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Shiseido to Unveil Cost Cutting Plan to Boost Profit

Shiseido Co. (4911) is preparing to unveil a reorganization plan that will include cost cuts and a revised structure as President Hisayuki Suekawa pushes to boost profitability at Japan’s largest cosmetics maker.

“We are considering how to change the structure, reviewing all the costs including marketing cost, labor cost, and overall infrastructure,” Suekawa said in an interview in Tokyo yesterday. It will give an overview of the plan as early as July 31, and unveil details after the end of the fiscal first half, he said.

Suekawa’s drive to cut costs and boost revenue follows two consecutive years of decline in the operating margin for Shiseido as it faces depressed local demand amid a shrinking population in Japan. That’s also prompting the company to expand faster overseas, where the makeup and lipstick maker competes with L’Oreal SA (OR) and Procter & Gamble Co. (PG)

“Sales are not growing much, so they may be trying to do something at the profit level,” said Masashi Mori, a Tokyo- based analyst at Deutsche Bank AG. Cosmetics makers have high administrative and marketing costs, he said.

Sales slowed to a 1.7 percent pace in the year ended March from 4.1 percent in the previous 12 months, according to data compiled by Bloomberg.

Operating Costs

Shares of Shiseido fell 2.9 percent to close at 1,126 yen in Tokyo. The Topix Index rose 1.2 percent.

The company’s operating expenses increased to 480.3 billion yen ($6.1 billion) in the year ended March from 433.7 billion yen in 2010, according to data compiled by Bloomberg. Operating margin has declined to 5.7 percent in the year ended March from 8.8 percent in the 12 months ended March 31, 2008, according to data compiled by Bloomberg.

The cosmetics maker last month announced a reorganization plan in its U.S. business, which included merging back office functions between its subsidiaries and Bare Escentuals Inc., which it acquired in the U.S. in 2010 to boost growth overseas.

The 140-year-old company is pushing to get more of its revenue from outside Japan. It’s targeting sales to exceed 1 trillion yen by March 2018, with more than half coming from overseas from about 44 percent currently. Sales rose 1.7 percent to 682.4 billion yen in the year ended March, while net income increased 14 percent to 14.5 billion yen.

China Sales

Shiseido can achieve double-digit sales growth in China this fiscal year, beating slower expansion in Asia’s largest economy, Suekawa said yesterday. The interest in “makeup and the population who use cosmetics” is rising in China, he said.

Photographer: Tomohiro Ohsumi/Bloomberg

Shiseido Co. President Hisayuki Suekawa. Close

Shiseido Co. President Hisayuki Suekawa.

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Photographer: Tomohiro Ohsumi/Bloomberg

Shiseido Co. President Hisayuki Suekawa.

The company, whose brands include its namesake as well as others such as Cle de Peau BEAUTE, NARS, and Aupres, will increase spending by as much as 3 billion yen on marketing domestically including on the Internet this fiscal year, Suekawa said. The company “will keep investment around that level” until March 2018, he said.

Overseas sales rose 5.1 percent to 302 billion yen for the year ended March, while domestic sales fell 0.8 percent to 380 billion yen.

Shiseido plans to cut by half the number of products it introduces in Japan, Suekawa said last year.

The company organized a beauty consultant contest, held once every four years, in Tokyo yesterday. As many as 32 contestants selected from about 20,000 Shiseido beauty consultants worldwide competed at the event.

Shiseido is also turning to other aids to win customers. The company’s beauty counselors will use Apple Inc.’s iPads to help sell cosmetics, Chikako Sekine, corporate officer in charge of the consultants at the company, said in an interview July 18.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net;

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