Shiseido
Corporate History & Strategy

In early Meiji-era Tokyo, government-led urban redevelopment and population influx were underway, and Ginza was being reshaped as a new commercial district where Western-origin goods and services concentrated. In the medical field, the introduction of Western medicine was advancing, creating demand for dispensing based on identified ingredients, moving away from the traditional kampo-centered practice. However, in the pharmaceutical distribution of the time, physician prescribing and sales were not separated, quality and pricing varied by provider, and specialized private dispensing was limited.

In urban areas, the population increase created demand for dispensing facilities with immediacy and reliability, but government-run medical institutions alone could not fully meet this need. The opportunity for individuals with pharmacist qualifications to independently practice dispensing was expanding at this stage, and in commercial districts with high foot traffic like Ginza, conditions were forming for a pharmacy providing Western medicine-based dispensing to be viable as a business.

In September 1872, Arinobu Fukuhara opened Shiseido Pharmacy in Ginza, Tokyo. Fukuhara was the first person to obtain a pharmacist license in Japan, and the distinctive feature was that this was a private—not government-run—establishment whose primary business was dispensing based on physician prescriptions. The choice of Ginza was a decision to capture both population concentration and commercial foot traffic, providing direct access to customers requiring Western medicine-based dispensing.

While the initial business was limited to dispensing, Fukuhara expanded his involvement into the manufacture and sale of pharmaceutical products. In 1888, he began manufacturing and selling soap, pursuing revenue not dependent on dispensing income. Furthermore, in 1897, he launched the cosmetic product "Eudermine," extending the business domain to planning and supplying proprietary products leveraging pharmaceutical knowledge. Through this, Shiseido came to embody both a service provider of dispensing and a manufacturer supplying products.

In late Meiji-era Tokyo, urbanization and changes in lifestyle were broadening interest in hygiene and personal grooming. With the spread of Western medicine, an emphasis on cleanliness was permeating into everyday consumer goods, and the boundary between pharmaceuticals and daily-use products was gradually blurring. In Ginza, pharmacies and imported goods stores had concentrated, creating an environment where new products could be tested, and pharmacies were well-suited as retail outlets for products related to skin and oral hygiene.

Meanwhile, cosmetics in the domestic market at the time were predominantly imported, and prices and supply were susceptible to external conditions. The domestic manufacturing base was limited, and few manufacturers could guarantee quality uniformity and stable supply. Pharmacies had accumulated expertise in ingredient management and quality control through dispensing, and opportunities were emerging to apply this knowledge to cosmetic product planning.

In January 1897, Arinobu Fukuhara launched the lotion "Eudermine." The pharmacy itself planned and manufactured the product, aiming to build a revenue base independent of dispensing. The Ginza store functioned as a retail outlet that delivered the new product directly to customers, and it was marketed as a product addressing both hygiene and beauty. The ingredient management expertise cultivated in pharmaceuticals was reflected in the product design, enabling quality differentiation against imported products.

With the launch of Eudermine, Shiseido's business expanded beyond dispensing and daily-use product sales into the domain of planning, manufacturing, and supplying cosmetics in-house. This transition was a decision to position product development capability rooted in pharmaceutical knowledge at the core of the business—not merely an addition of product categories but a transformation of the business structure itself. From this point onward, Shiseido would progressively shift its business center of gravity from dispensing pharmacy to cosmetics manufacturer.

From the late Meiji through the Taisho era, Shiseido had been increasing its product range centered on cosmetics. As patent medicines, cosmetics, and hygiene products were displayed side by side in the same store, the growing number of product items created a need for a mechanism to identify individual products and the business entity. In a high-traffic commercial district like Ginza, elements that could be visually recognized instantly at the storefront were important, and text information alone made it difficult to distinguish between products.

