Shiseido, the largest beauty giant in Japan and Asia, has underperformed in terms of sales and profits.
Following a 15% plunge in its financial report released yesterday, the stock price plummeted by another 15% during trading today, evaporating a market value of over 520 billion yen in two trading days.
Shiseido, currently undergoing painful transformation, is struggling in a &#34;three years and another three years&#34; strategic reform.
<h2>Underperformance Leads to a 37-Year Record Drop in Stock Price</h2>
Shiseido presented a financial report that shocked the market.
According to the company's financial report, the revenue in the first half of 2024 reached 508.5 billion yen, a slight increase of 2.9%, but with an operating loss of 2.728 billion yen.
The main reason for the operating loss was the one-time reform cost of 22 billion yen.
The core business profit was 19.3 billion yen, a 31% year-on-year decline.
From the performance of specific brands, the results were also disappointing.
The INS internet celebrity brand &#34;Drunk Elephant,&#34; acquired by Shiseido for 6 billion in 2020, maintained an 11% sales growth. However, the main brand SHISEIDO saw a 6% year-on-year decline in sales, NARS a 7% decline, and the sales of Elixir, which has been continuously withdrawing from the Chinese market, plummeted by 23%.
The management commented in the financial report: &#34;Due to the weakness in duty-free shops, the Chinese and American markets, the sales of the group's major brands have stagnated or even declined.&#34;
The core reason behind this, according to the management, is the &#34;nuclear wastewater incident&#34; leading to Chinese consumers' resistance.
This was a solid blow to what was once Shiseido's most important overseas market.
<h2>Intensified Industry Competition, Three-Way Encirclement by China, South Korea, and Europe</h2>
The &#34;nuclear wastewater&#34; is not the only pressure on Shiseido. Behind the intensified industry competition lies a more fundamental change in underlying logic. Brands from China, South Korea, and Europe are encircling Shiseido.
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<li>Domestic Brands</li>
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In the past two years, with the weakening of macro consumption and the increasing demand from consumers for product cost-effectiveness, coupled with the event-driven nature of the nuclear wastewater incident, domestic beauty brands have risen rapidly.
In 2023, Perfect Diary achieved a revenue scale of 8.9 billion yuan, firmly establishing its position as the leader among domestic brands. In the challenging Chinese market where Shiseido struggled to grow, Perfect Diary and Beteny both achieved high revenue growth rates of 34.56% and 27% in the first quarter.
In the sales rankings of beauty, skincare, body care, and essential oil categories on e-commerce platforms, Perfect Diary ranked first. Moreover, the brands with sales growth of over three digits in the ranking are all domestic brands
<h3>2) Korean Brands</h3>
Korean brands are likely to be important &#34;invisible competitors&#34; to Japanese brands in the Chinese market.
Data released by the Korean Customs for the first half of the year shows that Korean cosmetics exports grew by 18%, reaching a record-breaking $4.82 billion. This marks the first time in 3 years that it has surpassed the previous peak of $4.63 billion in 2021. Looking ahead to the whole year, Korean cosmetics are likely to achieve a sales milestone of billions of dollars.
From my personal experience with short videos, the collaboration between Korean brands and influencers is exceptionally close, evidently capturing a user market that Shiseido has not paid much attention to.
<h3>3) European Brands</h3>
As the world's largest beauty giant, L'Oréal's latest financial report released last week shows that the high-end market remains resilient, but the Chinese market also faces challenges.
L'Oréal's luxury cosmetics business unit generated revenues of €7.579 billion in the first half of the year, a 4% year-on-year increase, with same-store sales growing by 2.3%; however, there are signs of accelerated sales in the second quarter, with a 5.8% year-on-year increase to €3.766 billion and same-store sales growth of 2.8%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/dc68f146-f382-47ae-bc81-8d5b3d4a084f.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/dc68f146-f382-47ae-bc81-8d5b3d4a084f.jpeg"/>
L'Oréal's management pointed out that the beauty market in mainland China showed negative growth in the second quarter due to a high base in the same period last year and exacerbated by sustained low consumer confidence. CEO Hieronimus further warned investors that the global beauty market is expected to grow by 4.5% to 5% this year, lower than L'Oréal's previous expectation of 5%.
Shiseido's ambition to enter the European and American markets is likely to face significant resistance.
<h2>Transformation and Reform Dilemma for Shiseido</h2>
Shiseido, in the midst of a transformation seeking change and reform, is facing a dilemma.
Slow innovation, weak new channels, and pricing mistakes are important reasons for Shiseido's repeated strategic swings during this period.
1) Slow Innovation Iteration
The rise of the concept of &#34;efficacy skincare&#34; has been an important increment in the beauty market in recent years, creating a trend of ingredient-focused, formula-focused, and efficacy-focused products, leading to higher demand for skincare products. However, Shiseido's response has been slow, only introducing its patented ingredient 4MSK (Potassium Methoxysalicylate) and ULTIMUNE skin activating ingredient products in 2021, significantly lagging behind the market.
2) Weak Innovation Channels
As a Japanese company, Shiseido Group still focuses mainly on optimizing offline channels, such as changing product SKUs, renovating stores, and accelerating update cycles. However, with the rise of e-commerce, especially the increasing importance of live streaming e-commerce, Shiseido's investment in this area is lower than expected. For example, Shiseido's flagship store account on a certain short video platform has videos with less than 10,000 likes, indicating significant traffic issues.
3) Pricing Mistakes
Shiseido also wants to embrace a cost-effective route, such as expanding the customer base of the highest-priced brand CPB, which accounts for about 20% of sales, to a younger demographic and conducting online sales, launching &#34;The Serum2&#34; essence priced at 19,800 yen. The ultimate goal is to attract consumers under 40 in lower-tier cities
However, Shiseido's own struggles and anxieties are evident in CFO Ayako Goto's concerns at the performance meeting.
&#34;The entire market has been caught up in a price war.&#34;
How can Shiseido maintain its high-end brand image in an increasingly pragmatic consumer market, while also gaining users and market share through cost-effective products? Shiseido has yet to find this balance.
Will the &#34;Fundamental Countermeasures · New Management Strategy&#34; at the end of November bring a turning point for Shiseido?
Will the decision to weaken the importance of duty-free business and the Chinese market, and instead focus on the European and American markets, help salvage this top Asian brand?
The capital market has already voted with its feet

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A near 30% plunge in two trading days, with a market value evaporating by approximately 500 billion yen. What are the reasons behind Shiseido's poor performance?

Consumer Insights | Why did Shiseido plummet 30% in two days?