Corporate Strategies and 2022 Results

In 2015, Shiseido launched its medium-to-long-term strategy, VISION 2020, for the company to remain vital for the next 100 years. To “Be a Global Winner with Our Heritage,” we first invested in Shiseido’s high price range skincare, makeup, and fragrance as part of our Prestige First strategy.

In addition to investing in our R&D, supply chain, digital, and IT, which are the foundations for sustainable growth, we built a global matrix organization integrating regions and brand categories based on our “Think Global, Act Local” concept, delegating broad responsibility and authority to each regional headquarters.

As a result of these reforms, we surpassed 1 trillion yen in net sales in 2017, three years ahead of the VISION 2020 target. In 2018, our operating profit rose to 100 billion yen, two years ahead of schedule. And in 2019, we reached our operating margin target of 10%.

Despite this steady growth, the spread of COVID-19 in 2020 rapidly changed the business environment and brought to light several management issues. Shift in consumer values and purchasing behavior required urgent changes to our business model, which had been based on high fixed costs footed in high gross profit margins. We reassessed this cost structure and aimed to improve profitability in the Americas and EMEA businesses, reduce our dependence on inbound tourist demand in the Japan business, and address other key issues.

In 2021, we took these challenges and the external business environments into consideration in order to formulate our medium-term strategy WIN 2023. Accounting for 2021 to 2023, WIN 2023 represents the first step toward our 2030 vision to become a "Personal Beauty Wellness Company."

Designed to solidify our foundation as a skin beauty company, WIN 2023 included implementing structural reforms to achieve an operating margin of 15%, restructuring our business portfolio, increasing cost competitiveness, and improving productivity and efficiency to enhance profitability.

Regarding our brand strategy, we concentrated our resources on skin beauty, an area of our strength and where strong market growth is expected. We aimed to promote our brands, expand our portfolio, and develop new businesses in this area. We targeted to increase our Skincare Sales Ratio to 80% by 2023 and already achieved over 70% in 2022.

In addition, we positioned digital transformation (DX) as crucial for rebuilding our business foundation, and we have thereby been expanding our skin diagnostic capabilities through data and beauty tech, accelerating e-commerce and omnichannel initiatives, strengthening our data analytics and digital marketing expertise, acquiring and training digital talent, consolidating our organizational structure, and increasing business collaboration with our partners. As a result, our e-commerce ratio grew to 33% in 2022, nearing our 2023 goal of 35%. We also established the R&D philosophy DYNAMIC HARMONY under our new R&D structure, revamped in January 2021, and to work on new strategies to drive innovation. For our supply network, we strengthened our production and logistics and started operations at three new domestic factories in Nasu, Osaka Ibaraki, and Fukuoka Kurume.

We improved our profitability and financial base through these initiatives, but our net sales and profits for 2022 continue to be challenging, primarily due to the sluggish recovery of markets in Japan and China because of COVID-19.

Robust sales in the Americas, EMEA, and Travel Retail offset year on year revenue decline in China caused by uncertain environments, including the continued spread of COVID-19 and China’s Zero-COVID policy. In Japan, the market for mid-priced products began to recover in the second half of the year; however, delayed recovery in the first half resulted in flat year on year performance. E-commerce sales achieved positive overall growth despite the slowdown of China’s largest e-commerce event, Double 11. High-prestige brands and product lines performed particularly well. Looking at the performance of specific brands, we saw Clé de Peau Beauté capture steady growth, mainly in China's high-prestige market, by strengthening the communication of its functionality and efficacy. Meanwhile, NARS and narciso rodriguez sustained robust global growth with new products, driving overall performance.

As a result, net sales increased 5.7% year on year to 1 trillion 67.4 billion yen, or 0.9% on a like-for-like basis excluding the impact of currency exchange and business transfers.

Our core operating profit increased by 8.8 billion yen to 51.3 billion yen. Key factors driving this increase include our continued flexible cost management across the Company, the reduction of fixed costs under structural reforms, the impact of the yen’s depreciation, and our additional investments of 10 billion yen into medium- to-long-term sustainable growth, some of which are already producing results.

Profit attributable to owners of parent was 34.2 billion yen, a decrease of 12.7 billion yen year on year. In 2021, we recorded a 58 billion yen gain in non-recurrent items, in part due to gains on the transfer of our Personal Care business. In 2022, the impairment loss associated with the transfer of manufacturing business for personal care products was partially offset by gains earned on transferring our Professional business, resulting in a loss of 4.8 billion yen in non-recurrent items.