Uotani-san, it’s been a year since we last talked. Let’s start with an overview of the beauty industry globally. How are things looking from where you stand?
Industry-wise it is really positive, really increasing in confidence. In 2016, exports of Japanese cosmetic products exceeded imports for the first time. Historically, in the beauty industry, we imported a lot from France and America. In 2016, the figure stood at around US$2.5 billion of exports with imports a little less than that. That means for the first time in many, many years that Japanese production of cosmetic products is booming.
Last year, you earmarked the travel retail channel as a global priority. How far down that road are you?
In the three or so years I have been at Shiseido, probably the best decision I’ve made is to put more investment and focus into the travel retail business. It’s a decision I’m so proud of. I can’t take the credit though! My colleagues convinced me that there was a great opportunity in the travel retail sector that, in the past, we were kind of missing out on.
Travel retail is a showcase for us, so I’m always using travel retail as an example when I talk to other regions: “Look at them. They are working hard, they are showing us we can do it” and it has motivated the whole company. So I’m happy but we must keep it going.
That showcase role is very important for you, isn’t it? It’s obviously an important volume and value channel in its own right but it’s also playing a wider role for the group. All those domestic customers flying around the world, seeing Shiseido, hopefully, at your best. That has to have a big knock-on effect on your domestic markets?
Yes, I agree. Our domestic business was kind of flat-lining for five or six years in the past. Now, with the new management in place, I am involved as Chairman of the domestic company and together we are working so hard and listening to our people on the front line: the beauty consultants.
For example, in January this year , we started a conference series for regional management and employees of the domestic business. Over eight conferences I was able to talk to 5,000 people, including 2,000 beauty consultants who work in our stores. This was something that never happened in the past. I wanted to talk to the people who work directly with our customers because I really respect what they do to build relationships and create connections.
The conferences took place over two-and-a-half months. It was physically tiring and consumed a lot of energy. But I knew it was worth it.
At each conference, I did a presentation which focused on what’s going on in the world. Even though it’s a domestic business, I told them: “You are part of the global business. We’ve got travel retail. We’re in China and America. We’re all working together as one group.” Some of the beauty consultants were moved to tears, saying: “This is the first time I really feel a part of our big business.”
At the same time, I emphasized the fact that Shiseido is a Japanese company originally and we must honor that heritage.
This has worked well and our pure domestic business is also growing now. On top of that, we have a lot of tourists, mainly Chinese travelers, coming into Japan and our Japanese business is enjoying double-digit growth. There is a great synergy between what I call these triangle touch-points.
Triangle touch-points? How do you mean?
Obviously, we have a strong, and growing, presence in Japan in the prestige business. Then in China, we have been there for 30 years, and that prestige business is really growing too. We are making big progress in terms of market share.
And then, travel retail —when people travel from China, from Japan, to other Asian countries, to America, to Canada (a lot of Asian consumers are now traveling to Canada), what they see and hear about our brands should be consistent with what they see at the airports when they come to Japan.
The key is having a cross-border marketing team, sharing the information, sharing the marketing plans, such as what kind of products to focus on, what kind of advertising or communication you are going to be having with consumers, what type of promotions you are running etc. It is vital to have consistency across the board.
I found, interestingly, that almost 80 percent of Chinese tourists coming to Japan buy cosmetics products. That’s 80 percent buying products from Shiseido and our competitors. These consumers are stimulated by the airport retail offering and then, when they return home, nearly 50 percent of those people repeat buy from the same brand.
So, travel retail as a customer recruitment tool is critical for you?
Yes, particularly in the airport terminal, in the duty-free shops in the airports. Here consumers are not doing their usual day-to-day kind of shopping. The occasion of setting off on your travels and the emotions that travel shopping inspires creates a special moment. The customers are enjoying shopping, looking around, buying gifts for their friends and families.
Having the three points connected – the China organization, the Japan organization and travel retail – means we can build on those sales. It’s not a case of Japan saying: “Oh no! I’m losing my business to China”. No. We are creating synergies.
Historically, with many companies – not just in beauty – there have been internal tensions as to how travel retail should be run. Should you have a central travel retail division, for example, or run it out of each domestic region?
Our global travel retail team now works very closely with their domestic market counterparts. For example, the travel retail team are very close to the China team as China is critical to the travel retail business. Equally, the team in China see the benefits of travel retail as a successful recruiter for the brand. We have seen a lot of repeat business from travel retail into the domestic market.
To facilitate this mutually beneficial way of working, I created a cross-border marketing team, reporting to me in Tokyo. It consists of people in Japan, Taiwan, China, India – a cosmopolitan team. They make sure that all our organizations are working together, coordinating via the three triangle touch-points. So, I’m hoping that this will result in more aggressively consistent advertising and a common marketing program when we launch a new product and also around specific events such as Chinese New Year.