Japanese cosmetics manufacturers such as Shiseido are responding to the slowdown in the Chinese economy and the country’s economic crisis caused by the release of wastewater from nuclear power plants into the ocean.The country has been hit with a double whammy of boycott movements. Like their competitors around the world, the companies have competed in China’s rapidly growing cosmetics market, but their heavy dependence on China has come as a blow.
On the 13th, Shiseido’s stock price fell 14% on a closing price basis, marking the first decline in 36 years due to the company’s downward revision of its profit forecast for the current fiscal year (ending December 2023). China is Shiseido’s largest market, accounting for 25% of its sales. According to Morningstar Research, 80% of travel retail sales, such as duty-free sales, come from Chinese tourists.
There will be competition in the July-September period.Pola Orbis Holdings and Korean companiesAmorepacific’s operating income also fell short of market expectations.
Wakako Sato, senior analyst at Mitsubishi UFJ Morgan Stanley Securities, said that the growth rate of the cosmetics sector is expected to decline due to the slowdown in China, adding, “The impact on Japanese and Korean companies that benefited greatly in China will be global. “It’s big when you look at it,” he points out. She is the only one of 12 analysts covering Shiseido with a sell recommendation, according to Bloomberg data.
Mr. Sato downgraded Shiseido to “underweight” in October 2021, and his latest target price is 5,000 yen, the lowest among the analysts in charge. However, Shiseido’s closing price on the 15th was 4,480 yen, below that level.
Japanese Cosmetics Firm’s Growing Reliance on China
Shiseido has seen a decline in domestic revenue and an increase in China revenue
Source: Bloomberg data
In contrast, dependence on China is low.It’s Kose. Operating profit for the July-September period exceeded market expectations, and the stock price soared. Jeannie Chen, senior equity analyst at Morningstar, said, “The most important difference is the contribution of domestic sales,” adding, “Kose’s luxury brands Décolletage and Albion account for nearly half of its sales, while Shiseido’s Most of them are in the mid-price range.”
The selling price of “Cosme Decorte Liposomal Advanced Repair Serum” is the most popular product sold by Kose online.12,100 yenHowever, Shiseido’s top-selling product “Elixir White Brightening Lotion”Around 3000 yenis.
Shiseido rapidly expanded its business in China in the 2010s, and in 2021 sales in China exceeded sales in Japan. In contrast, according to Morningstar’s Chen, Kose’s sales ratio in China is thought to be in the mid-10% range.
With China’s economy expected to further slow down in the future, a more pressing issue is how long protests against the discharge of treated water from the Tokyo Electric Power Company’s Fukushima Daiichi Nuclear Power Plant into the ocean will continue. Chen said the impact is likely to last until the first half of next year, but believes it will be temporary, and that the Chinese government will eventually find a way to alleviate anti-Japanese sentiment.
However, Mitsubishi Morgan’s Mr. Sato says that with the future of business in China uncertain, it will be necessary to strengthen the domestic market going forward. He said, “We were focused on expanding overseas, including China, but from now on we should first focus on making money in Japan, our homeland.”
2023-11-16 04:08:07
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