Three-Year Plan (April 2008 – March 2011) Shiseido Co., Ltd. Three Three- Year Plan Year Plan (April 2008 (April 2008 – March 2011) March 2011) Shiseido Co., Ltd. Shiseido Co., Ltd. Shinzo Maeda Shinzo Maeda President & CEO President & CEO Shiseido Co., Ltd. Shiseido Co., Ltd. April 3, 2008 Hello. I’m Shinzo Maeda, President of Shiseido. First of all, I would like to thank you all for making time in your busy schedules to attend today’s presentation. Three years ago, we made the declaration to “break down and rebuild the company.” Since then, Shiseido’s employees have responded well to a series of tough reforms. I sense that Shiseido has made a huge transformation into an effective company with enormous sustainable growth “potential” as a global corporation. However, this is only the starting line. We have now reached the next stage, which will test the “true value” of the reforms as we realize this “potential.” Shiseido: The Path to the Present Shiseido: The Path to the Present First, we will look back briefly at Shiseido’s path up to three years ago.
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Three-Year Plan(April 2008 – March 2011)
Shiseido Co., Ltd.
ThreeThree--Year PlanYear Plan(April 2008 (April 2008 –– March 2011)March 2011)
Until the 1970s, Shiseido’s performance in the domestic market improved year by year as it rode the wave of Japan’s rapid economic growth. Greatly contributing to such growth was a network of “voluntary chain stores” contracted to sell Shiseido products. The network was established in the 1950s and based on the “resale system.”This period up to the 1970s was Shiseido’s first growth phase.
From the early 1980s, there was a pronounced diversification in consumer preferences and buying patterns. In response, we wasted no time in diversifying our sales channels and prices. We also entered a long period of stagnation when the economic downturn occurred.
The Japanese market had already entered a mature phase, and the Company fell into a huge “negative spiral ”due to attempts to overcome difficulties while patching up antiquated systems.
Diversification of consumer tastes and purchasing patterns
Early 1980s Late 1980s-2004
First growth phase:Domestic player
Stagnation; Problem of old system
Sales counter reformsStreamlined non-performing
assets (inventories, etc.)Concentrated lines
Introduced POS and OTC sales-oriented system
Early retirement program
Invasion of foreign brands
1997: Total abolition of resale system
Previous Three-YearPlan
2005-2007
Breaking the resale problem;Preparation for second
growth phase as global player
Positioning of Previous Three-Year Plan
Shiseido decided it must eliminate this
problem and be reborn.
Under the previous three-year plan, we
worked hard to build a business
foundation for Shiseido’s rebirth as a
global player. Our aim was to achieve a
sustainable growth phase, similar to that
of the 1970s.
Japan
Discarded old domestically oriented business model; Emerged as a global playerDiscarded old domestically oriented business model; Emerged as a global player
(1)(1)Brand/line portfolio consolidationBrand/line portfolio consolidation Limited brands/lines under mega-line concept Discontinued unprofitable brands(2)Reform of business trade system (2)Reform of business trade system (discard uniformity)(discard uniformity) Performance-based incentive → Activity-based incentives Uniformity
→ Linked to marketing techniques
(3)Reorganized sales system(3)Reorganized sales systemIntegrated cosmetics and toiletries businessesEstablished channel-specific sales system
(4)Innovated the activities of Beauty (4)Innovated the activities of Beauty ConsultantsConsultantsAbolished sales-based evaluation→ Priority on customer satisfaction
(5)Rearranged value creation system(5)Rearranged value creation systemIntroduced category-specific brand manager system
(6)Raised efficiency of production/(6)Raised efficiency of production/distribution systemdistribution systemJapan: 6 factories to 4 factoriesSold logistics subsidiary and its facilities→ Those functions now outsourced
This is a summary of Shiseido’s successes during that period.
In Japan, we established a new business model. We did this by modifying and updating the Company’s functions and systems in all areas, from marketing to retail operations, product development, and production. Overseas, we improved profitability considerably by ensuring double-digit growth in sales, primarily in China, and discarding unprofitable businesses. The overseas sales ratio, which was under 10% over a decade ago, has risen to 36%.
As a result, the Company achieved an operating margin in excess of 8% and made a solid return to shareholders, with a total return ratio of above 90%. The market value of Shiseido stock, which had slumped to around ¥500 billion at one stage, has since almost doubled, surpassing the ¥1 trillion mark.
Shiseido Going ForwardShiseido Going Forward
The time ahead is a decisive stage that will
assure Shiseido’s second growth phase as a
global player.
ShiseidoShiseido
Become a global player representing Asiawith its origins in Japan
Become a global player representing Asiawith its origins in Japan
Previous three-year plan: Established foundation for becoming global playerPrevious three-year plan: Established foundation for becoming global player
Our Vision of a Global Player
ShiseidoShiseidoShiseido
Our vision is to become a global player that
will represent Asia on the world stage with
its origins in Japan.