At the time in Japan, the trademark system was still developing, and the use of company names, product names, and designs was not standardized. Imported goods and imitations were also prevalent, and visual means to indicate quality and origin were in demand. Cosmetics are products premised on repeat purchase, and a consistent visual identifier was essential as a mechanism for purchasers to continuously confirm that they were dealing with the same supplier.

In 1915, Shiseido conceived the "Hanatsubaki" trademark and applied it to signage, packaging, and business printed materials. The distinguishing feature was its use of a graphic rather than text to identify the business entity. The Hanatsubaki was based on a Japanese design motif while maintaining a simple form suitable for repeated use, enabling the supplier to be identified at a glance even as the number of products increased.

The introduction of this trademark created visual unity representing the entire company, transcending individual products. Regardless of differing product names or uses, the Hanatsubaki display instantly communicated that they came from the same supplier, and Shiseido moved from product-by-product sales to building sustained recognition anchored to the company name. Thereafter, the Hanatsubaki was repeatedly used across all of Shiseido's customer touchpoints and became established as the foundation of brand recognition.

In the Taisho-era cosmetics market, rampant price-cutting at the retail level had become the norm. Prices set by manufacturers did not reach the end consumer, price differences arose from store to store, and profit margins were unstable. Cosmetics were products dependent on turnover rate, and price declines extended the payback period on invested capital. Small retailers in particular faced the dual challenge of inventory burden and price competition.

The Great Kanto Earthquake of September 1923 dealt a direct blow to small cosmetics retailers. Physical destruction of stores, loss of inventory, and decline in customer numbers occurred simultaneously, and the price competition that had preceded the earthquake further accelerated. From the manufacturer's perspective, the sales network was fragmented, and it was difficult to forecast sales volumes. The combination of rampant discounting and earthquake damage had rendered the existing distribution structure dysfunctional.

In response to this situation, Shiseido chose to reorganize its distribution channels. The initiative was led by Noboru Matsumoto (Shiseido's head of sales), who applied knowledge of chain-type retailing gained through study in the United States. In December 1923, Shiseido launched its "Chain Store" system, organizing retailers as affiliated stores. Compounded by post-earthquake financial difficulties, approximately 3,000 stores joined in a short period.

Shiseido concentrated domestic sales through affiliated stores, requiring them to sell under standardized pricing conditions. The manufacturer managed distribution through consolidated sales volumes, while the retail side was shielded from the risk of price erosion. To avoid the burden of direct delivery to affiliated stores nationwide, Shiseido contracted with major wholesalers as intermediary distributors, employing indirect distribution premised on price compliance. This mechanism simultaneously achieved manufacturer-led price control and broad-area distribution.

Through the chain store system, Shiseido suppressed price variation and enabled the tracking of sales volumes. For the manufacturer, this had the effect of improving sales growth forecast accuracy, and for the retail side, it became easier to maintain a certain level of profit margin by distancing from price competition. Barriers to entry in distribution were created through price compliance requirements and contractual terms, and sales of Shiseido products became concentrated among organized affiliated stores.

Furthermore, Shiseido expanded its contact with affiliated stores beyond sales. In 1927, the company launched the "Shiseido Monthly Report" to share product knowledge and sales information, and in 1935 opened the "Chain Store School" to begin training in sales techniques. In 1937, the "Hanatsubaki Club" was organized for purchasers, advancing membership through the affiliated store channel. These initiatives formed the prototype of Shiseido's subsequent sales framework as an operation that simultaneously advanced distribution control and connection to the demand side.

In the early 1950s, the Japanese economy was in its postwar reconstruction phase, and consumer activity was recovering, primarily in urban areas. Cosmetics, a sector susceptible to fluctuations in disposable income, continued to face difficulty in forecasting sales volumes. After the lifting of wartime controls, numerous small and medium-sized manufacturers had entered the market, creating variation in pricing and quality. Competitive conditions between established large players with stable business foundations and recently entered smaller firms remained unsettled, and the market was in flux.

