Shiseido — Company History

A pharmacy meant to demonstrate the separation of prescribing and dispensing

Fukuhara Arinobu (福原有信) studied pharmacy at the shogunate’s medical institute and at Daigaku Tokyo, the forerunner of the University of Tokyo’s medical faculty, and served as the navy’s pharmacist-general, presiding over the dispensary of the naval hospital. In 1872 he left government service and opened the Shiseido Pharmacy in Ginza, Tokyo. He held the first pharmacist’s licence issued in Japan, and the purpose of the shop was to put into practice the separation of prescribing by the physician from dispensing by the pharmacist. He set up a private Western-style dispensary in Ginza, then the leading edge of Japan’s opening to the West, and alongside it built the country’s first pharmaceutical factory at Kamakura-gashi in Kanda, moving on to manufacture medicines by Western methods. The company name comes from a line in the Chinese classic the I Ching — 至哉坤元 万物資生, on the power of the earth from which all things take their life. Pharmacists trained at the Shiseido Pharmacy set up on their own account across the country under the Shiseido name, and that network of pharmacies became the channel for its proprietary medicines.

As Western ways of living spread, demand for imported goods rose, and with it a countervailing appetite for goods made in Japan. In January 1888 Shiseido released 福原衛生歯磨石鹸, a milled toothpaste that was the first of its kind in the country. When victory in the First Sino-Japanese War lifted demand for cosmetics, in January 1897 the company launched the skin lotion Eudermine and moved into the cosmetics business. It also put out the hair oil 柳糸香 and the anti-dandruff scent 花たちばな; every one of them was made by pharmaceutical methods, and that is what set them apart from imported goods and from the cosmetics already on the market. Eudermine came to be called 資生堂の赤い水, Shiseido’s red water, and is in use to this day. In 1899 the shop added a soda fountain, taking the lead in Japan in ice cream and soda water.

The second generation’s eye for design, and the turn into a cosmetics company

Fukuhara Shinzo (福原信三), who succeeded Fukuhara Arinobu, studied in the United States around the time of the Russo-Japanese War, researching the cosmetics industry, and on his return developed products to new formulations. He was well versed in European art and craft as well, and in September 1915 devised the 花椿 camellia trademark. Praised from the moment it was unveiled as elegant and fragrant in its design, the mark became an asset that identified the company by a figure rather than by letters. After the trademark was adopted the product range widened, and Shiseido Cold Cream in particular drew attention as a new kind of oil-based cream. In 1917 the cosmetics division was made independent, and from the following year the company set up in succession a wholesale department at the head office, a retail department in Osaka and a wholesale department in Osaka.

The organisation was reshaped to match the widening business, and in March 1921 what had been a sole proprietorship became a limited partnership. Soap went on sale as Shiseido Soap from 1922, a third product line beside cosmetics and toothpaste. At this point the route to market still depended on drug wholesalers and on the pharmacies opened by pharmacists who had come out of the Shiseido Pharmacy, and it carried a friction in distribution: the wholesalers took no part in explaining new products. The idea of building, for itself, an organisation in which it could live alongside the retailers was already latent in the founding pharmacy network, but had not yet taken shape as a system.

The distribution machinery the earthquake destroyed, and the turn to sales companies

The cosmetics trade of the Taisho era was worn down by price-cutting. Fukuhara Shinzo recalled in later years: Thirty or forty years ago the industry was in a violent price war, a time of panic in which makers, wholesalers and retailers alike went bankrupt one after another; we came to see that securing a fair profit was, in the end, the right service to the consumer, and from that time we began studying sales organisation (Tosho, May 1963). His dissatisfaction with the wholesalers ran deep as well: They took little interest in the new products the maker had developed, and so, without explaining them properly, would simply hand the goods over to the retailer and consider their own work done — I was dissatisfied with that way of doing things (same). Matsumoto Noboru (松本昇), who would later become president, had studied the American voluntary chain and brought the idea home, but the Ministry of Commerce and Industry did not take it up and it was shelved.

The Great Kanto Earthquake of September 1923 did heavy damage to Shiseido and destroyed the existing distribution machinery. Fukuhara Shinzo took it as a turning point: After the great earthquake the distribution machinery was entirely wiped out and everything was in confusion, so I hit on the idea of using the occasion to establish a systematic sales organisation, and set about building it (Tosho, May 1963). In December of that year Shiseido adopted the chain-store system. The initial expectation had been for some twenty shops, but it soon widened to several thousand affiliated stores. The company also built a factory at Suita in Osaka, and the following year, 1924, introduced an agency system.

