China’s cosmetics market has been booming, driven by beauty-conscious female millennials, mature women and even men. Anson Yu, Chief Financial Officer at Shiseido Hong Kong, tells Jemelyn Yadao why the Japanese giant is relying on innovation and highly skilled accountants to reach its full growth potential
Photography by Juliet Shayne Lui
Whether parents like it or not, teenage girls are wearing make-up more than ever before. According to a study, conducted by market research company Mintel last year, 80 percent of American nine to 11-year-olds are beauty and personal care product users.
One parent who is more tolerant to the idea is Anson Yu. “My wife didn’t use to put on much make-up when she was younger, but millennials are different – they are very informed, very digital, they’re not very brand-loyal, they always want to try new things, and if their peers are very into something, they too want to try it,” says the Chief Financial Officer at Shiseido Hong Kong and a Hong Kong Institute of CPAs member. “My eldest daughter, who’s 17, is always asking for free make-up and starting to use a little. And because we have skincare products around the house, she tries them out too. She knows all the different brands that we carry.”
Shiseido, one of the largest cosmetics companies in the world, started as a Western-style pharmacy store in Ginza, Tokyo in 1872. The company established its first overseas operation, exporting rose cosmetics to Southeast Asia, in 1931 and since then has grown to operating in about 120 countries. In fact, recently Shiseido Group has decided that in order to support its internationalization by October 2018, the official language within the entire group including the head office in Tokyo will be English. Despite the company’s origin, none of its Hong Kong office’s 900 employees are Japanese, reveals Yu.
Driving this move is a brand perception problem that the company is grappling with. “When people hear the name Shiseido outside of Asia, particularly in the United States and Europe, they immediately associate the brand with automobiles or technology products, but that’s not what we’re about,” he says. “And, for some people, even if you like Japanese food, you wouldn’t want to eat it everyday. Using Japanese cosmetics is similar.” The company, which faces strong competition from Western multinationals such as L’Oreal and Estee Lauder, has therefore focused on recruiting more international talent over the last five years, according to Yu.
In Hong Kong, one of the main challenges the sector faces is the diminishing purchasing power of Mainland Chinese travellers, given that the city’s position as their favourite shopping destination is being challenged. “Now they are going to other parts of Asia like South Korea, Thailand and Japan. I think the number of travellers coming to Hong Kong are still pretty much the same but they’re spending relatively less,” says Yu. “We are doing slightly better in that situation because we didn’t rely on Mainland travellers that much in the past compared to our competitors, but we still see the declining trend and that’s why we have to focus more on the local customers and customers from other countries.”
According to China’s National Bureau of Statistics, cosmetic retail sales, which include both skincare and make-up products, grew by 8.3 percent to 222.2 billion yuan (US$32 billion) in 2016.
Beauty-awareness among men is also growing. Market intelligence group Euromonitor International expects the Mainland male skincare and cosmetics market to grow at an average annual rate of 13.5 percent in the next two years, beating the global average of 5.8 percent. Meanwhile, in Hong Kong, 96 percent of female consumers purchase skincare or cosmetic products with an average spending of HK$4,021 per year, according to the results of Nielsen’s Cosmetic Consumer Panel survey, released in June.
To capture this consumer demand, it is important for brands to innovate products, services and customer experiences, says Yu. Shiseido has a number of innovation centres designed for research and development purposes. The innovation and research produced by these facilities are used to formulate products. “I remember HQ showed me research on the different types of smiles that people make, and which type of smile customers are more receptive to. Customers can tell whether beauty consultants are smiling wholeheartedly, or just as a matter of courtesy,” he says. The different “degrees of smiles,” were quantified by the company’s innovation labs.
“What I see is a trend of more highly skilled accountants being needed today.”
