2022 marks the 150th anniversary of Shiseido’s founding. We renew our appreciation for our customers, shareholders, investors, and all other stakeholders who have supported us and realized our business continuity over the last century and a half. While staying true to the spirit of BEAUTY INNOVATIONS FOR A BETTER WORLD, a credo that has shaped Shiseido since its birth, this year we will take our first step toward a new future. I ask for your continued patronage as we work to build the foundation to ensure Shiseido will shine for the next century and beyond.
Our 2030 Target: A Truly Global Company
Our vision for 2030 is the creation of a sustainable world where everyone can enjoy a lifetime of happiness through the power of beauty. By 2030, we aim to become the world’s No. 1 skin beauty company and the most trusted beauty company by the society worldwide with our net sales target of ¥2 trillion and operating profit margin of 18%, a level comparable to our global competitors.
In 2021, we launched our medium-to-long-term strategy WIN 2023 and Beyond, in which we articulated our response to rapid changes in the external environment caused by the COVID-19 pandemic: focusing on skin beauty, our area of strength; rebuilding our business portfolio; and improving profitability, particularly in our Americas and EMEA businesses. Through these strategic actions, we are pursuing fundamental reforms with a strengthened focus on profitability and cash flow. We also continue aggressive investments into our brands, innovation, supply network, DX, and people to further enhance our foundation for growth as a skin beauty company.
In 2021, the first year of our medium-term strategy, we achieved robust business recovery from the previous year and accelerated DX. However, our most significant achievement was the restructuring of our brand portfolio. We made tough decisions for global transformation with agility and a sense of urgency, accomplishing structural reforms of businesses and brands at the scale of over ¥200 billion in net sales in a single year.
Regional Ownership—Key to Global Transformation
“Turning crisis into opportunity,” “structural reform,” “transformation.” These are all easier said than done, as they require us to touch upon sensitive topics involving employment and compensation of people as a result of business transfers or withdrawals. Inevitably, these reforms demand a host of considerations, tough decision-making, and execution with strong conviction. That is why ownership and authority by each region are paramount.
With the rapid spread of COVID-19 in early 2020, we experienced an unprecedented 30% drop in sales from the previous year, and the company's very survival was in jeopardy.
In such a situation, management has two options: ride out the storm or transform the company to make it more resilient than ever. The former option may have been an easier choice, but with no way of knowing the time horizon for the pandemic, I chose the latter. Under the slogan “Build Back Better,” we are undertaking reforms that tackle management issues head-on in order to become a more resilient company in terms of our brands, profitability, and corporate culture.
In May 2020, I communicated this resolve to our regional CEOs and asked each of them to come up with a plan for reforming their respective businesses. In June, they put forward their proposals, where each region envisioned reforms more drastic than I had imagined. They had fundamentally reevaluated their business models and structures, including the sale of brands, integration of offices, and cost reductions. They were prepared to make tough choices in order to protect profits and ensure further growth of the Shiseido Group.
Building upon these regional proposals, we established a Global Transformation Committee to implement the reforms, where I served as chair. Various discussions and deliberations by this committee shaped into concrete decisions, which were then approved by the Board of Directors for immediate and effective implementation.
In carrying out these reforms, we were able to maintain high morale and autonomy under the leadership of each region. Since then, the Global Transformation Committee has met more than one hundred times. The committee regularly reported to and received final approval from the Board of Directors, conducting various simulations related to finances and people and taking measures to deal with challenges faced by the company.
An Uncompromising Approach to Employee Treatment
When transferring or withdrawing from a brand or business, I was most concerned about our employees. Adhering to one of Shiseido’s core management principles of PEOPLE FIRST, we wanted to secure employment and provide fair compensation in a rewarding workplace for every employee who had helped us build our brands and businesses.
In the transfer and joint venture establishment of our Personal Care business, implemented in July 2021, we placed particular emphasis on employee career opportunities and satisfaction. It was an exceptionally difficult decision, but the main reason for transferring the business was a difference in business models. Under Shiseido’s new strategy and business structure focused on prestige skin beauty, we would not be able to fully support employees involved in our Personal Care business. We therefore negotiated with the new owner, CVC Capital Partners, to provide them with future opportunities to grow and thrive after the transfer, and stipulated the contracts accordingly.
