Message from the CEO

“Build Back Better”
Looking back, we made the right choice three years ago when we faced COVID-19. At that time, we launched the slogan "Build Back Better," which aimed not just to return the company to pre-pandemic levels but to create a company that is more profitable and has higher growth potential than ever before.

In 2021, Shiseido established its vision for 2030 to become a "Personal Beauty Wellness Company" and launched the medium-to-long-term strategy WIN 2023 and Beyond to achieve this vision. Under the extremely challenging circumstances caused by the pandemic, we were forced to consider the risks surrounding the company's very survival. We decided to execute radical business reforms to become a stronger company than we were before the pandemic.

We first focused on selection and concentration in the skin beauty category, reformed the profit structure of our businesses in the Americas and the EMEA businesses, and successfully carried out a business portfolio restructuring of over 200 billion yen. For divestitures, based on the PEOPLE FIRST principle which is at the core of my management philosophy, we carefully decided the best path for both our company and the businesses and brands by discussing how we can provide further fulfillment and growth opportunities for everyone involved.

At the same time, we kept our investments for medium-to-long-term growth toward "Build Back Better,” despite many uncertainties. Specifically, we made major investments that include capital expenditures totaling 155 billion yen for production and distribution facilities, our digital transformation project FOCUS, and R&D of approximately 3% of net sales. At the same time, we optimized costs by reducing marketing expenses in line with sales decline to protect our bottom line. I had a strong sense of crisis that if this situation were to go on for a long time, we would end up in a diminishing equilibrium. In the second half of 2022, therefore, we executed additional strategic investments of a total of 10 billion yen —5 billion in brand equity and 5 billion in people—to revitalize our businesses and organization.

As a result of these reforms, the sales ratio of our skincare brands exceeded 70%; the long-standing issue of profitability in the Americas and the EMEA businesses significantly improved, and we were able to strengthen our business infrastructure in areas such as IT and production, steadily laying groundwork for strong growth.

One of the internal changes I feel proud of is the ownership taken by each brand and business to concentrate on skin beauty. For example, NARS, primarily a makeup brand, has adopted Shiseido’s long-accumulated skincare knowledge and technology and created Light Reflecting Foundation, which applied the value of skin beauty to makeup and became a huge hit worldwide. It became the No.1 bestselling new product in the US prestige market in 2022, significantly increasing the exposure and presence of NARS in the market.

The Future of Skin Beauty

Message from the Brand Head
(NARS, Drunk Elephant)
Barbara Calcagni

I would also like to mention Project Phoenix, launched on the occasion of Shiseido’s 150th anniversary. All of our employees participate in this project, and I am proud that more than 14,000 new ideas were generated and that we had many fulfilling discussions during the process. Many initiatives that grew out of Project Phoenix have already been put into action, and I will make sure these seeds will take root and grow to become Shiseido's future strengths.

One thing we were unable to predict when we launched WIN 2023 and Beyond was the sluggish recovery of Japan and China. It is our top priority to regain growth momentum in Japan and to rebuild a profitable base, given the scale of the business in our home market. We must also recognize that circumstances have changed—the impact of the pandemic has been prolonged compared to the U.S. and Europe, masks have become a normalized custom, and there has been a massive decline in inbound tourism. However, we are aware that there is no longer an excuse to blame these factors as reasons for the underperformance of our Japan business after three years. We will do whatever it takes; thoroughly review our brands, channel strategy, cost structure, and culture, to realize a successful comeback.

In 2023, we established a new medium-term strategy, SHIFT 2025 and Beyond, but our vision for 2030 remains unchanged.

In 2030, we aim to create a society where everyone can enjoy a lifetime of happiness through the power of beauty, where every individual is respected and where everyone can play an active role. We shall strive to attain an ideal global environment that supports lives of vibrancy.

We will also expand our various segments of skincare, which is our strength and a market that continues to grow, and adopt it to other categories such as makeup and fragrance. We aim to become the world's No.1 brand in sun care, while developing our inner beauty business. I see Shiseido playing a role in expanding the skin beauty market and establishing the value of skincare and wellness in society.

In order to achieve this, it is crucial to transform Shiseido into a company that attracts outstanding talent from all over the world.

I believe that our employees—our people—are the most important resource we have to enhance corporate value. By interpreting people as "capital" and properly investing to maximize our people’s potential, we will be able to enhance corporate value over the medium to long term.

In an era of constant change, competition for talent acquisition will continuously intensify. Against the backdrop of the development of global strategy, Shiseido already attract talents from around the world, but we need to take a further step. We will create an organization where people with different values, backgrounds, and diverse personalities come together, learn from each other, and continue to take on new challenges. To this end we are focused on communicating the vision and innovation value we wish to achieve.

