its status as a limited partnership. Reorganized as a corporation in 1927, Shiseido was listed on the Tokyo Stock Exchange. Neither the depression nor the following years of Japanese military buildup and war did much to flatten the companys growth curve.

By the 1940s Shiseido had become a trendsetter in the cosmetics industry. Even the bombing and devastation of many manufacturing sites during World War II did not result in the companys destruction. With the economic policies introduced by General Douglas MacArthur during the postwar years, Shiseido reorganized, and in 1949 the company was again listed on the Tokyo Stock Exchange.

Regaining its position as the countrys cosmetics leader in the early 1950sa position not seriously tested until the 1970s when foreign companies began to challenge Shiseido in earnest Shiseido opened thousands of additional outlets, prospering with the franchisees as the economys upsurge produced newly affluent customers. In 1952 the company set up a wholesale network for sales of soap, toothpaste, and sundries. The following year the Shiseido Institute of Beauty Technology was opened.

Overseas Expansion Begins in 1957

In 1957 Shiseido began international operations when it initiated manufacturing and sales operations in Southeast Asia. In 1960 the company began marketing in Hawaii. International operations boomed in the 1960s, as subsidiaries were established in Hawaii, New York, and Milan. Others opened during the following two decades in Singapore, New Zealand, Bangkok, Australia, France, West Germany, and the United Kingdom. In 1965 Shiseido began marketing products that were formulated especially for export markets.

During the early 1970s Shiseido introduced its broad product line in the United States, but the expected sales volume failed to materialize. About ten years later, Yoshio Ohnoat that time director of overseas operationstook a different, more successful approach: Shiseido offered an exclusive product line to each of several top-flight fashion retailers, including Bloomingdales in New York and Bullocks in Los Angeles. By the mid-1980s these lines were earning $75 million annually and growing by 40 percent each year. This strategy succeeded not only in the United States, but in other countries as well.

Company Perspectives:

We aim to identify new, richer sources of value and use them to create beauty in the lives and culture of those we serve. Our Criteria for Corporate Activity are: We seek to bring joy to our customers; we are concerned with results, not procedures; we share frankly with each other our real priorities; we give free rein to our thoughts and boldly challenge conventional wisdom; we act in the spirit of thankfulness.

Product Lines Revamped in the 1970s and 1980s

During the 1970s interest in the companys broad product line as a whole began to wane, and Shiseido began to consider new organizational and marketing directions. Many owner-operators who had worked diligently for decades to maintain a loyal customer following were nearing retirement and seemed out of touch with the interests and tastes of the new generation of consumers. To young consumers, the stores lacked the freshness and excitement that earlier generations had found in them. Shiseido refurbished the stores, and new marketing analysis and techniques were applied.

Serge Lutens, a French international image creator, joined Shiseido in 1980. The following year, the company began marketing cosmetics in China. Segmentation of the broad product line into five age groups for marketing purposes was instituted in 1982, with encouraging results. Other ideas that succeeded as part of this new approach were product diversification and retail diversification among the companys stores. Rather than making each store an outlet for all product lines, stores were organized into sub-specialties targeted at specific markets. Some became convenience stores, carrying household products as well as cosmetics. Others carried youth-oriented fashions. High-end beauty consultation services and exclusive product lines, similar to those in the high-fashion centers overseas, were other specialties. Still other stores carried cosmetics and fitness aids for men and women. In spite of this diversification, Shiseido had no intention of departing from its major role in the cosmetics industry; Shiseido stores carried other products primarily to attract customers for the companys beauty aids.

Despite Shiseidos size, the company did not abandon its founders practice of associating beauty aids with health. For example, products in the Elixir skin-care product line contained an ingredient to protect sunbathers from ultraviolet rays. The company carefully researched all market segments, targeting them with certain products. For the rapidly growing older group, Shiseido introduced Medicated Flowline Active, used to prevent hair loss, promote its regeneration, and aid in circulation of the blood. Cíe de Peau Program Care was designed to prevent skin from aging and to help it recover a youthful look. A chain of sports clubs and restaurants and a line of health foods also promoted physical fitness. In 1986 Shiseido acquired Carita S.A., a French beauty salon and beautician school chain, and in 1987 Shiseido opened another beauty salon, Alexandre Zouari, in Paris. The company acquired Zotos International Inc., the leading U.S. supplier of professional hair and salon products in 1988, and Davlyn Industries, Inc., a U.S. maker of cosmetics, the following year.