Raise growth potential in markets throughout the world;Achieve higher growth rate than global cosmetics
market (at very least)
Raise growth potential in markets throughout the world;Achieve higher growth rate than global cosmetics
market (at very least)
Transform into a business structure capable of continually generating ROE and operating margin at levels comparable to those of global competitors
Transform into a business structure capable of continually generating ROE and operating margin at levels comparable to those of global competitors
Challenges to Becoming a Global Player
We must tackle two challenges if we are
to realize this vision.
One is to raise our growth potential in
markets throughout the world, so that we
can achieve a higher growth rate than the
global cosmetics market, at the very least.
The second is to transform into a
business structure capable of continually
generating ROE and operating margin at
levels comparable to those of global
competitors.
Shiseido’s Raison d’EtreShiseido’s Raison d’Etre
I would like to make one more important
point.
We are committed to strengthening
Shiseido’s “raison d’ètre.” In other words,
we want to create a clear identity unique
to Shiseido that is different from those of
our global competitors. And we will
single-mindedly aspire to that identity.
We imagine Shiseido’s raison d’ètre as
follows.
Realize the beauty of customers and enrich their hearts
Realize the beauty of customers and enrich their hearts
What is Shiseido’s Raison d’ Etre?
We will not merely sell products. We will
realize the beauty of customers. We will
also enrich their hearts to complement their
outer beauty.
RichnessRichnessBeing thoroughly meticulous about the high quality
of products and services
Human Science Spirit of Omotenashi
Pursuing benefits that reach all the way to people’s minds
Enriching people’s heartsthrough interactions between
customers and products
Shiseido’s Raison d’ Etre: Three StrengthsShiseido’s Raison d’ Etre: Three Strengths
Shiseido’s three strengths that will
sustain its raison d’ètre are encapsulated
in the following concepts.
The first is “richness.” Richness may be
defined as being thoroughly meticulous
about ensuring high quality and services.
The next is “human science.” This is not
only making the skin beautiful, but also
pursuing benefits that reach all the way
to people’s minds within the R&D field.
Lastly, there is the Japanese spirit of
Omotenashi (hospitality). This is
enriching people’s hearts through
interaction between customers and
products.
This moment. This life. Beautifully.
These concepts are embodied in
Shiseido’s corporate message: “This
Moment. This Life. Beautifully.”
Beauty is not only momentary, but life
itself is made beautiful when we are
made to feel beautiful inside time and
again.
Our raison d’ètre is not merely to sell
products. It extends much further to the
provision of beauty and inner enrichment
for each and every customer. We will
continue to uphold this philosophy.
Roadmap for the Coming DecadeRoadmap for the Coming Decade
I will now outline our strategy for the next
10 years as Shiseido demonstrates its raison
d’ètre to become a necessary part of
customers’ lives worldwide.
Ten years from now: Net sales in excess of ¥1 trillion (over 50% overseas sales)Achieve ROE comparable to that of global competitors (15% or higher)
Continually generate solid operating margin (12% or higher)
Ten years from now: Net sales in excess of ¥1 trillion (over 50% overseas sales)Achieve ROE comparable to that of global competitors (15% or higher)
Continually generate solid operating margin (12% or higher)
Establish foundationEstablish foundationas a global playeras a global player
Phase 2Phase 2
Phase 1Phase 1
Establish an undisputed presence in AsiaEstablish an undisputed presence in AsiaBecome a Become a
global playerglobal player
Improve qualityacross the board
Get into growth trajectory
Make a leap forward
New three-year plan
Previous three-year plan
Roadmap for the Coming DecadeRoadmap for the Coming Decade
Become a global player representing Asia with its origins in Japan
Establish foundationEstablish foundation
Over the next 10 years, Shiseido will take a three-phased approach.
In the first three-year phase, we will shift our focus to improve quality across the board. In Phase 2, we will establish an undisputed presence in Asia sustained by the foundation created in Phase 1. In Phase 3, we will continue to accelerate growth on a global scale and improve profitability.
Within 10 years, Shiseido is aiming to surpass net sales of ¥1 trillion, more than half of which will be derived from overseas. We will be able to consistently achieve an ROE of at least 15% and an operating margin of at least 12%, putting us on a level comparable to our global competitors. We will move forward with the aim of realizing this scenario.
New Three-Year PlanNew Three-Year Plan
I will now present an outline of Shiseido’s
new three-year plan, which marks Phase 1.