Additionally, with the prospect of a peace treaty, the policy environment was changing, and future trade liberalization appeared inevitable. If overseas products were to flow in, domestic manufacturers would face comprehensive competition encompassing not only quality and price but also supply volume, sales networks, and advertising reach. Short-term revenue recovery measures alone would be insufficient, and medium-to-long-term business design was needed to simultaneously scale up supply, sales, and brand awareness nationwide.

In 1952, Shiseido formulated the "Shiseido Leap Forward Five-Year Plan" as a company-wide directive. Rather than recovering single-year performance, the objective was to make planned investments across sales, advertising, and manufacturing over five years, progressively elevating the business foundation. Building on the chain store system, the company advanced nationwide sales network development while simultaneously expanding advertising investment aimed at raising awareness of the corporate name rather than individual products.

On the manufacturing side, investment in mass production systems was pursued, aiming to balance supply capacity with cost management to meet growing demand. A design was adopted in which the effects of individual initiatives were interconnected by simultaneously expanding across the three domains of sales, advertising, and manufacturing. The policy of building up the business structure itself through cumulative five-year investment rather than single-year revenue targets was Shiseido's first medium-to-long-term plan.

The initiatives under the Five-Year Plan were continuously executed through the latter half of the 1950s. Expansion of the sales network enabled stable nationwide supply, and advertising campaigns widely established recognition of the Shiseido name. The development of mass production systems enhanced the ability to respond to demand fluctuations and supported stability in pricing and quality. A market coverage framework was built through multiple products rather than depending on temporary hits of specific items.

By the early 1960s, the advantages accumulated in distribution, supply, and brand awareness manifested as competitive differentiation, and in 1964, Shiseido reached the No. 1 share in the domestic cosmetics market. The Leap Forward Five-Year Plan was a case where the structural investment policy set at the planning stage led to establishment of market position over more than a decade. The nationwide sales network and brand awareness foundation built through this plan continued to function as the base supporting Shiseido's domestic business thereafter.

During the postwar high-growth period, cosmetics demand was expanding rapidly alongside rising living standards. Skincare products had become everyday consumer goods, and stable supply with uniform quality had become a management priority. Sales volumes had increased through the nationwide sales network built under the Leap Forward Five-Year Plan, but existing urban factories were reaching their limits in both production capacity and available land for expansion.

During the same period, the manufacturing sector was shifting toward suburban locations premised on process automation and mass production. With the development of logistics networks, nationwide supply became possible even from locations away from city centers, and factories were being relocated with emphasis on spacious sites and room for future expansion. In cosmetics manufacturing as well, the stage had been reached where facilities capable of integrating research, quality control, and production were required.

In November 1959, Shiseido established the Ofuna Factory in Iwase, Kamakura, Kanagawa Prefecture. Positioned as the primary production facility for skincare products including lotions, emulsions, serums, and lipsticks, it was designed with mass production and quality control as prerequisites. By consolidating domestic product supply, the aim was to simultaneously achieve quality uniformity across products and improve production efficiency.

The Ofuna Factory operated for more than half a century after commencement as the core facility for domestically-sold products. However, the advancing residential development of surrounding areas increasingly constrained logistics routes and equipment upgrades, creating a situation that required large-scale additional investment for aging infrastructure and seismic reinforcement. In 2015, as part of its production site consolidation, Shiseido closed the factory and transferred manufacturing operations to new factories in Nasu, Osaka Ibaraki, and Fukuoka Kurume.

Shiseido's sales network, built during the high-growth period, was a volume-expansion-driven distribution structure centered on sales subsidiaries and chain stores. Subsidiaries received products based on sales plans and supplied the market while accumulating inventory, a system that functioned during periods of steadily rising demand. However, sensitivity to demand fluctuations was low, and the structure inherently allowed unsold products to accumulate as subsidiary inventory.

