Shiseido’s Identity Crisis

10 years ago, Shiseido ratified a new tagline to describe its expansive ambitions to “Be a Global Winner With Our Heritage,” commencing a period of international expansion that was going well until it wasn’t.

A perfectly terrible storm was waiting on the horizon. The company’s largest markets of Japan, China and the US, alongside travel retail, were hit the hardest; Sephora tweens came and went; major acquisitions were reversed and executives shuffled in and out, unable to stem losses or steward the business forward.

“Shiseido has suffered, I’d say, more than any other beauty conglomerate with the slowdown of the Asia Pacific market,” said Rishum Butt, a beauty industry consultant. Net sales for 2024 totaled ¥990 billion ($6.7 billion), down from $10 billion five years ago, but the loss is more profound — the value of the yen has lost more than a third of its value in that time.

“Things might seem OK” on paper, said Butt, “but what that’s disguising is actually a big[ger] issue, which is that they’re overexposed to a market which has no clear sign of recovering anytime soon.”

The latter half of the 2010s was a golden age for Japan’s largest and the world’s oldest beauty company, which saw sales of over $10 billion and an all-time peak in its stock price. By 2019, it had not only three prized possessions in Shiseido, Clé de Peau Beauté and Nars but had made a number of acquisitions to penetrate the US market, including prestige makeup brands Laura Mercier, Bareminerals and Buxom and the skincare label Drunk Elephant, for which they paid nearly $1 billion in 2019. At the same time, the company grew more reliant on its China and travel retail segments, and was about to get rocked by the Covid-19 pandemic like the rest of the world.

Ahead of its second-quarter earnings release on Wednesday, investors and analysts are expecting Shiseido to miss expectations once again as the company continues to grapple in the short term with global tariffs and sales slowdowns in the US and Japan. They’re also looking for evidence of a turnaround in progress. Shiseido has significantly restructured itself in the past five years, winnowing its global workforce from 48,000 to 33,000 and shedding brands it acquired during a more optimistic time. Even its crown jewel, the ultra luxe line Clé de Peau Beauté, is in flux, and now shares a team with brand Shiseido, according to multiple sources. Another source close to the brand insisted the two remain distinct entities. Shiseido did not respond to a request for comment owing to a pre-earnings quiet period.

These cost reduction efforts are a “key discussion point from investors,” said Oliver Matthews, an analyst at investment bank CLSA who covers Shiseido. “The question is, is it enough? Or something that still requires more work?”

Beyond operational issues, the company needs to carve out a definitive place in the global beauty world order. Early in the pandemic, the conglomerate pegged its recovery on the belief that prestige makeup sales would pick back up before it swiftly introduced a new mandate to become the world’s number one skin health company.

A focus on skincare could lead Shiseido to victory. But in its quest for global domination, it has turned away from its core market. 42 percent of the company’s net sales came from Japan in 2017; today, it’s 29 percent. Shiseido’s difficulty conquering the world’s biggest beauty market, the US, paired with its struggles closer to home, suggest that the company’s current focus may be too far-reaching.

“Another question is, to what degree should they, in fact, invest in the US and Europe?” Matthews wondered. “Or should they just focus on their right to win in Asia?”

Lost in Translation

It is both telling and paradoxical that the best-selling luxury Japanese skincare in the US comes from a brand with little authentic Japanese heritage at all; Tatcha, launched in 2009.

The brand’s Taiwanese-American founder Vicky Tsai was inspired by the beauty habits of Japanese geisha performers, who blotted their faces with oil-wicking papers and cleansed their makeup with featherweight camellia oil. Tatcha became a hit at Sephora, and sold to Unilever in 2019 for an estimated $500 million.

Shiseido’s most successful brands with global appeal are Clé de Peau Beauté, which takes pains to look more French than Japanese, and mainline Shiseido, which just launched a $145 serum with whole camellias from the Gotoh Islands. Young consumers don’t know Clé de Peau Beauté, and may only recognise Shiseido from accompanying their mothers to department store counters, where they themselves would never shop, preferring instead to visit Sephora.

