Shiseido out to woo American women. Japanese cosmetics giant stresses service over promotion

Toyota. Sony. Shiseido. Shiseido? Well, the giant of Japan's cosmetics industry is not yet a household name in the United States. But it has set its sights on the American market and hopes Japanese lipstick, eye shadow, and skin-care products can also win the hearts of American consumers.

Shiseido's huge market share in Japan (1986 sales: $2.5 billion) has made it the No. 3 cosmetics company in the world, behind Avon and L'Or'eal. But outside Japan, Shiseido is not a major force in cosmetics. Its share of the US market is about 2 percent.

Now Shiseido is being pushed overseas by an increasingly competitive environment in Japan. The Japanese cosmetics market is saturated, and Shiseido is being squeezed by the growing popularity of foreign cosmetics lines like Avon and Max Factor.

Last October, the company announced that its 13 consecutive years of growth had ended. Shiseido's goal is to increase overseas sales over the next 10 years to 25 percent of total revenues, up from 10 percent today. The American market is the major target.

But Shiseido is finding America to be rough terrain. The US cosmetics industry has slowed to a crawl, after the fast growth of the 1970s, when more women were entering the job market.

Shiseido's business has been hurt by the higher-valued yen. In 1987, US retail sales of Shiseido products reached about $100 million, up from $83 million in 1986. (Shiseido America does not release its own sales figures, but the retail markup by department stores is between 40 and 50 percent.)

Much of the sales increase consisted of price increases to offset the higher cost of importing products from Japan. Meanwhile, some of the stores are still absorbing the effects of the recent mergers that have swept the American retail industry. Saddled with debt, stores like Macy's and Bloomingdale's are looking for ways to increase business and would like Shiseido to be more aggressive.

But Shiseido does not subscribe to the conventional wisdom of the fast-paced cosmetics industry that expensive advertising and sales promotions are critical to business. Shiseido America has the lowest marketing budget in the cosmetics industry, choosing instead to invest in training of its sales staff.

Instead, Shiseido executives insist that high-quality service at the sales counter will lead to a more loyal customer base than ``impulse buying'' customers spurred by expensive promotional campaigns.

It is a characteristically Japanese strategy: Build the business by emphasizing product quality and customer service. But it is a strategy that many experts say is not suited to the American retail style.

``Shiseido products are very good,'' says Arlene Friedman, vice-president of Bloomingdale's in New York. ``But quality alone does not win the cosmetics customer.''

Industry consultant Allan Mottus agrees. ``Unless Shiseido spends money on marketing, it will never get the sales volume it needs.''

Teizo Sato, Shiseido's senior vice-president for US operations, acknowledges the disagreement with retailers.

``They will always want us to spend more on advertising,'' he says. ``But we have to be concerned with making a profit.''

Pressures to improve profit performance led to a shake-up at Shiseido America in mid-July. Tokyo ordered expenditure cuts, including virtual elimination of the already-meager advertising and promotional budget. Andrew Philip, who had been Shiseido America's president for five years, resigned and was replaced by Namio Wanikawa, a Shiseido veteran.

In an interview, Mr. Philip said that his departure was ``amicable,'' but that he could not endorse the cutbacks. ``The company has abandoned long-term goals for short-term profits,'' he says.

Mr. Wanikawa, who previously spent five years in New York, will lead a store-by-store review of Shiseido's sales outlets. Mr. Sato says unprofitable outlets may be closed and new ones opened, but the company expects to remain in about 1,000 North American stores.

Shiseido's caution comes partly from setbacks in the mid-1970s. The company expanded to 1,000 North American sales outlets, but sales lagged, which forced a retrenchment to about 200. Since then, expansion has brought the number of outlets back to its peak.

The company is also influenced by its enormous success in Japan, where the cosmetics retail system is very different. Most of Shiseido's products are sold through a network of 25,000 franchise stores. Store owners work long hours and stay in close contact with customers. There are 13 million members of Shiseido's Camellia Club, and franchise owners get the names of local members for marketing efforts.

In the US, no cosmetics firm has built such a customer base. US sales are made through department stores, where buying is often on impulse. Manufacturers and retailers rely on sales promotions, such as a free gift with a purchase, to persuade customers to pay higher department store prices.

Though retailers and manufacturers often speak of improving customer service and reducing reliance on sales promotions, much like the rebates offered by US automakers, sales promotions in the cosmetics industry have become a permanent cost of business.

Shiseido remains uncomfortable with the system, and is studying ways to use its ``club'' system in the US. The company believes its emphasis on skilled sales personnel will boost sales of skin-treatment products, the major growth area of the cosmetics industry. Skin-treatment customers often request technical information about which ingredients will most benefit their skin and experienced sales personnel design individualized treatment programs.

Shiseido also believes its business will be greatly enhanced by shifting production from Japan to its manufacturing facility in New Jersey. Within a few years, Shiseido wants to be producing locally 60 percent of the products it sells in the US.