Some product lines were discarded despite brisk sales. Environmental concerns caused Shiseido to phase out products such as aerosol spray cans and nonbiodegradable diapers. New products and product lines continued to spur additional business. Research and development had been important to Shiseidos operations since its earliest days, and during the 1980s pharmaceuticals, as well as cosmetics, were being developed and tested in the companys domestic and overseas research centers. In 1988 Pharmaceuticals reentered the Shiseido product family with the introduction of a line of over-the-counter drugs. Shiseido introduced its first prescription drug in 1993 with Opelead, used in cataract surgery and cornea transplants.

During the late 1980s Shiseido entered a three-year reorganization under the direction of president and CEO Yoshiharu Fukuhara, a grandson of Shiseidos founder and nephew of Shinzo Fukuhara. This restructuring strengthened the companys sales network and reaffirmed its long-held leadership position in the field. At the same time, Shiseido also bolstered its research and development operations by opening new research facilities in France in 1988, and in the United States in 1989.

Global Expansion in the 1990s

During the early and mid-1990s, Shiseido stepped up its efforts to become a global power in cosmetics. In part this was a response to price deregulation in Japan which began in 1991. With the company losing its traditional control over the pricing of its products at the retail level, revenues and profits inevitably began to fall. The effect of deregulation was compounded by the simultaneous rise in Japan of the type of discount chains that were prevalent in the United States. As the decade continued, Japanese trade barriers to imported cosmetics began to fall, and Shiseido faced serious competition at home for the first time in its history.

In response to these threats to its home market, Shiseido, which had traditionally targeted the high end of the cosmetics market, made a conscious effort to develop more lower-priced products. The company also divided its domestic cosmetics business into two units: cosmetics, which handled consultation-oriented products, and cosmenity, which handled self-selected products. The two sectors were differentiated further in April 1996 when the marketing operations of the two units were completely separated.

It was in the overseas market, however, that Shiseido was making serious waves; building and acquiring factories, expanding into new markets, and growing through joint ventures and acquisitions. In 1990 the company established Beauté Prestige International S.A. in Paris to develop and market fragrances. The following year, production of perfumes and skin-care products began at the companys first European factory, located in Gien, France. After some tentative moves in China in the early 1980s, Shiseido became more serious about this rapidly growing market in the 1990s. In 1991 a joint venture called Shiseido Liyuan Cosmetics was set up with Beijing Liyuan Co. to develop, produce, and market premium cosmetics. Two years later production began at a new factory in Beijing, which led in 1994 to the debut of the highly successful, high-end, Aupres line of cosmetics, developed exclusively for the Chinese market. By mid-1997, Shiseido products were available in 130 stores in 32 Chinese cities. By the same time, company products were marketed in more than 50 countries worldwide, with the addition of Lebanon in 1995; Brazil, Cyprus, Israel, and Turkey in 1996; and the Czech Republic, Hungary, Croatia, and Vietnam in 1997. With sales in Asia and Europe increasing, Shiseido moved to increase its capacity by starting construction on a second plant in Taiwan in May 1997, and by reaching an agreement in June 1997 to develop a new production site in Frances Loire region, scheduled to begin operations in January 1999.

On the other side of the Pacific Ocean, meanwhile, Shiseido was just as busy. In November 1996 the company bought the North American Hair Salon Division of Helene Curtis Inc. from Unilever United States, Inc., thereby adding the Helene Curtis professional salon hair-care lines to those of Zotos. Helene Curtis Japan Inc. was added in early 1997. Manufacturing capacity in North America was a concern, and in March 1997 Shiseido bought its fourth U.S. factory, planning to convert the New Jersey facility into one of the largest cosmetic plants in the world.