Create a brand loved by customers throughout the world
Create a brand loved by customers throughout the worldDeclaration
1Declaration
1
Establish unsurpassed, world-classquality of business management
Establish unsurpassed, world-classquality of business management
Strengthen the Shiseido Group’s solidarity,across countries and organizations
Strengthen the Shiseido Group’s solidarity,across countries and organizations
Become a global player representing Asiawith its origins in Japan
Become a global player representing Asiawith its origins in Japan
“Three Declarations” of New Three-Year Plan“Three Declarations” of New Three-Year Plan
Declaration2
Declaration2
Declaration3
Declaration3
We will pursue three declarations over
the next three years while aiming to
become a global player representing Asia
with its origins in Japan.
1. Create a brand loved by customers
throughout the world;
2. Establish unsurpassed, world-class
quality of business management; and
3. Strengthen the solidarity of the
Shiseido Group across countries and
organizations.
Keywords for Building Specific StrategiesKeywords for Building Specific Strategies
Balancing expansion of growth potential and improving profitability
Balancing expansion of growth potential and improving profitability
GlobalizationGlobalization
Distinction and concentrationDistinction and concentration
Utilize external knowledge and resourcesUtilize external knowledge and resources
+
We have several general strategies for
realizing these declarations. One is to
expand growth potential and improve
profitability. We will continue
implementing this strategy, as we have
done over the past three years.
In addition, over the next three years we
will leave no stone unturned in pursuing
three initiatives: “globalization,”“distinction and concentration,” and
“utilization of external knowledge and
resources.”
Overall View of New Three-Year Plan (FY2008-FY2010)Overall View of New Three-Year Plan (FY2008-FY2010)
Expand growth potential and improve profitabilityExpand growth potential and improve profitability
GlobalizationGlobalizationGlobalization
Strengthen cultivation of Strengthen cultivation of the global the global SHISEIDOSHISEIDO brandbrand
Create solid brandsCreate solid brands
Key
wor
ds
Become a global player representing Asia with its origins in Japan; Raise quality of all activities across the board
Become a global player representing Asia with its origins in Japan; Raise quality of all activities across the board
Distinction and concentrationDistinction and concentrationDistinction and concentration Utilize external knowledge and resources
Utilize external knowledge Utilize external knowledge and resourcesand resources
Str
ateg
ic d
irec
tion
Establish an undisputed presence in AsiaEstablish an undisputed presence in Asia
Strengthen foundation for raising Strengthen foundation for raising SHISEIDOSHISEIDO GroupGroup’’s corporate values corporate value
Accelerate reforms of Beauty Consultant activities
Reinforce value creation power
Establish global production systems
Nurture human resources on global basisNurture human resources on global basis
Improve quality of business managementImprove quality of business management
Harness Groupwide power to expand market shareHarness Groupwide power to expand market shareHarness Groupwide power to expand market share
1. Strengthen Cultivation of the Global SHISEIDO Brand1. Strengthen Cultivation of the Global SHISEIDO Brand
シティーコンセプト戦略の展開シティーコンセプト戦略の展開シティーコンセプト戦略の展開
Expand into emerging marketsExpand into emerging marketsExpand into emerging markets
Roll out the “City Concept” strategyRoll out the Roll out the ““City ConceptCity Concept”” strategystrategy
In order to demonstrate the consistent
strength of the global SHISEIDO brand,
we will target the gradual integration of
product lines and the renewal of
Shiseido’s product portfolio.
Then, we will roll out a detailed
marketing strategy called the “City
Concept.”
City ConceptCity Concept
Consider aspects of the market as city-based units not as country-based units,
then concentrate resources to ensure aggressive marketing
Consider aspects of the market as cityConsider aspects of the market as city--based based units not as countryunits not as country--based units,based units,
then concentrate resources to ensure aggressive marketingthen concentrate resources to ensure aggressive marketing
City Intensive: Focused cultivation of SHISEIDO brand
City IntensiveCity Intensive:: Focused cultivation of Focused cultivation of SHISEIDO brandSHISEIDO brand
Harness Groupwide power to expand market shareHarness Groupwide power to expand market shareHarness Groupwide power to expand market share
Strengthen Cultivation of the Global SHISEIDO BrandStrengthen Cultivation of the Global SHISEIDO Brand
Roll out the “City Concept” strategyRoll out the Roll out the ““City ConceptCity Concept”” strategystrategy
新興市場へ拡大新興市場へ拡大新興市場へ拡大Expand into emerging marketsExpand into emerging marketsExpand into emerging markets
We will also build a business model for
markets in which we conduct our business
via distributors. These include up-and-
coming markets, such as the Middle East
and India, which are expected to follow the
lead of China and Russia.
2. Aim to Establish an Undisputed Presence in Asia
2. Aim to Establish an Undisputed Presence in Asia
Next, we will aim to establish an undisputed
presence in Asia.
