April 26 (Bloomberg) -- Leslie Blodgett, head of San Francisco’s Bare Escentuals, has hawked the company’s cosmetics everywhere from QVC to street-corner makeup stands. Now she has her sights set on conquering Asia.
The company is starting a new life as a division of Japan’s Shiseido Co., a nearly 140-year-old cosmetics giant. Shiseido acquired Bare Escentuals last month for $1.7 billion, San Francisco’s biggest merger this year.
Bare Escentuals’ less-is-more approach to cosmetics may be a harder sell in Japan, where many consumers favor more traditional cosmetics and skin-lightening makeup. The success of the acquisition hinges on whether the company’s natural-beauty pitch will translate to Shiseido’s customers around the world, especially in Asia.
“Going into Japan is a challenge,” said Blodgett, 47. “We want to introduce to them a natural approach to makeup. And we have already seen that women are embracing that. It always starts small and through word-of-mouth.”
Shiseido rose 1 percent to 1,946 yen on the Tokyo Stock Exchange today, the biggest gain in three weeks. The stock has climbed 9.3 percent this year.
“Overseas is the only bright spot for the Japanese companies like Shiseido, as their home market will shrink further,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo. “Bare can make up for Shiseido’s weakness and beef up its brands abroad.”
Estee Lauder, L’Oreal
Shiseido and Bare Escentuals are counting on each other to maintain growth and ward off competition from global cosmetics companies, including Estee Lauder Cos., L’Oreal SA and Procter & Gamble Co. In Japan, Shiseido also competes with Kao Corp., a Tokyo-based household-product company.
Bare Escentuals posted sales of $557.5 million in 2009, little changed from a year earlier. Profit, at $98.1 million, also remained about the same as in 2008.
Blodgett, who became chief executive officer in 1994, built up the company by making regular appearances on Liberty Media Corp.’s QVC home-shopping channel. By 2001, Bare Escentuals was QVC’s best-selling brand. After the merger, Blodgett stayed on as executive chairman of the company.
Bare Escentuals is already appearing on Japan’s QVC, and the Shiseido retail shops will give the brand an additional boost. The Japanese company’s research centers, located in China, France, Japan and the U.S., also will help create new skincare products for the Bare Escentuals line, says Shinzo Maeda, Shiseido’s president and CEO.
The key will be persuading Asian shoppers that they’re part of a broader trend, Maeda says.
If consumers feel like “they are at the forefront of a wave that will wash over society as a whole, they are much more willing to accept a product,” he said, speaking through an interpreter.
For Shiseido, the acquisition is part of its own overseas expansion. Declining wages and an aging population have made it harder to keep growing in Japan.
Even so, companies from outside Japan have managed to find growth in the country. Estee Lauder is outpacing the rest of the industry there, says John Demsey, a group president at that company. “Asia-Pacific in general is one of the major driving forces of our performance,” he said from Tokyo this month.
L’Occitane International SA, a French maker of beauty products, said yesterday it plans to spend two-thirds of the proceeds from a Hong Kong initial public offering of as much as HK$5.49 billion ($707 million) to open new stores. L’Occitane, whose biggest market is Japan, will use the money to expand in Asia, as it bets increased consumer demand and booming economies like those of China and India will provide growth. L’Occitane made 107.2 million euros, or 23 percent of sales, in Japan in the nine months ended December.
Shiseido expects Asia overall to be the biggest cosmetics market by 2013, bolstered by a growing middle class. Bare Escentuals currently gets almost all its sales from the U.S.
“By Bare Escentuals being able to access Shiseido’s retail infrastructure, the growth potential for Bare Escentuals outside of North America is huge,” said Maeda, 63.
The industry as a whole is seeking out acquisitions, says Estee Lauder’s Demsey, who called the Bare Escentuals takeover a “bold move” for Shiseido. “People are thinking creatively about the business, thinking about the business more from a global consumer base,” he said.
Back to Roots
In a way, the acquisition is a return to Shiseido’s roots. The company was founded by Arinobu Fukuhara, a naval pharmacist who established a Tokyo pharmacy in 1872. Fukuhara wanted to combine an Eastern philosophy of treatment with Western medicine, according to the company, and that’s reflected in the name Shiseido, which means “Oriental style, Western learning.”
Blodgett will help give a lesson in direct marketing. In addition to the infomercials, she’s used “quickie vans” to set up makeover counters on street corners in various cities.
The approach of “going into cities and taking them over and shaking it up” can be applied globally, she says.
“We have an immature direct-to-consumer business, and Bare Escentuals is very strong here,” Maeda said. “We have acquired an opportunity to learn.”
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