By the latter half of the 1980s, the market had transitioned to a mature phase. Product turnover slowed and subsidiary inventory showed an increasing trend, but superficial maintenance of shipment volumes allowed the problem to be deferred. As a result, excess inventory accumulated at the subsidiary level, and the divergence between manufacturer shipment records and end consumption widened. A structure that obscured actual sales conditions reduced the accuracy of management decision-making, and the inventory problem was becoming apparent as a management issue.

In 1987, Shiseido decided to collectively recall inventory stranded at its sales subsidiaries, led by headquarters. The measure effectively transferred subsidiary inventory to headquarters inventory, clarifying the allocation of inventory responsibility that had become ambiguous at the distribution stage. It was unavoidable that this would suppress revenue and profit in the short term, and it was also a choice to deliberately surface the performance deterioration.

The significance of this decision lay in prioritizing the visibility of actual conditions rather than deferring the inventory problem. It was a response that intervened in distribution practices themselves, in order to shift from management based on subsidiary shipment records to management based on end consumption. It is positioned as a decision to sever the legacy volume-expansion business model and establish the preconditions for redesigning sales and production plans.

The inventory recall resolved the accumulation at the subsidiary level, correcting the divergence between manufacturer shipments and end consumption. While accompanied by short-term performance adjustments, the normalization of inventory levels improved the accuracy of both sales and production plans. Revenue quality improved, and the operational focus shifted from sales volume to turnover rate and profitability.

This response served as the starting point for Shiseido's transition to demand-responsive management. The shift from a subsidiary-dependent, shipment-driven model to operations based on consumption trends progressed, leading to subsequent revenue recovery. In 1988, the company consolidated 72 domestic sales subsidiaries into 15, and in 1995 implemented further integration. The 1987 inventory recall was a turning point that went beyond adjusting the growth model to restructuring the premises of both distribution structure and management practices.

Since its chain store rollout, Shiseido had maintained sales with fixed retail prices and no discounting. Under the resale price maintenance system, uniform prices were maintained nationwide, and price competition at the distribution level was unlikely to occur. The system of manufacturer-set pricing functioned as a means of maintaining high profit margins, and advertising investment and sales promotion were concentrated on factors other than price.

From the 1990s onward, distribution diversified and consumer purchasing behavior changed. With the rise of drugstores and expansion of mass retailers, sales without price movement increasingly appeared overpriced, beginning to affect purchase frequency and volume. Meanwhile, under resale maintenance, competitive experience driven by pricing had not been accumulated, and reviews of sales strategy and supply systems tended to lag.

In 1993, the Japan Fair Trade Commission intensified its scrutiny of resale price maintenance in relation to the Antimonopoly Act. It became clear that continuing resale maintenance itself could become subject to regulatory action, narrowing the room for corporate discretion. For Shiseido, maintaining resale pricing was shifting from a management decision to a matter of regulatory compliance.

In 1997, Shiseido abolished resale price maintenance. The company chose to relinquish its own control over pricing and cede price-setting to the retail side. While it was anticipated that ending no-discount sales would unavoidably reduce profit margins, the decision prioritized resolving legal risk and directly confronting market competition. This meant the abandonment of price controls that had been maintained for approximately 70 years since before the war.

After the abolition of resale maintenance, Shiseido became directly exposed to the impact of price competition. Discount sales spread at the retail level, and it was no longer possible to maintain previous profit margin levels. Sales volumes and inventory turnover became visible in numerical terms, and the environment shifted to one where the relationship between pricing and sales outcomes was transparent. However, the organizational infrastructure to leverage pricing as a competitive tool had not kept pace.

During this process, low-price cosmetics brands gained presence in the market. Emerging brands using drugstores as their primary battlefield captured high-frequency purchasers through price appeal, and competition intensified in price tiers where Shiseido had traditionally been weak. While the abolition of resale maintenance enabled participation in market competition, it also exposed gaps in the price tier structure, becoming the trigger that compelled subsequent brand portfolio restructuring.