(1) Roll out “Masstige*” marketing across all of Asia(1) (1) Roll out Roll out ““MasstigeMasstige**”” marketing across all of Asiamarketing across all of Asia
(2) Further expand business in China(2) (2) Further expand business in ChinaFurther expand business in China
(3) Firmly secure the No.1 position in Japan(3) (3) Firmly secure the No.1 position in JapanFirmly secure the No.1 position in Japan
* Coined word from “mass” and “prestige”, and positioned as “more expensive than mass-produced products, but more moderately priced compared with prestige products.”
2. Aim to Establish an Undisputed Presence in Asia
2. Aim to Establish an Undisputed Presence in Asia
Here we face three main challenges.
The first is to pursue full-scale
marketing that targets “masstige”markets in Asia in parallel with our
prestige business. The second is to
further expand Shiseido’s business in
China, continuing from the previous
three-year plan. And the third is to firmly
secure Shiseido’s No. 1 position in its
home market of Japan.
Broaden mega-lines rollouts in AsiaBroaden mega-lines rollouts in Asia
Create “Masstige” business model → Full-scale implementation in the next three-year plan
Create “Masstige” business model → Full-scale implementation in the next three-year plan
Aim to establish an undisputed presence in AsiaAim to establish an undisputed presence in Asia
(1) Full-Scale Rollout of “Masstige” Marketing(1) Full-Scale Rollout of “Masstige” Marketing
Set up production system → Establish a new factory in VietnamSet up production system → Establish a new factory in Vietnam
The term “masstige” refers to products that are more expensive than regular mass-produced items but are more moderately priced than typical prestige products. Deploying our intimate knowledge of the skin types and tastes of Asian people, together with our business expertise in Japan, we will expand our “masstige” business to cover all of Asia.
The full rollout of our “masstige”business will take place in the three-year period from 2011. In the ensuing three-year period, meanwhile, we will use our “top runner” status to successively roll out our Japanese mega-lines across Asia. Our aim here is to transform our “Japanese mega-lines” into “Asian mega-lines.” During this time, we will build a robust and unique earnings model for our “masstige” business in preparation for a full-scale rollout.
Recently, we announced the construction of a new factory in Vietnam. This facility will become the main production base to supply our “masstige”business in Asia. The factory will begin operations during the next three years.
Department stores: Innovation of Auprès brand (first in 14 years)Strongly nurture prestige SHISEIDO brand
Department stores: Innovation of Auprès brand (first in 14 years)Strongly nurture prestige SHISEIDO brand
Cosmetics specialty stores: Set up new store contracts exclusivelyfor Pure & Mild brand
Improve quality and expand number: 5,000+ store contracts
Cosmetics specialty stores: Set up new store contracts exclusivelyfor Pure & Mild brand
Improve quality and expand number: 5,000+ store contracts
Maintain annual average growth 20%+Maintain operating margin at same level of previous three-year plan
Maintain annual average growth 20%+Maintain operating margin at same level of previous three-year plan
(2) Further Expand Business in China(2) Further Expand Business in China
Proactively cultivate new sales channels Proactively cultivate new sales channels
Next, we will further expand our business in China.
Last month, we announced an overview of our business expansion plans for China, in conjunction with our announcement of the renewal of the Auprès cosmetics brand for the first time in 14 years.
To reiterate, Shiseido will innovate the Auprès brand and strengthen the global SHISEIDO brand sold through the department stores. For cosmetics specialty stores, we have augmented traditional agreements with a new contractual format for stores that handle only the Pure & Mild brand. Here, our aim is to expand Shiseido’s sales base and raise quality. By the final year of the plan, we hope to have either traditional or Pure & Mildagreements with at least 5,000 stores in China. In addition, we plan to establish a third sales channel to complement our existing current department store and specialty store channels.
Through the above measures, we will seek to maintain a high annual growth rate of at least 20%, double that of the projected annual average growth rate of 10% for the overall market. We will also target an operating margin at around the same level of our previous three-year plan.
Relationship building brand strategyRelationship building brand strategyRelationship building brand strategy
Increase high-quality sales conducive to sustained growthIncrease highIncrease high--quality sales conducive to sustained growthquality sales conducive to sustained growth
(3) Firmly Secure the No.1 Position in Japan(3) Firmly Secure the No.1 Position in Japan
Phase 2 sales reform: Become 100% customer-oriented companyPhase 2 sales reform: Become 100% customerPhase 2 sales reform: Become 100% customer--oriented companyoriented company
Consolidate lines into 21 from 27Consolidate lines into 21 from 27Consolidate lines into 21 from 27
In order to become a global player
representing Asia with its origins in
Japan, at the very least we must solidify
our No. 1 position in our home market.
Then we must build a track record of
success in rolling out product categories
on a global basis.
This consists of three initiatives. I will
begin with Shiseido’s brand strategy.
