On Thursday, August 8, Shiseido of Japan announced its losses for the first half of the year, with weak demand from China being one of the primary reasons. The company’s stock price experienced its largest drop in nearly 37 years, leading to trading being suspended.
Shiseido is a well-known cosmetics manufacturer in Japan. On Thursday, the company’s stock price fell by 16% in early trading in Tokyo, marking the largest intraday decline since 1987 and erasing most of its recent gains. Shiseido reported a loss of 2.7 billion Japanese yen (18.4 million US dollars) for the period of January to June, compared to a profit of 13.6 billion yen in the same period last year. The stock price eventually fell below the daily limit of 700 yen, dropping by 15.5% from the previous trading day’s closing price.
In the first half of 2024, Shiseido’s sales in the Chinese market amounted to 131.671 billion yen, showing a slight increase of 0.8% year-on-year. The core operating profit in China was 4.9 billion yen, down by 10% compared to the previous period. Store sales in mainland China saw a decline of 10% to 15%.
Shiseido has become the latest victim among global luxury brands whose profits have been dragged down by weak demand in the Chinese market. Companies like the owner of Cartier, Richemont Group, and the parent company of Gucci, Kering Group, have also been affected by the slowdown in China’s economic growth and declining consumer confidence.
Shiseido has been taking measures to achieve sustainable growth and improve profitability, including cost-cutting efforts and early retirement arrangements for 1,500 employees. China is Shiseido’s most important market outside of Japan. The continued weak demand from Chinese consumers has continued to impact Shiseido’s sales in China, leading to a decline in the company’s overall profit for the first half of the year. The company has also incurred restructuring costs of 22 billion yen.
Shiseido’s Chief Financial Officer, Ayako Hirofuji, stated that Chinese consumers are still unwilling to purchase Japanese products due to lingering concerns about the discharge of wastewater from the Fukushima nuclear plant. At the end of 2023, the discharge of wastewater from the Fukushima nuclear plant had caused discontent in China. Under the influence of Chinese nationalism propaganda, Chinese consumers boycotted Japanese products, forcing Shiseido to lower its profit forecasts.
She also mentioned, “The entire market has fallen into a price competition.” However, while attracting younger consumer groups by lowering product prices to expand market share, there may also be risks of damaging the brand image.
Domestic sales in Japan are a bright spot for Shiseido, benefiting from the boom in the Japanese tourism industry driven by the weak Japanese yen. Some tourists, especially Chinese visitors, choose to forgo purchasing luxury goods domestically and instead indulge in extensive shopping in Japan where prices are more affordable.