Shiseido’s 2020 First Quarter Earnings Look to China for Future Results

Japanese beauty leader Shiseido Company Limited announced its 2020 first-quarter earnings. These come at a time of unprecedented challenge for brands who are coping with massive economic downturn as a result of COVID-19. Yet the Beauty sector at this time has held relatively strong. Even so, Shiseido reported that COVID-19 had a significant impact on net sales and operating profit, which were down 16% and 83% respectively. In terms of net sales, all areas experienced a marked drop with China coming in at -12%. It “bottomed out in February” but is projected to be back on the “road to recovery” by March. This is an impressive turnaround, considering that the China market experienced negative growth in offline sales and saw 70% store closures. Online, however, it was a different — and far better — story, with strong demand for beauty products and continued growth in its e-commerce business. Consumer purchases in the prestige sector (brands including NARS and Shiseido) were strengthened by Women’s Day promotions and grew 160% during the month. Reportedly, April’s online sales figures for China are back to pre-virus levels. For travel retail though, with international flights significantly curbed, the absence of Chinese travelers was identified as a “major challenge” in the earnings. By March, Chinese travelers dropped by 90% which chimed with offline store closures and curtailed operating hours. This was even more stark given a lift in sales in January from domestic and local markets yet by February the market was struggling to combat a drastic decline in sales of 20%. One of the world’s oldest cosmetics companies, Shiseido Company Limited had been ramping up its China strategy during early 2020. In January, it opened a Shiseido China Beauty Innovation Hub in Shanghai for consumers and industry alike to connect. At the time, Kentaro Fujiwara, CEO of Shiseido China announced it was “committed to further growth through sustainable, long-term development” [in China]. Moreover, Shiseido’s quick reaction to the Coronavirus outbreak in February followed furthering indicating its loyalty to its many Chinese customers: The company created a number of responsive initiatives including a donation of 10 million CNY to the Shanghai Charity Foundation, a redirect of 1% of sales from Asian markets to “Relay of Love” project to carry out relief activities and product deliveries and production of hand sanitizer and donations of masks among other relief products. Given the importance of the Chinese market, it’s little surprise the brand has been doubling down on a commitment to reaching Chinese consumers in their local market. In April, Shiseido staged an online launch event on Chinese video platform Bilibili to promote an illuminating serum. Unlike traditional livestreams, the launch was product-oriented instead of sales-driven. Brand ambassadors were invited to interact with users in real-time and the live event was well-received by Chinese young audiences. It received over 1.23 billion views and has over one billion engagements — indicating the brand is over its temporary dip — at least in China. But the ongoing effects of COVID-19 has seen netizens on the mainland redefining their idea of beauty in 2020. As social media emerges as the leading medium influencing consumer beauty education, Shiseido has been at the forefront of leveraging this changing climate in the China market. It now sees this crisis as a transformative opportunity. Luxury beauty products are a much easier purchase to justify than, say, a new piece of ready-to-wear, during a time of financial hardship or concern. Moreover, an increased emphasis on health and wellness — on feeling good — are factors that are underpinning consumer choices during this time, which dovetail nicely for the brand. While the 2020 first-quarter earnings report noted that the business environment is as of yet uncertain and likely to foster a recession, we’ll need to wait until Q2’s announcement for more clarity. However, if Shiseido’s remarkable recovery continues unabated in China, the importance of the country to secure brand recovery cannot be underestimated — given its size and love affair with beauty brands. As this indicates, even during a pandemic your audience is still in China.

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Shiseido’s 2020 First Quarter Earnings Look to China for Future Results