This heightened activity outside of Japan was intended to help the company reach the ambitious goals set by management in 1996. As part of a Global No. 1 five-year plan, Shiseido aimed by 2001 to increase net sales from foreign operations to ¥120 billion, from ¥64.5 billion in fiscal 1997. The company also wanted overseas sales, which had grown from only eight percent of total revenues in fiscal 1997 to 13.4 percent in fiscal 1998, to double to 25 percent by 2001.

A year filled with noteworthy events, 1997 was also Shiseidos 125th anniversary, and the company marked the occasion by introducing Eudermine, its original product, to markets outside of Japan (1997 happened to also be the centenary of Eudermines debut). In June 1997 Yoshiharu Fukuhara took over as chairman, while Akira Gemma succeeded Fukuhara as president and CEO. As they worked to attain their self-imposed goals, this new management team was likely to seek out additional overseas acquisitions. It appeared that Shiseido had finally gotten serious about its longtime global ambitions, and that success was beginning to follow in the wake of the companys new ventures.

Principal Subsidiaries

Osaka Shiseido Co., Ltd.; Shiseido Kako Co., Ltd.; Shiseido Beautech Co., Ltd.; Mieux Products Co., Ltd.; IPSA Co., Ltd.; Haramachi Paper Co., Ltd.; ETWAS Co., Ltd.; Shiseido Fine Toiletry Co., Ltd.; Shiseido Sales Co., Ltd.; Shiseido Pharmaceutical Co., Ltd.; Shiseido Logistics Company Ltd.; SFC Co., Ltd.; The Ginza Co., Ltd.; Shiseido Parlour Co., Ltd.; Shiseido Beauty Salon Co., Ltd.; Shiseido Real Estate Development Co., Ltd.; Shiseido Wellness Co., Ltd.; Mikawaya Co., Ltd.; Shiseido Lease Co., Ltd.; Dici la Co., Ltd.; Ettusais Co., Ltd.; Shiseido Cosmenity Co., Ltd.; Qi Salon Cosmetics Co., Ltd.; Shiseido International Corporation (U.S.A.); Zotos International, Inc. (U.S.A.); Davlyn Industries, Inc. (U.S.A.); Shiseido Cosmetics (America) Ltd. (U.S.A.); Shiseido America Inc. (U.S.A.); Shiseido of Hawaii, Inc. (U.S.A.); Shiseido Cosmetici (Italia) S.p.A.; Shiseido Deutschland GmbH. (Germany); Shiseido United Kingdom Co., Ltd.; Carita S.A. (France); Alma Coiffure S.A. (France); Shiseido International Europe B.V. (The Netherlands); Shiseido Singapore Co., (Pte.) Ltd.; Shiseido (Australia) Pty., Ltd.; Shiseido (N.Z.) Ltd. (New Zealand); Shiseido International France S.A.; Beauté Prestige International S.A. (France); Shiseido Philippines, Inc.; Shiseido Thailand Co., Ltd.; Shiseido France S.A.; Taiwan Shiseido Co., Ltd.; Shiseido Liyuan Cosmetics Co., Ltd. (China); Les Salons du Palais Royal Shiseido S.A. (France); Shiseido Canada Inc.; Piidea Canada, Ltd.

Further Reading

Born, Pete, Shiseido Celebrates 125th with Eudermine, WWD, July 11, 1997, p. 13.

_____, Shiseidos Vision for Global Expansion, WWD, April 26, 1996, p. 6.

Cody, Jennifer, Shiseido Strives for a Whole New Look, Wall Street Journal, May 27, 1994, p. A5.

do Rosario, Louise, Cleaned and Preened, Far Eastern Economic Review, April 1, 1993, pp. 68-69.

_____, Make Up and Mend, Far Eastern Economic Review, December 19, 1991, pp. 70-71.

Fragrance Helps You Live Longer, Economist, October 23, 1993, p. 86.

Hutton, Bethan, Acquisitions Behind Surge at Shiseido, Financial Times, November 12, 1997, p. 17.

Japans Shiseido Plans New Cosmetics Line for the U.S. Market, Wall Street Journal, May 23, 1997, p. All.

Kilburn, David, Shiseido Blooms Anew: Fukuhara Expands the Vision of Japanese Giant, Advertising Age, October 3, 1988, p. 12.

