Shiseido's $845M Gamble Fails: Asian Rivals Surge Ahead

Shiseido Co. is grappling with its most significant challenge in decades, marked by a costly failure in North America and erosion of market share to agile Asian rivals. Six years ago, the Japanese cosmetics giant invested $845 million in acquiring American brand Drunk Elephant to appeal to younger consumers. However, this strategic move has resulted in a substantial write-off, exceeding half of the initial investment, due to declining profits and sales of the acquired brand.

The beauty landscape has evolved rapidly, with social trends, accelerated product cycles, and strong competition from Korean and Chinese companies reshaping the global market. Korean firms like Amorepacific and Kolmar Korea have become major exporters to the US, outmaneuvering Shiseido. In response, the 154-year-old company has initiated a turnaround plan involving severe cost reductions and a strategic refocus on its high-end brands, such as Clé de Peau Beauté, aiming to regain stability post-pandemic.

Despite management's efforts, investors remain unswayed, evident in Shiseido's stock, which hovers at a mere third of its 2019 peak. The company anticipates its first operating loss in decades, largely attributed to the Drunk Elephant impairment. Shiseido is now cutting costs by ¥25 billion this year through production efficiencies and streamlined corporate functions, with a goal to achieve 2%-5% annual sales growth and a 10% operating profit margin by 2030.