The reorganisation proceeded in two stages. Shiseido first required the wholesalers to keep separate accounts and made them its own sales agency departments, then converted those into sales companies that handled Shiseido products alone. Fukuhara Shinzo said: That was the first time the prevention of discount selling of our products was carried through all the way down to the retailer (Tosho, May 1963). It went further and put the shares of the sales companies into the hands of all the chain stores attached to them, which gave them the impression that this is your own company, and tied them into a close relationship in which interests were shared (same). In 1926 a sales-member organisation was laid down; in June 1927 the limited partnership was reorganised as a joint-stock company with capital of ¥1.5 million, and in August of the same year the agency system was developed into the sales-company system.

The Hanatsubaki Club as a consumer organisation, and expansion onto the continent

Control of distribution reached as far as the consumer: in January 1937 Shiseido formed the consumer organisation 花椿会, the Camellia Club. Organising at the retail level was the work of the chain stores; members were sent the magazine Hanatsubaki, given gifts in proportion to what they bought, and invited to film screenings on grooming and other events held around the country. In January 1927 a soap factory was opened at Mukojima, and in March 1928 a new plant at Shinagawa in Tokyo was completed, taking in the Osaka works as well.

By the late 1930s Shiseido had more than ten sales companies outside Japan, and its network reached from mainland China to Taiwan, Korea, Manchuria and South-East Asia. On the production side it built factories at Fushun and Shanghai, and ran plantations in Taiwan and on Hainan Island. It became the largest organisation of any cosmetics business in Asia, reaching a scale that had it called the largest cosmetics maker in the East. In September 1939 the Shiseido Chemical Research Laboratory was established to work on improving products.

When the Pacific War ended, Shiseido set about rebuilding on the basis of its Tokyo plant, which had escaped the fires. Hardship continued through the privation of the post-war years, and it was only in 1950 that the hair oil 花椿香油 and Shiseido Soap returned. Products that had disappeared during the war restarted one by one. In December 1948 Osaka Shiseido was established to knit the production network back together, and the business surpassed its pre-war peak to take first place in the industry once more. By 1955 the range ran to 267 items in cosmetics and 48 in soap and toothpaste; sales for the 1954 financial year were $11.3M (¥4bn), and in June of that year capital was raised to ¥300 million.

Listing, volume production, and the head of the industry

In May 1949 Shiseido listed its shares on the Tokyo Stock Exchange. By 1955 there were 73 sales companies with combined capital of a little over ¥160 million, some 8,000 contracted chain stores and about 100,000 sales-member outlets. In 1956 the company opened the largest beauty salon in the East, in Shibuya, Tokyo, widening a structure in which beauty was taught at the counter. In June 1957 Taiwan Shiseido was established, and began manufacturing in April of the following year.

In October 1959 Shiseido Shoji was established, and in November a cosmetics-only factory was built at Ofuna in Kanagawa to produce lotions and emulsions in volume. In the first half of the 1960s Shiseido stood at the head of the domestic cosmetics market, and the business press set its method against that of Nakayama Taiyodo: which will decide the sales battle — the centrally organised chain system of the East, or the flexible agency system of the West that respects autonomy? (Diamond, 3 June 1963). By 1968 annual sales were about ¥65 billion, roughly six times what they had been ten years earlier, and the company’s share of the industry was above 30 per cent.

Finance that could call on no one, and a consumer organisation ten million strong

In February 1969 Ito Takashi (伊藤高), a managing director, explained Shiseido’s management to the corporate-analysis committee of the Securities Analysts Association of Japan. Answering criticism that the payout ratio was low, he said that with capital liberalisation and the resale-price question ahead the company had worked to strengthen its constitution by building retained earnings: there are industries that in an emergency can be helped, in one sense or another, by the state or by the banks, but a cosmetics company has nowhere to turn for help (Securities Analysts Journal, 1969, vol.7 no.3). The equity ratio was 32 per cent, high by domestic standards, but short of Max Factor’s 81 per cent, Revlon’s 62 per cent and Avon’s 69 per cent. For the year to November 1968 the company paid a special dividend of 5 per cent alongside an ordinary dividend of 25 per cent.