Similarly, in the case of three U.S.-based prestige makeup brands (bareMinerals, BUXOM, and Laura Mercier), transferred in December 2021, our top priority was to secure employment for all affiliated employees. Negotiations took time given the rare nature of our conditions in the U.S., however, we were able to keep the positions for most of our employees under the new owner.
Also, in the termination of the global license agreement with Dolce&Gabbana at the end of 2021, our focus was to give the utmost consideration to our employees, such as assistance in finding new employment. We made the decision to handle Shiseido’s responsibilities in good faith.
The transfer of our Professional Business, announced in February 2022, was also a decision brought about by the non-core positioning of the business. In our negotiations with the new owner, we focused on their ability to expand positions and careers for employees through aggressive investment and business development.
Business Restructuring for Profitability Improvement and Enhancing the Financial Base
Successful structural reforms have allowed us to make significant progress in building a strong business foundation. We are indeed delivering on our commitment to “Build Back Better.”
Going forward, we will further improve our financial structure through the elimination of low-profit businesses, item (SKU) reduction, and greater productivity, in addition to increasing the composition of our highly profitable skin beauty business. Furthermore, our cash flow improved significantly with the equity ratio reaching 46%, mainly due to the reduction of interest-bearing debt. This enhanced financial base will enable us to make aggressive investments for further growth, including new business development and M&A.
Under WIN 2023, we are targeting a COGs ratio of 21%, SG&A of 64%, and an operating margin of 15% by 2023. Compared to our 2019 performance, these targets are ambitious—2, 3, and 5 percentage point improvements, respectively—but this level of profitability and the ability to sustainably reinvest into growth are essential to keep pace with global competitors.
As such, we are committed to continue with this structural reform. In 2022, our priority is to ensure that our global transformation would have visible impact in bringing us back to a growth trajectory. We will accelerate DX and continue to transform our business foundation so that we can flexibly respond to changes in the environment and better position ourselves to grow our skin beauty business with high profitability.
Shiseido Aims to Empower Everyone to Live Their Lives to the Fullest Through Beauty
As part of our roadmap for WIN 2023 and Beyond, we are currently developing specific strategies for 2030. Here I would like to explain two of the directions toward 2030.
We believe that Shiseido’s value creation is rooted in leveraging the power of beauty to generate social value. Under our mission, BEAUTY INNOVATIONS FOR A BETTER WORLD, we will further enhance the personalized, high value-added products and services that we offer to consumers.
Over the years, Shiseido has developed a business that caters to the specific needs of each consumer. Building on this foundation, we want to realize a digital platform for beauty. We will collect and analyze data on the daily condition of consumers’ skin and body, expand our points of contact with them both off- and online, and provide comprehensive proposals not only on skincare regimens, but also on diet and sleep, which are indispensable for beautiful skin. This platform will be truly unique since our beauty consultants will always stay connected with consumers and become their trusted beauty and wellness partners through omni-channel communication. This idea of becoming a “Personal Beauty Wellness Company” is our corporate vision for 2030.
Shiseido aspires to become a true “Global Winner with Our Heritage,” a goal adopted when I first took office and one that has remained constant ever since.
Since then, in the first phase of our work to make Shiseido a truly global company, we have implemented a matrix organization that crossmatches six regions with brand categories, realizing localized management structures. The second phase will be about localizing our value creation.
Transforming our business will require innovative business creation and product development around the world while maintaining our Japanese heritage of technology, meticulousness, and focus on safety and quality. Because each region has its own culture and climate, it is essential that value creation originate not just in Japan but also in each of the regions. I am proud to say that we now have a team of diverse and skilled professionals thanks to stronger management in each of our regions, and we are becoming a company attracting and retaining talent. Local teams are expected to carry out ideas and initiatives unique to each region.