Relationship Building Brand StrategyRelationship Building Brand Strategy
Previous plan (FY2005-2007)
Launch mega-lines
Launch: FY2005-2006Foster: FY2007
Rel
atio
nsh
ip b
uil
din
gP
rom
otio
nal
dri
ven
New plan (FY2008-2010)
Sales reforms Phase 2
Sustained reinforcementof promotional driven
category⇒Foster mega-lines
Reinforce Bénéfique and&FACE
Reinforce relationship building category
BC activity reformsPhase 2
Maximize customerinteractions
Gen
erat
esy
ner
gies
Strengthen customers
relationships
Exclusive brands/linesby channel
Beauty Consultant (BC)activity reforms
Phase 1
Reinforce Clé de Peau Beautéand d program
Launch new brands
The key element of our brand strategy in the previous three-year plan was the launch of mega-lines. We established six mainstay lines—one for each major category of the Japanese cosmetic market. The success of mega-lines through extensive promotional campaigns is vital for advancing the powerful perception that Shiseido has changed and that Shiseido products are attractive.
Having successfully met this challenge, we will now focus on areas in which we can harness Shiseido’s strengths. In other words, we will work expand brands/lines by building strong relationships with our customers.
In addition to nurturing existing brands/lines, including Bénéfique, &Face, and d program, we are planning to add a high-end line to the Clé de PeauBeauté brand and launch a new brand in the second half of the current fiscal year. We will continue making full use of Shiseido’s strengths in this area. We will also at last be able to capitalize on the success of innovative activities of beauty consultants and sales reforms already implemented during the previous three-year plan.
Consolidate Lines into 21 from 27Consolidate Lines into 21 from 27
DefinitionSales target: A goal to strive for, but not an evaluation benchmark
DefinitionSales target: A goal to strive for, but not an evaluation benchmark
Sales quotaSales quota
Sales target Sales target
Meeting as many customers as possible・Increase customer numbers
・Broaden sales locations, etc.
Help customers remain beautiful・Convey beauty techniques
・Increase number of repeat customer visits, etc.
Customer satisfaction
Final targetActivity process for achieving final targets
Activities based on opinions of each sales manager
Sometimes customers are
disregarded
To date
Going forward
Phase 2 sales reform: Become 100% customer-oriented company
Phase 2 sales reform: Become 100% customer-oriented company
Evaluation target
Evaluation target
Specifically, we will remove the
constraint of sales quotas, which have
proved an impediment to creating a sense
of unity between sales and beauty
consultants. We will establish new
evaluation targets to replace sales quotas,
such as the number of customers, the
ratio of repeat customer visits, and store
accomplishment ratios.
According to our experience so far,
these new evaluation targets clearly lead
to higher sales and that they are
compatible with the efforts of beauty
consultants, whose primary aim is to
raise customer satisfaction.
Specialty stores Drugstores
Phase 2 sales reform: Become 100%customer-oriented company
Phase 2 sales reform: Become 100%customer-oriented company
Conduct client surveys
打合せ
お客さまづくり活動と連動した販促・施策の
ご提案(オンリーワン連動)
お客さまづくり活動実績の確認
美容関連情報のご案内
セミナーまたは美容講座受講の
ご案内
1.実施している2.実施していない
お客さまづくり活動のご提案(絆を深める)(オンリーワン連動)
お客さまづくり活動と連動した売場づくりの
ご提案(オンリーワン連動)
売場メンテナンス
従業員様とのコミュニケーション
コミュニケーション
ご提案活動
活動マネジメント
美容情報共有
■
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
1.実施している2.実施していない
お客さまづくり活動のご提案(出会いの拡大)(オンリーワン連動)
1.実施している2.実施していない
ご質問項目
充分
活動の有無
営業担当者名ご記入者のお名前・役職
企業・店舗名
まあ充分どちらともいえない
やや不充分 不充分
■ Please write further comments about your company’s sales activities here.
Thank you for your time.
Business meeting
Confirm progress of customer attraction
activities
Introduction tobeauty-related
information
Introduction to seminars or beauty-related lectures
1. Yes 2. No
Suggested activities toattract customers
(deepen ties)(“only one” link)
Sales countermaintenance
Communication withemployeesC
omm
uni
cati
onS
ugge
sted
act
ivit
ies
Act
ivit
ym
anag
emen
tS
hari
ng b
eaut
yin
form
atio
n
■Client survey (specialty stores)
Item
Sufficient
Activities undertaken?