The same lecture set out the scale of the distribution network: as of 1969 there were 82 sales companies in Japan, about 15,000 chain stores, some 300 wholesale-chain outlets and about 100,000 sales members. The consumer organisation 花椿会 had passed ten million members; each shop kept a membership ledger recording members’ addresses and skin types and the names and value of what they had bought, and some held cards for three to five thousand people. Shiseido fed the information gathered this way into computers and used it in its sales activity, and Ito said a consumer organisation on this scale had no parallel anywhere in the world. More than 6,000 beauty consultants stood at counters nationwide.

Abroad the company went on its own account, establishing Shiseido of Hawaii in 1962 to gain a foothold and, in August 1965, Shiseido Cosmetics (America) as a full entry. To the argument that buying an American company would save both the trouble of incorporation and the work of opening a sales channel, and would turn a profit sooner, Ito replied that cosmetics are not goods that can be sold to a wholesaler in a single lot and left there: the company must put beauty consultants it has trained itself at the counter and look after the product until it reaches the consumer’s hand. Unshowy as the entry was, its goods were already on sale at Macy’s in New York and at retailers across the United States. A subsidiary followed in Italy in June 1968 and in Germany in July 1980.

The inventory that proliferation built up, and the correction of channel stuffing

As of 1973 Shiseido had 89 sales companies jointly funded with wholesalers, and beneath them a maker-led voluntary chain of some 16,000 shops through which it commanded cosmetics distribution. Production capacity grew through the 1970s and 1980s as well: the Kakegawa plant was completed in July 1975 and began operating that October, and the Kuki plant was completed in January 1983. The market changed over the same period. Until about 1973 a seasonal campaign would lift sales at the chain stores, but from the early 1980s consumers began choosing cosmetics that suited their own age, and what sold varied from location to location. Shiseido answered the fragmentation with small-lot production of many varieties, though Gemma Akira (弦間明), then managing director and deputy head of the chain business division, later summed it up by saying that proliferation, the common sense of marketing at the time, had in the end produced nothing but an increase in inventory (Nikkei Ryutsu Shimbun, 17 September 1991).

In 1983 president Ono Yoshio (大野良雄) said that on the retailers’ side, which is what matters, many are steeped in memories of the good days of high growth, and that we ourselves had long been over-protective of the retailers, seeing to everything from beauty consultants to the setting up of counters (Nikkei Sangyo Shimbun, 21 June 1983), acknowledging that his own chain-store policy had eroded the retailers’ capacity for self-help. The burden of holding together some 20,000 employees and about 25,000 chain shops nationwide was heavy, and in July 1987 two presidents died suddenly in succession. It was Fukuhara Yoshiharu (福原義春), who became president that year, who moved on the inventory that channel stuffing had piled up: immediately after taking office he cleared $207.5M (¥30bn) of stock that had accumulated at the specialist cosmetics shops, something executives of the day recall as possible only for a president from the founding family.

Fukuhara Yoshiharu was also the man who, as head of the overseas division, had started the business in France and pushed into China, and during his presidency Shiseido moved to acquire foreign brands and to produce locally. It bought Carita of France in February 1986 and Zotos of the United States in September 1988. Shiseido International was established in August 1988, and in March 1989 the accounting year-end was moved from 30 November to 31 March. Beauté Prestige International was set up in France in October 1990, and the Gien plant in France was completed in October 1991. In December 1991 Shiseido Liyuan Cosmetics was established as a joint venture with Beijing Liyuan of China, and in December 1996 the company acquired the North American professional division of Helene Curtis of the United States.

Accepting the cease-and-desist recommendation, and the end of price control

The arrangement that obliged face-to-face selling was questioned from the early 1990s by the courts and the authorities alike: the Tokyo District Court held that requiring face-to-face sales had the effect of maintaining prices and might run against the purpose of the Antimonopoly Act, and the Fair Trade Commission carried out on-site inspections of the sales companies. By 1991 exclusion from the resale price maintenance system was seen as inevitable, and there were warnings that smaller chain shops would be exposed to price competition with the supermarkets. Shiseido’s own cost structure grew heavier over the same period: fixed costs were 54.32 per cent of sales in the year to March 1993, close to double the manufacturing average of 28.5 per cent. Selling and administrative expenses, including the cost of seconding beauty consultants, underwrote list-price selling while squeezing the return.