In the early 2000s, Shiseido maintained approximately 100 brands. As emerging channels such as drugstores and convenience stores expanded, its chain store-centered sales network was slow to adapt. Advertising expenditure was dispersed across brands, with limited capital invested per brand. The marketing division prioritized short-term demand response, repeatedly launching new brands, but revenue growth stagnated and ROI declined.

As failure to meet revenue targets became routine, the business portfolio had grown complex. The cycle of launching new products to compensate for underperforming ones further inflated development and promotional costs, worsening invested capital recovery efficiency. Under these circumstances, Shinzo Maeda assumed the presidency in 2005, taking the lead in executing the three-year plan he had been involved in as head of corporate planning.

Maeda determined that concentrated investment in brands was essential for simultaneous recovery of growth and profit margins, and championed the "Mega Brand Strategy." The policy called for streamlining the numerous brands and concentrating advertising and sales promotion investment in a limited number of anchor brands. Skincare, body care, and hair care were designated as target fields, with an approach designed to merge toiletries and cosmetics.

Simultaneously, a brand manager system was introduced, constructing a framework in which a single manager had unified oversight from product planning through advertising and sales coordination. This operational approach is estimated to have been modeled on competitors such as P&G and Unilever in the hair care segment. From 2005 onward, business exits and consolidation were advanced, and the number of brands was progressively compressed. The design aimed to increase advertising expenditure per brand by narrowing the allocation of invested capital.

"MAQUILLAGE" and "UNO" were launched in August 2005, followed by "AQUA LABEL" and "TSUBAKI" in 2006. For "TSUBAKI" in particular, an estimated 5 billion yen in advertising expenditure was invested in TV commercials featuring twelve actresses and SMAP. Through this large-scale awareness investment, TSUBAKI penetrated the market within a short period after launch and reached the No. 1 share in the domestic hair care market in 2008.

The mega brand portfolio expanded to account for over 80% of domestic cosmetics revenue, and marketing capital efficiency improved. Through brand consolidation and concentrated investment, both portfolio streamlining and revenue growth recovery progressed simultaneously. Maeda reflected, "In the hair care category where even the combined total of seven brands had never reached the top three for years, TSUBAKI alone claimed the top share," a result that succinctly demonstrated the effect of concentrated investment.

In the latter half of the 2010s, Shiseido was advancing a transformation of its business portfolio toward mid-to-high-price cosmetics. While the cosmetics business accounted for the majority of revenue, the Personal Care business required continuous investment in advertising and product improvement yet was increasingly difficult to prioritize for resource allocation. In the process of pursuing selection and concentration, the business had relatively lost its investment capacity.

Meanwhile, the Personal Care business had revenue of approximately 100 billion yen as of 2019 and maintained stable sales through distribution centered on drugstores. Brands such as "TSUBAKI," "SENKA," and "UNO" had high consumer recognition, and with fast sales turnover and low fixed cost burden, the business contributed to cash generation.

As concentrated investment in mid-to-high-price cosmetics progressed, the positioning of the Personal Care business was becoming ambiguous. While the business was characterized as low-margin, it served a function of absorbing fixed costs. The tension between its role within the business portfolio and its alignment with future investment allocation had surfaced as a management issue.

In February 2021, Shiseido announced the sale of its Personal Care business to CVC Capital Partners for 160 billion yen. The scope included domestic and international operations encompassing "TSUBAKI," "SENKA," "UNO," and other brands, which were transferred to a newly established company. Simultaneously, Shiseido acquired a 35% stake in the new holding company, structuring the business as a joint venture.

Masahiko Uotani (Shiseido President and CEO) acknowledged the growth potential of the Personal Care business while explaining that ROI improvement would be better achieved by expanding marketing investment under an independent management structure. Manufacturing would continue to be handled by Shiseido, while sales and marketing would be entrusted to the new company in a division of labor. This was positioned not as a response to short-term performance deterioration but as a decision aimed at long-term reallocation of invested capital efficiency.

