On February 3, Shiseido officially announced that it will transfer its global personal care business to private equity fund CVC Asia Pacific Limited and its affiliates (hereinafter referred to as “CVC”) for 160 billion yen (about 9.8 billion yuan).
The transfer includes the group’s top 10 brands, including Uno, Senka, Tsubaki, AG DEO24, Sea Breeze, Ma Cherie, Super Mild, Fino, Kuyura and Aquair.
However, the transfer of the business does not mean a complete sale, and Shiseido will operate with CVC and its affiliates through an indirect shareholding.
Shiseido will partner with CVC to run its personal care business as sales fall due to the pandemic
Shiseido Group is no exception as the COVID-10 pandemic has spread around the world, which has dealt a severe blow to the cosmetics and skincare products industry. According to the financial reports of Shiseido Group in the first three quarters of 2020, although the sales of online channels have maintained a good rise, the offline retail stores, tourism retail businesses and professional hair salons have been greatly impacted by the epidemic.
Data show that in the first three quarters of 2020, Shiseido’s net sales in the Japanese market decreased 32.3% year on year. Sales in the Americas were down 28.8% year-over-year; Sales in Europe, the Middle East and Africa fell 20.9 percent; In the Asia-Pacific region, sales in South Korea and Thailand fell 19.3 percent from a year earlier. In comparison, Shiseido’s net sales in China fell 2.2% year on year, making it the fastest recovery and the smallest decline among Shiseido’s overseas markets.
The sale of Shiseido’s personal care business is also based on the company’s long-term strategic layout. Shiseido officials say the group’s approach is shifting from a focus on rapid revenue growth to a focus on profitability and cash flow.
Masahiko Uotani, Shiseido’s chief executive, has said over the past year that asset sales may be necessary because of the company’s priority on cash.
Shanghai bogey consulting founding partner Gao Jianfeng told the journalist that the Shiseido company selling brands is not in recession, rather, brands such as “AQUAIR” and “SENKA” still have high visibility. This is probably one of the reasons why Shiseido did not sell the business completely, but operated it together with CVC as a shareholder.
From the perspective of CVC, as a private equity fund, it lacks the operation ability of the industry. Private equity funds pursue investment returns and are unlikely to hold these brands for a long time. They will certainly want to sell them again at a better price in the future. It needs the professional team of Shiseido to assist in the operation, so as to maintain good asset quality. It can be said that the cooperation between the two parties maximizes the interests of the brand.
Low-price business impacted by China’s domestic brands, focusing on high-end areas to maintain brand barriers
Shiseido will focus on high-end skincare brands in the future. Shiseido told the reporter that the priority of the portfolio strategy of Shiseido Group will be high-end price segment products, followed by mid – and high-end price segment products; Personal care, which is in the low price segment, will not receive priority resource allocation because it is not the first choice investment business.
At the 3rd China International Import Expo held in Shanghai in 2020, Shiseido China President Kentaro Fujiwara told the public that Shiseido’s strategy for the Chinese market is to focus on “Premium Skin Beauty” and to introduce two of the group’s high-end cosmetics brands to the Chinese market.
However, with the rapid rise of China’s domestic brands, the pace of domestic substitution is accelerating, especially in terms of price/performance ratio and low-cost products themselves, and traditional overseas brands no longer have an absolute advantage.
Shiseido is not the only company whose low-cost business has been weak in China. L ‘Oreal’s Maybelline brand once swept the country with its affordable price and convenient purchase channels. In the mass cosmetics market, Maybelline once occupied the initiative in the market, and many girls’ first cosmetics were Maybelline. In 2011, Maybelline’s market share in China was 15.71 percent, three times that of No. 2. However, in the second half of 2020, Maybelline began to withdraw from department store counters on a large scale after withdrawing from supermarket hypermarket channels. AmorePacific’s mass-market beauty brand Innisfree is closing stores in China in 2020; Etude House under the same group has seen its global revenues decline for three consecutive years; The Face Shop, a single-brand store owned by LG Life and Health, even announced its withdrawal from China as early as August 2018…
Gao Jianfeng said that traditional overseas brands are losing competitiveness in the low-priced personal care market in China. Therefore, for Shiseido, the charm value of the personal care business is decreasing and it is no longer the key business to develop in the future. High-end brands of traditional overseas groups have a first-mover advantage and higher brand barriers. In the high-end field, the brand power and influence of China’s domestic brands temporarily still have a certain gap.
Against the background of the global epidemic, the Chinese market was the first to recover, and it will grow into the world’s largest market in the future. Under such circumstances, Shiseido has been making frequent efforts in the Chinese market, increasing its investment in production and research and development in China, setting up business innovation investment rooms and research and development centers, etc., hoping to have more say in the field of high-end cosmetics brands in the future.
Source: Blue Whale Finance