In June 1995 the Fair Trade Commission issued a cease-and-desist recommendation over price restraints imposed on large retailers. Opinion in the boardroom in favour of fighting it was strong, but president Fukuhara Yoshiharu decided at the end of September that year to accept. He doubted there was any real point in continuing to fight while the market was becoming fluid, and judged that the energy spent on defence should be turned to reforming the way the company sold. Fukuhara placed that acceptance as a turning point on the scale of the launch of the chain stores in the Taisho era. The organisation was reshaped too: in April 1995 fifteen sales companies were merged into Shiseido Cosmetics Sales, pulling the scattered sales companies back together. Price control was let go in April 1997, and the arrangement in which no discounting occurred — in place since 1923 — lost its premise.

Once price restraint was removed, discounting spread at the retail level and low-priced brands whose main battlefield was the drugstore gained ground. President Gemma Akira summed up the lesson as this: unless the gap between the maker’s logic and the customer’s logic is closed quickly, the company will not be supported. He set out a policy of strengthening face-to-face selling around skincare with price restraint gone. Consolidated sales peaked at $4.7B (¥621bn) in the year to March 1998 and then entered a period of stagnation. In February 1998 a co-operative company was set up in Shanghai, and in September a joint venture in Hong Kong, rebuilding the company’s footing in greater China.

The first consolidated loss, and reform aimed at the chain stores

In the year to March 2001 Shiseido fell into the red for the first time since it began reporting on a consolidated basis. Operating profit came in at $265.8M (¥32bn) against an initial forecast of ¥40 billion, down 15 per cent on two years earlier. With retirement benefit obligations and the goodwill on an American salon subsidiary written off in a lump, the bottom line was a loss of ¥45 billion. Behind it lay the fact that from about 1994 the company had launched twenty to thirty new brands every year until the number swelled to around a hundred, scattering its management resources. A convenience-store-only brand launched the previous year had also failed, begun without an understanding of how the self-selection market works. Under an operating rhythm in which more promotional spending was assumed to bring more sales, selling and administrative expenses passed 60 per cent of sales, well above the roughly 40 per cent at Kanebo and Kao.

On 6 March 2001, nearly four months ahead of the shareholders’ meeting, Shiseido announced a change of president: Gemma Akira became chairman and vice-president Ikeda Morio (池田守男) took over. The reform reached into something that had not been touched before — the chain stores, 25,000 shops nationwide accounting for 65 per cent of sales. Rebates to that network had a fixed ceiling, which was cut by two percentage points and redirected into incentives tied to the value of business done, and by the summer of that year point-of-sale terminals integrated with the till had been lent free of charge to 10,000 shops. Switching the yardstick from purchases to over-the-counter sales meant switching from selling that pushed shops to buy to selling that proposed how to sell together. The chain stores’ share of sales had already fallen from an estimated 70 per cent around 1990. After a further loss in the year to March 2002, the consolidated bottom line returned to a profit of ¥24.4 billion in the year to March 2003.

Ikeda Morio aimed his reform not at opening new channels but at reviving the existing retail organisation; he summed up the founding spirit as the skincare that began with Eudermine, and concluded that the structure should be rebuilt around skincare. Rather than plunge into low-price competition with discounters, he chose to polish an asset the company already had — being the shop close at hand. In China a holding company, Shiseido (China) Investment, was established in Shanghai in December 2003, and in October 2004 Shiseido Professional was set up to carve out the salon business. At home the two production subsidiaries Osaka Shiseido and Shiseido Kako were absorbed by merger in April 2003, tidying the production structure as well.

Concentration on megabrands, and a chain of overseas acquisitions

The recovery did not hold: the consolidated bottom line for the year to March 2005 was a loss of ¥8.8 billion on sales of ¥639.8 billion. Maeda Shinzo (前田新造), who became president that year, set out to consolidate the more than one hundred brands and to establish core brands capable of taking first place in each of seventeen categories. For TSUBAKI, the hair-care brand launched in 2006, more than $43M (¥5bn) of advertising budget was allotted to a single brand in its first year on sale, spent in a concentrated campaign featuring several actresses. TSUBAKI beat its original plan by 1.8 times in that first year, and Shiseido lifted its maker share of the shampoo market from fourth place to first. In March 2006 it closed two factories, at Maizuru and Itabashi.