Ono, Yumiko, Japans Shiseido Studies Moves in U.S. Market, Wall Street Journal, April 19, 1996, p. B7.

Shirouzu, Norihiko, Deregulation Jolts Shiseidos Foundation: Cosmetics Firm Looks to U.S. As Home Rivalries Grow, Wall Street Journal, June 14, 1996, p. A10.

Shiseido Aims to Become Global No. 1 in Worldwide Cosmetics, Cosmetics International, November 25, 1996, p. 10.

Shiseido Is Seeking to Acquire Its Fourth Factory in the U.S., Wall Street Journal, December 2, 1996, p. B12.

Slavin, Barbara, Saving Face, Forbes, December 31, 1984, p. 138.

Tanner, Andrew, Is Beauty More Than Skin-Deep? Forbes, December 16, 1985, p. 148.

Wrinkled, Economist, November 4, 1995, p. 69.

Betty T. Moore

updated by David E. Salamie

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Shiseido Company, Limited

Shiseido Company, Limited

75-5, Ginza, 7-chome
Chuo-ku, Tokyo 104-10
Japan
(03) 3572-5111
Fax: (03) 3574-8380

Public Company
Incorporated:
1927
Employees: 20,000
Sales: ¥456.35 billion (US$3.17 billion)
Stock Exchanges: Tokyo Luxembourg

Shiseido Company is the worlds third-largest distributor and retailer of cosmetics, surpassed only by Avon Products and LOréal. In the rapidly expanding Southeast Asian market, Shiseido is a front-runner. High-quality products and personalized service, skillful and sometimes innovative marketing techniques, and judicious profit investment have kept the company ahead of most of its competitorsdomestic and overseasover many decades. The companys 27% share of the Japanese market reflects some slippage, from 34% in 1970 and 30% in 1985. In order to continue growing, Shiseido is conducting a multilevel campaign to hold loyal customers and also attract a significant portion of new generations of consumers.

The product formulas and techniques that brought the company its greatest success and long-term status as a trendsetter are no longer sufficient to attract younger consumers. As a result, Shiseido has become more attentive to forecasts of demographic and taste changes, and is investing in research-and-development activities geared to improve cosmetic lines and diversify into other types of products. In the late 1980s, Shiseido shifted 10% of its business from cosmetics to foods, fashions, and other goods. Cosmetic products still constitute three-fourths of the companys sales, however, and are expected to continue doing so. The late 1980s were a period of intensified change for the company, with a new president and new corporate plan and increased sensitivity to trends in fashion and fitness.

In 1872 Yushin Fukuhara, former head pharmacist for the Japanese Admirality, opened the Shiseido Pharmacy on the Ginza in Tokyoa bold stroke that created Japans first Western-style pharmacy. The characters in the stores name and the stores philosophy were derived from classic Asian philosophy. Shiseidos name implies richness of life, which, according to Confucian thought, can be reached only through harmony of mind, body, and soul. The small store, in a populous shopping area, attracted purchasers of traditional remedies as well as curiosity-seekers interested in the novelty of Western imports; personalized service and high-quality products won their loyalty. In the 1880s Shiseido began to manufacture medicines, and in 1888 introduced a new product to Japan: toothpaste. Shiseido began selling cosmetic products that were processed by the standards used for medicines in 1897. The first such product was Eudermine skin lotion.

During the late 19th century Japan was transformed by changes that had swept the country since the lowering of the two-centuries-old international trade barriers in the mid-1850s: some women still wore traditional white rice powder, hair lacquer, and stylized brows; others wore the lip salve, rouge, and skin-tone powder worn by Western women.

Traditional Japanese cosmetics and medicinal remedies came from herbs and other plants and minerals that were ground and processed according to recipes that had been part of the Japanese culture since being introduced from China in the sixth and seventh centuries. Similar ingredients and processes were used to produce both lip balm and lipstick. The pharmacist was the purveyor of both.