Level of activity (for “Yes” respondents)
Name of salesmanager
Name/title ofquestionnairerespondent
Name ofcompany/store
Mostly sufficient
Neither Mostlyinsufficient Insufficient
■
Suggested activities toattract customers
(increase interactions)(“only one” link)
Suggested sales locationslinked to customer attraction activities
(“only one” link)
Suggested sales promotionactivities linked to
customer attraction activities (“only one” link)
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
Suggested for noncoresales counters
Confirmation of headoffice decisions
Use of medical charts
Suggested semiannualplan
Suggested monthly plan
Maintenance of core sales countersSa
les
coun
ter
enha
ncem
ent
■Client survey (specialty stores)
■
Thank you for your time.
Please write further comments about your company’s sales activities here.
Name of salesmanager
Name ofcompany/store
Name/title ofquestionnairerespondent
Item Activities undertaken?
Com
mu
nica
tion
Business meeting
Communication withemployees
Sug
gest
ed a
ctiv
itie
sS
hari
ng b
eaut
y in
form
atio
n
Introduction tobeauty-related
information
Introduction to seminars or beauty-related lectures
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
1. Yes 2. No
Level of activity (for “Yes” respondents)
SufficientMostly
sufficient NeitherMostly
insufficientInsufficient
Just as with beauty consultants, we
consider evaluation from our clients to
be very important. Our clients take part
in twice-yearly surveys, like those shown
here.
These evaluations will help us discard
the simplistic notion of being concerned
only with higher sales. Rather than use
stopgap figures, we will then be able to
generate higher-quality sales linked to
steady future growth.
3. Strengthen Foundation for Enhancing the value of the SHISEIDO Group
3. Strengthen Foundation for Enhancing the value of the SHISEIDO Group
The third challenge in creating solid brands
is to strengthen the foundation for
enhancing the value of the Shiseido Group.
(1) Accelerate Reforms of Beauty Consultant Activities(1) Accelerate Reforms of Beauty Consultant Activities
(2) Reinforce Value Creation Power(2) Reinforce Value Creation Power
(3) Establish Global Production Systems(3) Establish Global Production Systems
3. Strengthen Foundation for Enhancing the Value of
the SHISEIDO Group
3. Strengthen Foundation for Enhancing the Value of
the SHISEIDO Group
This will require the following three actions.
“Shiseido Beauty Way”: Spirit of OMOTENASHI (hospitality)“Shiseido Beauty Way”: Spirit of OMOTENASHI (hospitality)
Globalization of BC activity reformsGlobalization of BC activity reforms
Achieve and solidify world position as No.1 in customer satisfaction
Achieve and solidify world position as No.1 in customer satisfaction
(1) Accelerate Reforms of Beauty Consultant Activities(1) Accelerate Reforms of Beauty Consultant ActivitiesThe first is to accelerate reforms to the activities of beauty consultants.
Earlier, I cited the Japanese concept of Omotenashi as one of Shiseido’s three strengths.
The “Shiseido Beauty Way” embodies Shiseido’s unspoken expertise in Omotenashi cultivated over its 136-year history. We will apply Omotenashi and “customer relations software,” which has been so successful in Japan under the previous three-year plan on a global scale. At the same time, we will energize the activities of beauty consultants through extended overseas business trips, on-the-job training, and reciprocal exchanges. Our aim is to raise the status of the profession of beauty consultants and become the world leader in providing genuine customer service.
Reinforce skincare research into “skin reparation”and “sense of efficacy”
Reinforce skincare research into Reinforce skincare research into ““skin reparationskin reparation””and and ““sense of efficacysense of efficacy””
Strengthen H&BC research; Focus on new domainsStrengthen H&BC research; Focus on new domainsStrengthen H&BC research; Focus on new domains
Harness internal and external knowledge to reinforce our unrivalled R&D prowess
Step up R&D aimed at enriching people’s hearts
Harness internal and external knowledge to reinforce our Harness internal and external knowledge to reinforce our unrivalled R&D prowess unrivalled R&D prowess
Step up R&D aimed at enriching peopleStep up R&D aimed at enriching people’’s heartss hearts
(2) Reinforce Value Creation Power(2) Reinforce Value Creation Power
Actively promote strategic alliances and “open innovation”Actively promote strategic alliances and Actively promote strategic alliances and ““open innovationopen innovation””
Next is the reinforcement of our value creation power. This also relates to enhancing Shiseido’s “human science”capabilities, which is its third strength.
In the skincare business, where we are best placed to maximize our strengths, we will boost research into improving skin quality. This will include measures for treating rough, dry, and porous skin and acne in addition to the existing research areas of skin lightening and anti-aging. We will also extend research to find ways that customers can perceive the effectiveness of a product, such as through a product’s feel, as a means of creating items with natural appeal.
In order to provide a total solution, we will channel our energies into new businesses, such as health and beauty care, cosmetic dermatology treatments/apparatus, and therapeutic makeup. By actively promoting strategic alliances and “open innovation”—rather than adhering to the principle of self-sufficiency—we will harness internal and external knowledge to strengthen research not only in beautiful skin, but also inner enrichment.
