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[1]. In 1872 he left government service and opened the Shiseido Pharmacy in Ginza, Tokyo[2]. He held the first pharmacist’s licence issued in Japan[3], and the purpose of the shop was to put into practice the separation of prescribing by the physician from dispensing by the pharmacist[4]. 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[5], 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[6]. Pharmacists trained at the Shiseido Pharmacy set up on their own account across the country under the Shiseido name[7], 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[8]. In January 1888 Shiseido released 福原衛生歯磨石鹸[9], a milled toothpaste that was the first of its kind in the country[10]. 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[11]. It also put out the hair oil 柳糸香 and the anti-dandruff scent 花たちばな[12]; every one of them was made by pharmaceutical methods[13], 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[14]. In 1899 the shop added a soda fountain, taking the lead in Japan in ice cream and soda water[15].

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[16]. He was well versed in European art and craft as well[17], and in September 1915 devised the 花椿 camellia trademark[18]. Praised from the moment it was unveiled as elegant and fragrant in its design[19], 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[20]. 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[21].

The organisation was reshaped to match the widening business, and in March 1921 what had been a sole proprietorship became a limited partnership[22]. Soap went on sale as Shiseido Soap from 1922[23], 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[24], and it carried a friction in distribution: the wholesalers took no part in explaining new products[25]. The idea of building, for itself, an organisation in which it could live alongside the retailers was already latent in the founding pharmacy network[26], 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[27]; 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[28]. 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[29]. 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[30].

The Great Kanto Earthquake of September 1923 did heavy damage to Shiseido[31] 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[32]. In December of that year Shiseido adopted the chain-store system[33]. The initial expectation had been for some twenty shops, but it soon widened to several thousand affiliated stores[34]. The company also built a factory at Suita in Osaka[35], and the following year, 1924, introduced an agency system[36].

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[37]. 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[38]. It went further and put the shares of the sales companies into the hands of all the chain stores attached to them[39], which gave them the impression that this is your own company, and tied them into a close relationship in which interests were shared[40]. In 1926 a sales-member organisation was laid down[41]; in June 1927 the limited partnership was reorganised as a joint-stock company with capital of ¥1.5 million[42], and in August of the same year the agency system was developed into the sales-company system[43].

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[44]. 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[45]. In January 1927 a soap factory was opened at Mukojima[46], and in March 1928 a new plant at Shinagawa in Tokyo was completed, taking in the Osaka works as well[47].

By the late 1930s Shiseido had more than ten sales companies outside Japan[48], and its network reached from mainland China to Taiwan, Korea, Manchuria and South-East Asia[49]. On the production side it built factories at Fushun and Shanghai, and ran plantations in Taiwan and on Hainan Island[50]. 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[51]. In September 1939 the Shiseido Chemical Research Laboratory was established to work on improving products[52].

When the Pacific War ended, Shiseido set about rebuilding on the basis of its Tokyo plant, which had escaped the fires[53]. 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[54]. Products that had disappeared during the war restarted one by one[55]. In December 1948 Osaka Shiseido was established to knit the production network back together[56], and the business surpassed its pre-war peak to take first place in the industry once more[57]. By 1955 the range ran to 267 items in cosmetics and 48 in soap and toothpaste[58]; sales for the 1954 financial year were $11.3M (¥4bn), and in June of that year capital was raised to ¥300 million[59].

Listing, volume production, and the head of the industry

In May 1949 Shiseido listed its shares on the Tokyo Stock Exchange[60]. 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[61]. In 1956 the company opened the largest beauty salon in the East, in Shibuya, Tokyo[62], 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[63].

In October 1959 Shiseido Shoji was established[64], and in November a cosmetics-only factory was built at Ofuna in Kanagawa to produce lotions and emulsions in volume[65]. 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?[66]. 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[67].