In Japan, cosmetics for men had had their heyday in the courtly and elegant latter part of the first millenium A.D. During the 19th century men still wore theatrical make-up only males were permitted stage careers. But during the period, many kabuki performers were poisoned by the lead in their make-up. In order to prevent future tragedies, the Japanese government established strict product and marketing regulationsso elaborate, frustrating, and time-consuming that few foreign companies tackled the Japanese market. The regulations also hurt domestic companies, however. In the two years it takes to license a product, many products lose their timeliness, and thus their appeal. The Ministry of Health and Welfare eased some of these restrictions during the 1980s, but they still constitute a problem for Shiseido, and there is little hope that they will disappear in the near future.

Shipping was impeded just before and after the turn of the centurydue first to the Sino-Japanese War of 1894 to 1895, then to the Russo-Japanese War of 1904 to 1905. Because of the difficulty of delivering imports, by 1915 the cosmetics Shiseido had begun to manufacture in 1897 replaced imports in popularity, to the point that the company began to concentrate almost exclusively on cosmetics, shifting its emphasis away from pharmaceuticals. In addition, in 1902 the company opened Japans first soda fountain. The sale of foods has remained a modest but profitable venture.

Shinzo Fukuhara, the son of Yushin Fukuhara, led Shiseido during this period, and became Shiseidos first president in 1927. Shinzo Fukuhara had spent five years studying pharmacology at Columbia University, in New York City, and had visited France for one year. In France, he made important ties with artists whose ideas influenced the development of Shiseidos marketing, advertising, and packaging. Shiseidos marketing director, Noboru Matsumoto, had also studied in the United States, at New York University.

Tokyos growth helped the family business grow and prosper, even through World War I, when production and delivery of the companys products were adversely affected by wartime restrictions. It was after the war, in 1923remembered by so many in Japan as the year of the great Kanto Earthquakethat Shiseido took a daring step that eventually expanded its business far beyond the city and made it a national concern. At Matsumotos urging, the company opened a series of retail outlets for Shiseido productsa franchise operation, in principle not unlike the franchise concept Ray Kroc of McDonalds introduced in the United States some 30 years later.

Shiseido had built its business as a mom-and-pop operation, paying special attention to the needs of its customers in Tokyo and the surrounding area. Repeat business resulted both from product excellence and personalized service. Special needs were recorded along with transactional details so that reminders could be tailored and timed to catch orders for replenishment. The franchised shops were to replicate the Tokyo storewith stock variations responding to local tastes and needs. The idea caught on because most franchisees, like the founding family, were willing to work long hours to earn customer loyalty.

In addition to over-the-counter retail sales, franchise owner-operators began conducting a mail-order business in 1937. They called it the Camellia Club, referring to the art nouveau-inspired flower logo Matsumoto designed and Shiseido began using in 1915. The 25,000 franchise stores still do a steady large-volume business, with members numbering about 9.6 million. The stores issue credit cards to members, and keep in touch through a monthly magazine featuring fashion and beauty pointers.

The companys size ballooned quickly, outgrowing its status as a limited partnership. Reorganized as a corporation in 1927, Shiseido was listed on the Tokyo Stock Exchange. Neither the Depression nor the following years of Japanese concentration on military buildup and action did much to flatten the companys growth curve.

By the 1940s Shiseido had become a trendsetter in the cosmetics industry. Even the bombing and devastation of many manufacturing sites during World War II did not result in the companys destruction. With the economic policies introduced by General Douglas MacArthur during the postwar years, Shiseido again reorganized, and, in 1949, again was listed on the Tokyo Stock Exchange.

Regaining its position as the cosmetics leader in the early 1950sa position not successfully challenged until the 1970s, when foreign companies began to challenge Shiseido in earnestShiseido opened thousands of additional outlets, prospering with the franchisees as the economys upsurge produced newly affluent customers. In 1952 the company set up a wholesale network for sales of soap, toothpaste, and sundries. The following year the Shiseido Institute of Beauty Technology was opened.

In 1957 Shiseido began international operations, when it initiated manufacturing and sales operations in Southeast Asia. In 1960 the company began marketing in Hawaii. International operations boomed in the 1960s, as subsidiaries were established in Hawaii, New York, and Milan. Others opened during the following two decades in Singapore, New Zealand, Bangkok, Australia, France, West Germany, and the United Kingdom. In 1965 Shiseido began marketing products that were formulated especially for export markets.

