Opportunity for transformation: Shiseido lays down ‘worst-case scenario’ plans to beat COVID-19
In the first quarter of FY2020, it saw its net sales decrease by 15.8% while net profit and operating profit fell by 95.8% and 83% respectively as a result of the global novel coronavirus (COVID-19) pandemic.
During its first-quarter results conference call, president and CEO, Masahiko Uotani stressed that it would take some time for the global economy to recover from COVID-19 even when a vaccine is discovered, or herd immunity is established.
As such, the company believes the future holds two scenarios for the beauty industry – the first is a ‘neutral’ scenario where the economy and business will be able to recover by early 2021.
However, the firm also predicts another situation where a return to form will take up to three years.
“[We will see] a very big recession and it will take two to three years until a full recovery in 2023 – this would be the worst-case scenario,” said Uotani.
In that predicament, Uotani believes the company will be able to rally and use the opportunity to transform the business.
For the 2020 fiscal year, the company will focus on restructuring the business by managing costs to minimise business impacts.
At the same time, the firm plans to continue making strategic investments in China which has already seen marked improvement in performance in April.
If all goes according to plan, it hopes to begin to see gradual recovery in 2021 and 2022.
The firm has also made the decision to extend its VISION 2020 plan till 2023 in order to build a strong revenue base and strengthen its foundation for growth.
This would entail boosting its productivity on a global level. “We would like to aim for global-level productivity. Right now, compared to our global peers, unfortunately Shiseido's productivity is low,” said Uotani.
The company also hopes to become a ‘cash-flow-oriented business’ in light of COVID-19.
“Cash is everything, we are really seeing that. We would like to increase our profitability… We would like to stop or postpone our investments that are not necessary or urgent to do what we can to build a strong revenue base,” said Uotani.
He added that the company would take this opportunity to restructure the business and brand portfolios by reviewing business, brand, and regional strategies and assessing their profitability.
In the meantime, it will also be looking to make strategic mergers and acquisitions, especially in the skin care area.
“Strategic M&As should be performed… The significance of skin care is very big, and we were able to recognise it, this is Shiseido’s strength and it is profitable as well. So, we would like to enhance the skin care category going forward,” said Uotani.
Additionally, Shiseido plans to further reinforce the digital elements of its business which Uotani highlighted were integral in helping the business recover in China.
He noted one example of beauty advisors in China engaging with consumers online through messages or live streaming while department stores were closed.
Moving forward, Shiseido plans to train its beauty consultants in Japan to do the same.
“Online and offline are more integrated… This is the new trend we are seeing, and we would like to enhance it more so services can be received, and purchases can be done without contact with people. We would like to shift our business more towards this,” said Uotani.
The company will continue with research and development; however, it will seek more collaborations with different companies to foster open innovation and share costs.
Lastly, the firm hopes to diversify in the way it works in terms of people, organisation and working styles in order to build a “resilient” company.