Shiseido Enters China's Burgeoning Drugstore Channel With DQ Skin Care

Tokyo-based Shiseido is banking on its operations in developing markets for growth going forward, and on its high-performance DQ skin-care line for success in China's emerging drugstore channel.

DQ - the initials stand for "Dermal Quotient" - will roll out to Chinese drugstores and pharmacies in March.

"[DQ] targets women who are concerned about chronic skin troubles as well as those who are unsatisfied with the skin-care effects of conventional cosmetic products," the firm says.

The launch marks Shiseido's first crack at China's drugstore channel after having entered the country in 1981, selling mostly through department stores and specialty retailers.

Drugstores account for approximately 10 percent of beauty sales in China, but the channel is expected to register double-digit growth in coming years, Shiseido says.

The firm will introduce DQ to drugstore shelves in Shanghai, Beijing and Guangzhou, as well as other key cities in China's coastal and inland regions, targeting about 600 doors in the line's first year.

Shiseido Targets Channel's High Expectations

According to Shiseido, drugstores emerged as a new outlet for personal-care marketers when they began importing cosmetics toward the end of the 1990s.

Women who purchase cosmetics at drugstores have high expectations for the products' efficacy, which Shiseido set out to meet with DQ.

The firm has developed an understanding of the unique skin properties and skin-care habits of consumers in the country through the Shiseido China Research Center, which opened in 2001.

Its findings relative to the needs and preferences of Chinese consumers compelled it to include tranexamic acid in DQ products "to work at the origin of skin troubles to give a feeling of effective penetration."

Tranexamic acid is used in cosmetic applications for its skin-bleaching effect. A study released by the NPD Group in early 2008 identified whitening products as the second-highest-selling skin-care category in China, behind anti-aging (¹ (Also see "Anti-Aging, Whitening Products Drive Prestige Beauty In China" - HBW Insight, 14 Jan, 2008.)).

DQ consists of a Control line for daily skin care and a Skin Trouble Care line. Products include creams, emulsions, cleansers and whitening lotions, and prices will range from RMB 160 to RMB 360, or approximately $23.43 to $52.73.

Shiseido's business in China has been expanding at an average rate of more than 20 percent per year, according to its annual report.

Over the next three years, the country's urban population is expected to grow by 200 million as industrialization makes cities more attractive to Chinese citizens, according to Euromonitor International analyst Carrie Lennard (² (Also see "Analysts Direct Burgeoning Brands To Personal-Care Hot Spots Abroad" - HBW Insight, 12 Oct, 2009.)).

As urbanites with higher incomes than their rural counterparts are increasingly drawn to personal-care products, the overall market for skin care in China is projected to swell from $3 billion in 2003 to $11 billion in 2013.

Shiseido's success in China so far has come largely from department and specialty store channels.

Currently its AUPRES brand, introduced in 1994, is the top-seller in many department stores. The firm's URARA line is sold exclusively at specialty stores in China.

Maquillage cosmetics - a Shiseido "mega line" - launched in China over the summer.

With its rollouts of Maquillage and DQ, Shiseido plans to target "the 1980s Generation" - a demographic of approximately 200 million Chinese consumers with "progressive values."

Other International Growth Initiatives

Shiseido is not solely focused on China. Detailed in its three-year outlook for fiscal 2008-2010 are plans for expansion in other markets around the globe.

The firm made headway in 2009, launching operations in Egypt, Morocco, Laos and Azerbaijan.

Shiseido plans to establish its own "sales subsidiary" in Vietnam this month to oversee the import and sales of cosmetics.

Outside of emerging markets, Shiseido stepped up its presence in Switzerland by acquiring its distributor there in December.

Its goals in the Swiss market include growing sales in 400 business partner stores and strengthening its customer service program, the firm says.

Firm's Three-Year Plan Foiled By Recession

In early 2008, Shiseido publicized its goal to become a top player in the Asian personal-care market in three years (³ (Also see "Shiseido Outlines Plan To Become Top Asian Cosmetics Firm In Three Years" - HBW Insight, 14 Apr, 2008.)).

It resolved to grow sales by 4 percent to 5 percent annually by becoming a leaner, more efficient and consumer-focused global business.

The worldwide economic downturn dampened Shiseido's financial aspirations, as it did for many others.

For the first half of its fiscal year ended Sept. 30, Shiseido recorded an 11.7 percent decline in sales to ¥317 billion (or $3.5 billion) from the same period a year ago.

The company fared worse in the Americas and Europe, with overseas sales falling 17.5 percent to ¥109 billion or $1.2 billion.

Shiseido "expects market conditions in Japan and overseas to remain difficult in the second half of the year ending March 31, 2010."

- Lauren Nardella ( ⁴ [email protected] )