(3) Establish Global Production Systems(3) Establish Global Production Systems
R&D facilities
Production facilities
Build new plants in Vietnam
Close factory in New Zealand
Build new plants in Vietnam + Close factory in New ZealandBuild new plants in Build new plants in VietnamVietnam + Close factory in New Zealand+ Close factory in New Zealand
Stronger focus on core domains; Promote strategic outsourcingStronger focus on core domains; Promote strategic outsourcingStronger focus on core domains; Promote strategic outsourcing
Build optimal production/supply system conducive to globalizationBuild optimal production/supply system conducive to globalizatioBuild optimal production/supply system conducive to globalizationn
( Professional products)(15 locations)
(5 locations)
We will also adopt a global perspective
when establishing our production system.
In the previous three-year plan, we
reduced the number of domestic
production facilities from six to four. In
the next three-year period, we will open
a new factory in Vietnam and close our
facility in New Zealand. In these ways,
we will target focused reinforcement of
our core domains while strategically
outsourcing certain functions, in an
effort to build an optimal production
system for business globalization.
1. Cultivate global human resources2. Raise organizational capabilities3. Advance corporate governance structure4. Continuously pursue structural reforms5. Actively promote CSR
1. Cultivate global human resources2. Raise organizational capabilities3. Advance corporate governance structure4. Continuously pursue structural reforms5. Actively promote CSR
Declaration2: Establish unsurpassed, world-class quality of business management
Declaration2: Establish unsurpassed, world-class quality of business management
Foster next-generation top management teamFoster nextFoster next--generation top management teamgeneration top management team
Foster human resources more strongly at a global levelFoster human resources more strongly at a global levelFoster human resources more strongly at a global level
1. Cultivate Global Human Resources1. Cultivate Global Human Resources
Build global human resource systemBuild global human resource systemBuild global human resource system
Nurture local employees: Establish China training center Nurture local employees: Establish China training center Nurture local employees: Establish China training center
With respect to cultivating global human
resources, we will equip top management
with global-level skills by sending
candidates for executive positions to the
IMD Business School in Lausanne,
Switzerland. We will also build a global
human resource system that removes
distinctions between domestic and foreign
employees, and we will foster global
employees by rotating personnel across
regions.
Shiseido China Training CenterShiseido China Training Center
Train Shiseido employee, clients, and sales specialists in China
Expand use of employee training bases to promote future-oriented Asia intellectual growth
We broke new ground in China last
month with the establishment of the
Shiseido China Training Center. This is
the first training center to be established
by a Japanese company in China, and is
Shiseido’s first such center outside Japan.
We plan to use the Center to train
employees not only from China, but also
from other Asian countries.
Reform head office corporate departmentsReform head office corporate departmentsReform head office corporate departments
Standardize/reform business processes throughintroduction of SAP
Standardize/reform business processes throughStandardize/reform business processes throughintroduction of SAPintroduction of SAP
Build company framework to back up globalizationRaise efficiency by cutting indirect cost
and boosting productivity
Build company framework to back up globalizationBuild company framework to back up globalizationRaise efficiency by cutting indirect costRaise efficiency by cutting indirect cost
and boosting productivityand boosting productivity
Next, we will advance the Company’s corporate governance structure.
Prior to the start of the previous three-year plan, Shiseido had 32 corporate officers. By fiscal 2008, we had reduced this number to an elite body of 19. We also rejuvenated these positions by reducing the average age from over 60 to 56. We now have three executive officers aged in their 40s, compared with none before the plan’s implementation. We also have two external directors who have participated in meetings over the past two years. Recently, they were joined by our first foreign director, Mr. Carsten Fischer. The appointment of Ms. Kimie Iwata as Vice President further reflects the increasing diversity within Shiseido’s top management. As a global company, we will continue to strengthen our corporate governance system by introducing various measures, such as increased clarification of the responsibilities of our corporate executive officers.
Complete reforms in North America; Translate success across other regions
Complete reforms in North America; Translate success across other regions
Streamline/withdraw from unprofitable businesses/brandsStreamline/withdraw from unprofitable businesses/brands
Enhance efficiency to raise profitability;Shift investments to growth fields
Enhance efficiency to raise profitability;Shift investments to growth fields
Reduce number of product categories: 30% reduction between FY 2007 and FY2010
Reduce number of product categories: 30% reduction between FY 2007 and FY2010
We will continue to pursue structural reforms commenced under the previous three-year plan.
We completed the restructuring of our operations in North America and intend to translate its success across other regions.
We are resolved to streamline or withdraw from any business or brand that performs poorly, or has little prospect of future growth or offering synergies to the wider Group.