During the early 1970s Shiseido introduced its broad product line in the United States, but the expected sales volume failed to materialize. About ten years later, Yoshio Ohnoat that time director of overseas operationstook a different, more successful approach: Shiseido offered an exclusive product line to each of several top-flight fashion retailers for example, Bloomingdales in New York and Bullocks in Los Angeles. By the mid-1980s, these lines were earning $75 million annually, growing by 40% each year. This strategy succeeded not only in the United States, but in other countries as well.

During the 1970s, interest in the companys broad product line as a whole began to wane, and Shiseido began to consider new organizational and marketing directions. Many owner-operators who had worked diligently for decades to maintain a loyal customer following were nearing retirement and seemed out of touch with the interests and tastes of the new generation of consumers. To young consumers, the stores lacked the freshness and excitement that earlier generations had discovered in them. Shiseido refurbished the stores and new marketing analysis and techniques were applied.

Serge Lutens, a French international image creator, joined Shiseido in 1980. The following year, the company began marketing cosmetics in China. In 1983 and 1987, respectively, Shiseido began to manufacture and sell Hua Zi brand hair-care products and then cosmetics in China.

Segmentation of the broad product line into five age groups for marketing purposes was instituted in 1982, with encouraging results. Other ideas that have succeeded as part of the new approach are product diversification and institution of diversity among the respective stores. Rather than making each store an outlet for all product lines, some have become convenience stores, carrying household products as well as cosmetics. Others carry youth-oriented fashions. High-end beauty consultation services and exclusive product lines similar to those in the high-fashion centers overseas are other specialties. Still other stores carry cosmetics and fitness aids for men and women. Shiseido has no intention of departing from its major role in the cosmetics industry, however; the stores handle other products to lure in customers who purchase the beauty aids.

Despite Shiseidos size, the company has not strayed far from its founders practice of associating beauty aids with health concepts. For example products in the Elixir skin-care-product line contain an ingredient to protect sunbathers from ultraviolet rays. The company has carefully researched all market segments, targeting them with certain products. For the rapidly growing older group, Shiseido introduced Medicated Flowline Active, used to prevent hair loss, promote its regeneration, and aid in circulation of the blood. Cle de Peau Program Care is designed to prevent skin from aging and to help it recover a youthful look. A chain of sports clubs and restaurants and a line of health foods also promote physical fitness. In 1986 Shiseido acquired Carita, a French beauty salon and beautician school chain, and in 1987 Shiseido opened another beauty salon in Paris. The company acquired the U.S. hair-wave-product manufacturer Zotos International in 1988.

Some product lines have been discarded despite brisk sales. Environmental concerns have caused Shiseido to phase out products such as aerosol spray cans and nonbiodegradable diapers. New products and product lines continue to spur additional business. Research and development have been important to Shiseidos operations since its earliest days. Pharmaceuticals, as well as cosmetics, are being developed and tested in the companys domestic and overseas research centers. In 1990 Shiseidos first prescription drug, a cataract treatment, was on the verge of introduction. Shiseido also opened research facilities in France, in 1988, and the United States, in 1989. In 1990 the company announced plans to begin manufacturing cosmetics in France in 1992.

During the late 1980s Shiseidos three-year reorganization program strengthened its sales network and reaffirmed its long-held leadership position in the field, under the direction of president and CEO Yoshiharu Fukuhara, a grandson of Shiseidos founder and nephew of Shinzo Fukuhara. The company has enjoyed growth and longevity in a field where a products appeal is often ephemeral.

Principal Subsidiaries

Osaka Shiseido Co., Ltd.; Shiseido Kako Co., Ltd.; Shiseido Shoji Co., Ltd.; Shiseido Higashikanto Sales Co., Ltd.; Shiseido Cosmetics (America) Ltd. (U.S.A.); Shiseido International Corporation (U.S.A.); Zotos International, Inc. (U.S.A.)

Further Reading

Tanner, Andrew, Is beauty more than skin-deep?, Forbes, December 16, 1985; Shiseido: Company Press Kit, Tokyo, Shiseido Company, Limited, 1990.

Betty T. Moore

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