Shiseido Company, Limited

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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 world’s third-largest distributor and retailer of cosmetics, surpassed only by Avon Products and L’Oréal. 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 competitors—domestic and overseas—over many decades. The company’s 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 company’s 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 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 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 regulations—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 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 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 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 Japan’s 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 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 by so many in Japan as the year of the great Kanto Earthquake—that Shiseido took a daring step that eventually expanded its business far beyond the city and made it a national concern. At Matsumoto’s urging, the company opened a series of retail outlets for Shiseido products—a franchise operation, in principle not unlike the franchise concept Ray Kroc of McDonald’s 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 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 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 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 concentration on military buildup and action 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 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 1950s—a position not successfully challenged 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.

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— for example, Bloomingdale’s in New York and Bullock’s 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 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 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 Shiseido’s size, the company has not strayed far from its founder’s 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 Shiseido’s operations since its earliest days. Pharmaceuticals, as well as cosmetics, are being developed and tested in the company’s domestic and overseas research centers. In 1990 Shiseido’s 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 Shiseido’s 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 Shiseido’s founder and nephew of Shinzo Fukuhara. The company has enjoyed growth and longevity in a field where a product’s 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.)