Behind this divestiture was Shiseido's transition to a "Skin Beauty Company" that had been advanced throughout the 2010s. Under the policy of concentrating investment in premium skincare and prestige cosmetics, the low-price Personal Care business had declined in priority within the business portfolio. This was a divestiture driven not by denial of the business's growth potential but by its misalignment with the company's investment policy.

Through the business transfer, the Personal Care business was removed from the consolidated scope, and Shiseido's Japanese business increased its dependence on mid-to-high-price cosmetics. The acquirer's newly established company, Fine Today, secured revenue exceeding 100 billion yen and an operating profit margin above 10% in fiscal 2022, demonstrating that the business possessed a certain level of earnings capacity.

Meanwhile, in Shiseido's Japanese business, a cost structure with a high fixed cost ratio remained. A configuration centered on premium products with small marginal profit was unable to fully absorb personnel costs and facility expenses, and in fiscal 2022, core operating profit fell into the red. With the loss of the revenue buffer function that the Personal Care business had served, resilience to demand fluctuations declined.

Consequently, in exchange for capital recovery through business divestiture, the company lost a stable revenue source that had been absorbing fixed costs. The profit structure of the Japanese business deepened its dependence on the mid-to-high-price segment, becoming directly susceptible to inbound demand fluctuations and price competition in the Chinese market. This structural change became one of the causal origins leading to the large-scale early retirement program implemented in 2024.

Until 2019, Shiseido's Japanese business had maintained high profit levels driven by inbound demand and the expansion of premium skincare. However, the spread of the pandemic caused a sharp decline in tourist demand, and purchasing by Chinese tourists also contracted. Even as recovery progressed, consumer behavior had changed, and per-capita purchase values declined. In the Chinese market, price competition intensified, compressing the profitability of premium brands.

Additionally, the 2021 sale of the Personal Care business including "TSUBAKI" and "UNO" meant the Japanese business lost a stable revenue source with fast sales turnover. With a high fixed-cost business structure unchanged, dependence on mid-to-high-price cosmetics with small marginal profit increased, and core operating profit fell into the red in fiscal 2022. Fixed cost reduction commensurate with business scale had become unavoidable for revenue recovery.

In February 2024, Kentaro Fujiwara (Shiseido President COO) announced a large-scale early retirement solicitation as part of the Japanese business reform. Approximately 1,500 Shiseido Japan employees were targeted, representing over 10% of the Japanese business workforce. Eligibility was set at age 45 or older with at least 20 years of service, with enhanced severance packages, and the majority of structural reform costs were allocated to personnel cost reductions.

Simultaneously, the company promoted "human capital transformation," with policies to increase the domestic e-commerce ratio and reorganize sales offices. Additional voluntary retirement was implemented in 2026 as well, with workforce reductions continuing both domestically and internationally. The decision aimed to redesign the revenue structure of the Japanese business—which had depended on the inbound demand windfall—by simultaneously redefining workforce composition and compressing fixed costs.

Through the early retirement program, compression of fixed costs centered on personnel expenses was advanced. However, cost reduction without accompanying revenue recovery also implied an aspect of business scale contraction. The Japanese business retained a structure susceptible to fluctuations in inbound demand and the Chinese market, and fixed cost reduction alone had limited capacity to stabilize earnings.

The series of structural reforms can be organized as a causal chain: the 2021 Personal Care business divestiture, the 2022 red ink in the Japanese business, and the 2024 large-scale workforce reduction. The strategy of targeting invested capital efficiency improvement through premium concentration and business divestiture simultaneously resulted in stripping away the earnings buffer. Achieving the core operating profit margin of 10% or more set out in Shiseido's 2030 medium-term management strategy requires revenue growth recovery beyond workforce reductions.