While rebuilding at home, Shiseido put money into markets abroad, acquiring the American mineral-cosmetics group Bare Escentuals for about $2.1B (¥180bn) in March 2010. The target was a high-margin brand with a 67 per cent share of the mineral-foundation market, annual sales above ¥50 billion and an operating margin of 31.5 per cent, bought at a premium of 40.8 per cent over the three-month average share price. Maeda said he did not regard it as expensive, given the growth, and set out the aim of lifting the American share of sales from 8 to 14 per cent. At home the company opened its own e-commerce site, Watashi+, in April 2012, putting 2,600 items on sale online. The specialist shops’ share of domestic sales, above 40 per cent in the 1990s, had by then shrunk to around 25 per cent, and domestic sales had fallen to ¥382.8 billion in the year to March 2011, down by close to ¥130 billion over ten years.

In March 2013 Suekawa Hisayuki (末川久幸) stepped down as president two years into the job, and the previous president, chairman Maeda Shinzo, took the role again in tandem. The share price had fallen below ¥1,000 the previous October for the first time in ten years, the payout ratio had exceeded 100 per cent for three years running, and about ¥80 billion of goodwill on Bare Escentuals remained. Uemura Tatsuo (上村達男), an outside director who served on the nomination advisory committee for the presidency, disclosed that the board had held the judgment that responsibility for settling the negative legacy lay with Maeda himself, who had built it. Maeda for his part said that he might well have to repudiate the course I once set. That January the company had announced the closure of the Kamakura plant, and a dividend cut, impairments and a review of the business portfolio were all in view.

A decade under an outside chief executive, and the loss at the end of chasing scale

In April 2014 Uotani Masahiko (魚谷雅彦), formerly president of Coca-Cola Japan, became the first outsider to lead Shiseido. He had been brought in the previous year as a marketing adviser and, judged to have produced results within six months, was named successor by Maeda. Sales in his first year were ¥777.6 billion with operating profit of ¥27.6 billion; in the year to March 2015 a ¥13 billion provision against Chinese inventory halved operating profit against the previous year. Channel stuffing, in which sales companies shipped excessively to department stores and specialist shops, still persisted in China. At the results briefing on 31 October, Uotani said he had no intention of manufacturing good numbers next year or the year after, signalling that he would give priority to investing ahead. VISION 2020, drawn up that December, set out sales above ¥1 trillion, operating profit above ¥100 billion and return on equity of 12 per cent or more for the 2020 financial year.

Carried by demand from inbound visitors, the business grew: consolidated sales for the year to December 2019 reached $10.4B (¥1.13tn) and operating profit ¥113.8 billion, both records. But when the pandemic wiped that demand out, the year to December 2020 turned to sales of ¥920.8 billion and a bottom-line loss of ¥11.6 billion, the first loss in seven years. Selling and administrative expenses were 72 per cent of sales that year, above L’Oréal’s 54 per cent. In November 2020 the company sold lotions from its main brands directly, discounted in sets, through its own e-commerce channel; faced with a backlash from the specialist cosmetics shops it ended the offer on 30 November. Uotani sent those shops a letter of apology acknowledging insufficient consultation on the measure and insufficient consideration of the effect it would bring. Cumulative losses booked by the European and American business over the five years from 2016 to 2020 exceeded ¥100 billion, and impairment losses totalling ¥95 billion had been taken against Bare Escentuals by November 2017.

On 3 February 2021 Shiseido announced the sale of its personal care business — TSUBAKI, uno and the rest — to an investment fund for $1.5B (¥160bn), completed on 1 July. The business being sold had sales of ¥105.5 billion in the year to December 2019, about a tenth of the whole. That December it also transferred three American brands, bareMinerals, Buxom and Laura Mercier. In November 2022 Fujiwara Kentaro (藤原憲太郎) was announced as president, and on 30 August 2023 Fukuhara Yoshiharu, of the founding family and president from 1987 to 1997, died at the age of 92. Drunk Elephant, the American brand bought for about ¥90 billion in November 2019, saw shipments fall because of a new system introduced in the first half of 2024, leaving its goods off the shelves; competitors came in during that interval and consumers drifted away. Shiseido cut 1,477 beauty consultants and other staff in Japan in 2024, and for the year to December 2025 booked a ¥46.8 billion goodwill impairment on the Americas business and a net loss of ¥40.6 billion, a second consecutive year of losses. Fujiwara set out the policy that we will not from here on make acquisitions merely to chase scale.