For example, the prestige skincare brand Ulé, scheduled for launch in EMEA in May this year, was developed by a team of women from France and Spain at our regional headquarters in Europe. They oversaw the entire brand concept, name, product design, and packaging. We see Europe as a leader in sustainability, and Ulé is a progressive brand that embodies their beliefs and ideas, a reflection of what the future should look like.
At the end of 2021, we launched Project Phoenix, a Group-wide bottom-up initiative in which each and every employee will be involved in providing ideas to create medium-to-long-term value for consumers. Our employees worldwide will take the lead in exploring ways of achieving our vision for 2030. We have already received many feasible proposals, which we plan to incorporate into different strategies by the end of 2022.
Refining Our Sustainability Strategy and Governance
At Shiseido, we must also refine our sustainability strategy to achieve our desired value creation.
Our vision for 2030—a world where everyone can enjoy a lifetime of happiness through the power of beauty—implies that every individual is truly empowered and can play an active role. It needs to be a world where people can enjoy beauty in a truly sustainable manner, leveraging the positive impact of the power of beauty while mitigating the potential negative environmental impacts from our business activities.
Based on this concept, we place sustainability at the core of our strategy, and all our employees promote activities that integrate our business with sustainability strategies. In terms of the environment, we have set medium-term targets for CO₂ emissions, water, waste, sustainable packaging, palm oil, and paper and are implementing three strategic actions throughout the entire value chain: reducing our environmental footprint, developing sustainable products, and promoting sustainable and responsible procurement that considers the environment and human rights.
In terms of social impact, we are particularly focused on diversity and inclusion (D&I). Along with creating an inclusive society through our beauty business, I will contribute to the transformation of Japanese society and the business community through my work with KEIDANREN (Japan Business Federation) and the 30% Club Japan, of which I am the chair. It will be essential for Shiseido to continue to lead by example, and we plan to accelerate our initiatives without cutting any corners.
Going forward, corporate governance will become increasingly important.
I have learned a lot about corporate governance, particularly the importance of transparency. Agile and flexible information sharing with external directors is crucial for them to make appropriate decisions based upon their trust and support.
That is why we have always kept our external directors up to date on the progress of our business transfers and structural reforms mentioned earlier. I also prepare and share with our external directors the results of meetings with shareholders and investors, detailing the discussions and their feedback. In addition to these regular communications, an annual CEO Review serves as a platform to explain specific areas of focus, achievements, unresolved issues, and potential risks.
As part of our governance development, we have appointed Charles D. Lake II and Mariko Tokuno to serve as external directors in 2022. In addition, we have implemented a process that clearly states, in advance, and allows for mutual discussions of the amount of time, level of quality, and responsibilities expected of all external directors. Shiseido is also working hard to further improve the effectiveness of the Board of Directors, which will include defining how meetings are structured, what is discussed, and allocating more time for strategic agendas.
We also recognize the importance of the CEO succession plan. I understand that this is a topic of great interest, having received many inquiries during our discussions with shareholders and investors. I am currently allocating much of my time to finding and training a successor and engage in ongoing discussions with external directors on this topic.
Building the Foundation for an Even Brighter 150 Years
It is a true honor and a privilege to be serving as President and CEO of Shiseido during its 150th anniversary of founding, as not many companies around the world can claim such a long history.
Cosmetics, unlike water, food, energy, or infrastructure, are not necessities of life. Yet we have continued to deliver value to the society for a century and a half. The beauty business is indispensable in its ability to contribute to the happiness of people everywhere, and the value it creates will become more important in the future.
At a press conference in December 2013, I said that as CEO, I would create a company that would shine even brighter in 100 years’ time. Now that we are celebrating our 150th anniversary, I have renewed my resolve to build a foundation for the next 150 years. I trust that in the future, the reforms of today will be seen as the turning point that allowed the company to thrive.
I hope to continue our dialogue with our shareholders and investors so that future generations can celebrate our 300th anniversary.
I ask for your continued support on this challenging but rewarding journey.
April 2022
Representative Director,
President and CEO
Masahiko Uotani