Through the achievements of WIN 2023, now is the right timing for the next step. Our new medium-term strategy, SHIFT 2025 and Beyond, is based on shifting from defense to offense, to achieve sales growth through proactive investment. Investments will be concentrated in three areas that drive value creation: brands, innovations, and people.

Regarding brands, we will establish an ideal portfolio from global, regional, and strategic perspectives. Cultivating our brands and expanding loyal customers is a necessity for future growth. We will invest an additional 100 billion yen into marketing in the three-year period from 2023 to 2025.

In brand and product development, we will focus on localization. We believe that innovations tailored to the culture and behaviors of each region are essential in pursuing beauty for each consumer. Learning from the success of the in-house development of our new European sustainability-conscious brand Ulé, we will continue to bolster research and development in each country and region from 2023 onwards, strengthening the global R&D structure while continuing to centering on basic research in Japan.

However, innovation is not only about the research and development. Three new factories utilizing cutting-edge robots and IoT technologies are ramping up for full operation, further refining the high-quality Japan is known for, while at the same time, increasing productivity and cost efficiency.

As mentioned earlier, we will continue to accelerate investments in people to become a company that attracts the best talents for value creation. Our platform for hiring, placement, and development of talent has been strengthened through the systems that enable diverse working styles, the transition to a job-grade-based remuneration system, and reforms to properly operate these. The next step is to grow leaders who can drive unique value creation and regional innovations at Shiseido. In the autumn of 2023, we plan to open Shiseido Future University, a facility for the professional development of Shiseido’s next generation of leaders, in Ginza—the birthplace of the company. This unique facility will combine a cutting-edge, globally competitive business education with Shiseido's heritage and sensitivities for beauty and art, fostering leadership for a new era. I will serve as the founding dean of the university to make sure we execute Shiseido's core management principles of PEOPLE FIRST.

As a quantitative target, we will again target to achieve a core operating profit margin of 15%, which we were unable to reach under WIN 2023. But why the core operating profit margin? And why 15%? The Board of Directors has discussed this many times, and we have determined that 15% is an important milestone as profitability required for a globally competitive company, as well as the profit level for the cycle of investment and growth. The entire management is committed to this goal.

We have set 2027 as our target for achieving this goal, taking consideration of the current situation. We will pave the way by first achieving a 12% margin in the three years until 2025 through aggressive investments and transformations.

At the same time, we will accelerate our sustainability efforts toward realizing our vision for 2030.

Shiseido aims to be the most trusted beauty company, attracting outstanding talent and meeting social and consumer expectations as a leader in skincare and wellness. We will not only establish a medium-to-long-term roadmap for addressing social and environmental issues such as climate change, water resources management, and human rights but will also fulfill our role as a leader in the beauty industry and Japanese society in terms of circular model and diversity and inclusion (D&I). Promoting D&I is extremely important for Japanese society; the country is ranked in the unenviable position of 116th in the world on the Gender Gap Index. As the chair company of the 30% Club Japan and the Japan Business Federation (Keidanren) Diversity Promotion Committee, Shiseido has launched the Shiseido D&I Lab to share best practices, promote activities, and study the causal relationship between diversity and corporate value. We intend to make D&I a higher-priority initiative across Japanese society by presenting concrete and compelling evidence through our findings.

Under a new management structure effective January 2023, Kentaro Fujiwara was appointed President and COO, and I became Chairman and CEO.

Top management succession has long been discussed at the Nomination & Remuneration Advisory Committee as one of the company's most pressing management issues. This specific succession plan began in 2019 when my term as CEO was extended until 2024. At the time, when the Nomination Advisory Committee first approached me about continuing in my role as CEO, we objectively discussed the best management structure. We decided that we should decide upon the candidate using the next three years, and to secure the last two years of my term as the transition period. The change in our management structure announced this time is consistent with the timeline.

The reasons for choosing Mr. Fujiwara as President and COO include his experience in the global management, particularly in the China business, his charisma, and his ability to make tough decisions as a leader. However, most importantly, having worked with him directly for eight years, I feel that he is a trustworthy and capable person to whom I can entrust the future of Shiseido.

Over the next two years, I will work alongside Mr. Fujiwara as his role expands with new responsibilities. But first, he will be focusing on short-to-medium-term business matters, particularly focusing on evolving the business model and, above all, the steady achievement of annual business targets

When I became President of Shiseido in 2014, I declared to create a company that would shine even brighter in 100 years’ time.

And I am pleased to say that, having celebrated its 150th anniversary last year, Shiseido is now successfully embarking on a new path toward growth for the next 150 years. Together with our diverse people and each of the stakeholders, we are excited to realize our corporate mission—BEAUTY INNOVATIONS FOR A BETTER WORLD. I ask for your continued support on this challenging but rewarding journey.