Under the new three-year plan, we will focus on reducing product categories. Under the previous plan, we reduced to 27 the number of nurtured brands/lines in the domestic cosmetics business, which accounted for more than 80% of total sales. However, due to the large number of product categories responsible for the remaining 20%, we have no hesitation in cutting the total number of product categories in conjunction with the reduction of nurtured brands/lines. To be more precise, we will gradually stop production of around 30% of all domestic and overseas product categories. Combined with actions taken in the previous three-year plan, this will result in a 40% reduction of product categories compared with fiscal 2005. When considering products to discontinue, we will first endeavor to raise functionality to a similar or greater level for existing nurtured products, in an effort to reflect customer tastes while reducing costs.
Expand social beauty care activitiesExpand social beauty care activities
Activities to date: Attached rooftop solar panel at East Windsor PlantTree-planting in China
▼
Company-wide movements, such as solicitation of “eco ideas”
Activities to date: Attached rooftop solar panel at East WindsorActivities to date: Attached rooftop solar panel at East Windsor PlantPlantTreeTree--planting in Chinaplanting in China
▼▼
CompanyCompany--wide movements, such as solicitation of wide movements, such as solicitation of ““eco ideaseco ideas””
Rooftop solar panels(East Windsor Plant)
Tree-planting campaign in LanzhouCity, Gansu Province
First, by fiscal 2010, the final year of the plan, we aim to achieve an operating margin of 10% or higher, and an ROE that is one to two points higher than that.
We project annual average net sales growth of 4–5% over the three years, with domestic sales increasing by 1–2%, slightly higher than the domestic market overall. We expect average annual overseas growth to exceed 10% on a local currency basis.
In the final year of the plan, we expect net sales to exceed ¥800 billion, based on exchange rates of ¥100 to the U.S. dollar, ¥155 to the euro, and ¥14.5 to the yuan. Overseas sales will account for more than 40% of net sales. Specific targets for each year of the plan, including fiscal 2008, will be outlined at the annual financial results briefings. As shown in the chart, the growth rate for fiscal 2008, the first year of the plan, is slightly low in yen terms, in light of our projection of ¥100 to the U.S. dollar.
Cost StructureCost Structure
<FY2007 Estimate> <FY2010 Target>
Share of net sales (%)
Around one point improvement
Slight increase investment
Slight increase improvement
Cost of sales
around
26
Marketing cost
around
24
Personnel expenses
around
21
Other SG&A
expenses
around
21
Operatingincome
8.3
around
25
20-21
around
20
10 or higher
24-25
Around one point improvement
Around two points improvement
Cost of sales
Marketing cost
Personnel expenses
Other SG&A
expenses
Operatingincome
This slide shows changes to the cost
structure.
The cost of sales will fall by around 1%
compared with fiscal 2007 when the effect
of reducing product categories and other
measures are included. SG&A expenses
will fall about one point, reflecting
increased productivity and more efficient
allocation of other SG&A expense items.
Consistent investment in marketing of
around 24–25% will contribute to sales
growth.
Shareholder ReturnShareholder Return
(Yen)
Flexibly buy back and retire treasury stock, with emphasis on cash dividend
⇒ Total consolidated shareholder return ratio: 60% (medium-term)
Flexibly buy back and retire treasury stock, with emphasis on cash dividend
⇒ Total consolidated shareholder return ratio: 60% (medium-term)
0
5
10
15
20
25
30
35
40
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
Interim Year-end(plan)
66th consecutive annual increaseth consecutive annual increasePrevious threePrevious three--year plan: Total return ratio of 93%;year plan: Total return ratio of 93%;
Payout ratio of 55%Payout ratio of 55%
With regard to shareholder return, we
will continue our basic policy targeting a
total consolidated shareholder return ratio
of 60% in the medium term, stated in the
previous plan. We will continue to buy
back and retire treasury stock while
taking account of changes in the stock
market with an emphasis on cash
dividends.
Declaration3: Strengthen the Shiseido Group’s solidarity,
across countries and organizations
Declaration3: Strengthen the Shiseido Group’s solidarity,
across countries and organizations
Lastly, I would like to address the third declaration: “Strengthen the solidarity of the Shiseido Group across countries and organizations.”
Last year, Shiseido was one of the companies that participated in an employee satisfaction survey conducted in Japan, in which employees of various companies responded to the same set of questions. Since multiple companies took part, we were able to gain an objective insight into Shiseido’s unique features, strengths, and weaknesses.
I was most delighted, and encouraged, by the ratings given to Shiseido by its employees when asked about “Pride in your company,” “Affection for your company,” and “Dreams you have for your company’s future.” Our ratings were far higher than those of other companies.
Maybe these results reflect the wishes of the long line of predecessors who have worked at Shiseido since its foundation. Or perhaps they highlight the confidence we have gained from overcoming the major obstacles to our reforms over the past three years.