This inability to connect with younger consumers, and a desire to win in specialty retail, was largely the inspiration behind Shiseido’s 2019 blockbuster purchase of Drunk Elephant, a skincare label with a premium positioning that scaled to a near billion dollar brand without rare botanicals or century and a half-old heritage. But Drunk Elephant was caught up in a now-cautionary tale, becoming quickly adored by Sephora tweens who later moved on to cheaper, more age-appropriate brands. Sales dropped 65 percent in 2024, pulling Shiseido’s US earnings with it.

Over the past five years, as long as Drunk Elephant has been in the business, Shiseido Americas has cycled through CEOs. There was Marc Rey, who oversaw the Drunk Elephant acquisition, unloaded the three makeup acquisitions to private equity firm Advent International and then resigned in 2020; followed by Ron Gee, the Americas CFO who took over his role until this year, when he was replaced by EMEA CEO Alberto Noé.

Poor management aside, the Drunk Elephant episode was “a strategic misstep,” Butt said. Earlier this year the company announced it would pivot the brand in a more clinical direction, but it remains to be seen if alienated customers will return. Nars has been left to thrive — its Radiant Creamy Concealer is the number one best-selling concealer at Sephora — but it’s an open question what will happen to the brand under Shiseido’s skin-focussed regime.

“They would like to replicate that initial success with more of their portfolio, but I get the feeling that’s an organisational capability, not something you can easily buy,” Matthews said, adding that anchoring its global strategy around acquisitions like L’Oréal has not panned out.

Slow to Move Quick

Shiseido’s greatest asset is its remarkable heritage. Founded in 1872 in Tokyo as a pharmacy that stocked medicines from the global West, the company is arguably the oldest beauty conglomerate in the world. (Procter & Gamble was established in 1808, but didn’t mint a beauty product until it launched Ivory soap in 1879.) Despite local competition with Kao and Kosé Corporations, there is no bigger brand name in Japanese beauty than Shiseido.

While its home country continues to be the brightest spot in Shiseido’s regional overviews, and has been bolstered slightly by the weaker yen and influx of tourists, makeup sales are softening fast: Japan’s market is favouring “daily goods” like groceries or personal care products, wrote Morgan Stanley analyst Wakako Sato in July, with cosmetics “seeing a surprisingly rapid slowdown in inbound demand.”

China’s trend toward discounting, and travel retail’s continued struggles, both point to issues for Shiseido, said Matthews. But it also has too many brands in its home country, which contributes a smaller and smaller percentage of its global sales. Shiseido’s strengths are in its prestige lines like Elixir, which is gaining in China, and Clé de Peau Beauté. Both are luxury brands not known for their viral moments or TikTok appeal. Other lines, like the reasonably-priced, sensitive skin-focussed Ihada could be easily transplanted into foreign markets with the power of Shiseido’s brand name.

Contrast Shiseido with Kao Corporation, which does the lion’s share of its business in Japan but is pushing overseas in buzzy categories like sunscreen — its brand Bioré, known for its watery hero sunscreen, launched into the US in 2024, and is ramping up its foreign manufacturing capabilities in the US, Spain and Germany. Bioré is better primed to compete with popular sunscreens like Beauty of Joseon’s Relief Sun ($14) or Ultra Violette’s Future Screen ($34) than Shiseido, whose range of sunscreens hover around $50. Shisiedo’s Korean peer Amorepacific maintains department store presence via labels such as Sulwhasoo, but its lower-priced lines like Laneige and Innisfree have made a bigger splash overseas.

“All of [Shiseido’s] innovation is quite expensive,” Butt said, noting the wave of customer preference toward inexpensive products. “But they’re harming themselves by not having something to occupy that entry-prestige, masstige price point.”

The beauty industry has changed faster than anticipated, a fact Shiseido’s board has acknowledged: Chair Yoshihiko Hatanaka, an external director appointed in 2024, cited the company’s efforts toward “dismantling outdated structures that could not adapt to market shifts,” in a dialogue last year.

The world’s oldest beauty company, remaking itself from within. How long could that take?

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