Faced with a maturing market in Japan, the nation’s largest cosmetics company has turned its attention to China.
In late September, Shiseido Co. launched cosmetics specialty store Huan Cai Kong Jian in Shanghai. The Tokyo-based cosmetics company plans to open four more such outlets, in Beijing and Shanghai, before the end of the fiscal year.
Until the launch of Huan Cai Kong Jian, Shiseido’s first wholly owned outlet selling its cosmetics products in China, the company had only been retailing cosmetics through 350 Chinese department stores.
“Considering the low-growth rate of the Japanese market, we have to expand the cosmetics business in other countries, especially in China,” said Tadakatsu Saito, Shiseido’s director, corporate senior executive officer and chief officer of international operations.
In November, Shiseido reported that its net profit in the first half of the current fiscal year fell by more than one-third from a year earlier to 6.56 billion yen, mainly due to weak domestic consumption.
Shiseido declined to reveal the profits of its China-based operations during the same period. A Shiseido spokesman said only that, with the exception of the period of the severe acute respiratory syndrome outbreak, the company’s sales in China have been growing at an annual rate of more than 120 percent.
“China is one of the most important countries for our overseas business operations, which cover 70 nations,” Saito said. “China is a huge market, backed by a population of about 1.2 billion, about 10 times Japan’s population.”
The Shiseido corporate group has set a 2008 sales target for the Chinese market of 100 billion yen. The company said the cosmetics market in China is expected to be worth 1.2 trillion yen by 2010. In 2002, the Japanese market was worth 1.4 trillion yen.
Shiseido’s outlets in China will offer 223 cosmetics items targeting middle-class consumers in major cities. The items will be different to those available from department stores, where Shiseido’s expensive Aupres brand is sold.
“To differentiate ourselves from other cosmetics shops, we are offering a consulting service at our outlet to teach customers how to use cosmetics,” Saito said. “We are using equipment to check customers’ skin condition so we can provide effective advice.”
He said Shiseido has dispatched experienced Chinese sales staff to its Shanghai outlet, and it might send Japanese employees to China to inform workers there of the latest cosmetics techniques.
“We are considering transplanting the accumulated knowhow of our first five outlets to local Chinese shops to turn them into (Shiseido) outlets,” Saito said.
Shiseido began selling cosmetics at department stores and hotels in Beijing in 1981. Since then, it has been expanding in China by establishing joint ventures and a research facility.
Shiseido has been building up its Aupres brand of cosmetics products since 1994. The Aupres range is sold only in China. Shiseido claims that Aupres cosmetics are the top-selling brand at more than 300 department stores.
“Aupres has been designated by the Chinese government as the official cosmetics for athletes participating in the 2004 Olympic Games in Athens,” Saito said.
Shiseido also offers men’s cosmetics and toiletry products in China.
The business environment in China has been improving, especially since 2001, when the country joined the World Trade Organization, making it easier for Shiseido to expand its business there, he said. Chinese police, for example, now employ strict checks on bootleg Shiseido products, he said.
“China is a key market for us to achieve our short-term target of boosting the share of overseas sales to more than 30 percent from the current 25 percent,” Saito said.
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