Another outcome of the labs is an alternative to animal testing. Shiseido developed an alternative skin sensitization test called the human Cell Line Activation Test (h-CLAT), which allowed Shiseido to abolish animal testing on all of its cosmetics products developed after April 2013. While some jurisdictions, such as Europe, have prohibited animal testing on all cosmetics products, certain countries are still mandating animal testing for imported skincare and cosmetics products before regulators can approve them to be sold in those countries. “We have developed a technology that it is just as good as animal testing,” says Yu. “It’s even open to our competitors.If such alternative testing is acceptable by those countries in the future, in place of animal testing, then we can introduce certain brands that are available in the U.S. to those markets.”
Cost control is an ongoing exercise for Yu’s team. For example, despite the size of the company growing in multiple folds in terms of sales since he joined the company in 2000, the finance team has merely doubled. This is because of automation, he says.
Despite this, Yu doesn’t see automation as being a threat to accountants, but instead as a tool to empower them. “What I see is a trend of more highly skilled accountants being needed today,” he says, pointing out that the Hong Kong office has gone from having two CPAs 17 years ago to now having six. “The more junior-level work, such as data entry, is almost gone because we don’t enter data anymore in accounting, particularly sales data, which can be transferred from the point-of-sales (POS) systems to the enterprise resource planning system. Every piece of information is received from other sources, so in the future I don’t think there will be the term ‘bookkeeper’.”
Having strong analytical skills as a CPA today is crucial, he adds. “Now it’s really about making sure the reports are generated in a meaningful way that is useful to users in different divisions at the company, so that they can make sound decisions based on that. It’s about how much insight, based on the records and findings, you can give to the business partners.
“Of course, we do have profit and loss data for all the outlets, so we have to close shops that are unproductive from time to time. We need to analyse those figures to make such strategic decisions.”
As CFO, Yu’s responsibilities include information communication technology (ICT), supply chain management, and legal and compliance. “My major challenges have always been how to manage and mitigate the risk while the company is going through a continuous expansion,” he says. His ICT-related work has become more important than ever, he says, with the industry, similar to other sectors, undergoing huge digital transformation. “This is very exciting,” he says. “Our business is moving away from the traditional business model of selling products and services. Instead, we are selling experiences during every step of the customer’s decision journey.”
As an example, Yu cites the increasingly outdated POS systems in stores that collect sales and customer data at the till. “The POS systems right now have poor user-interface and non-customer facing, so we are redesigning this and moving on to using mobile unified commerce POS systems,” he says. “Very soon, you won’t see those in-store fixtures.”
“Our business is moving away from the traditional business model of selling products and services. Instead, we are selling experiences during every step of the customer’s journey.”
Dealing with crisis
Yu studied business at the University of Alberta in Canada, and always envisioned himself being an accountant. “I am quite good with numbers, and Chartered Accountant (CA) at the time was one the most difficult designations to attain and I love challenges.” Taking the same course as him was his future wife. Together, they have two daughters. “Pauline and I walked the same path of becoming CA in Canada and CPA in Hong Kong.”
After graduating, Yu started his career at Ernst and Young’s (now EY) Calgary office as an auditor. Afterwards, he joined a smaller local firm in the rural Alberta town of Vegreville, which has a population of around 5,500. “I went to Canada as a foreign student. After graduation and working in Canada for two years under a limited work permit, I really wanted to stay and live in Canada. With both an accounting and computer science background, I found it was easier to apply for immigration with such dual skills and a willingness to work in rural area. In addition, I loved the idea of living within a smaller community. Most people in Canada felt that way,” he says.
In 1997, Yu left both Canada and practice, moving back to Hong Kong to join the manufacturing industry. He became a HKICPA member that same year. “That time was a real eye-opener. By November to December, the stock market crashed, the house market crashed, the banks were troubled, and my first company in Hong Kong was over-expanding. I had worked on a lot of mergers and acquisitions and, at the time, we needed loans from the banks. All of a sudden, we found ourselves in a cash-strapped situation, while dealing with the downturn in the economy.” With that, Yu picked up valuable survival skills. “Between 1997 to 2000, I really learned a lot – how to make ends meet for the company, how to survive month by month so that we can pay the employees their salary, how to deal with the banks, how to sell things we don’t need just to survive.”
Before he joined Shiseido, it was his wife who convinced him that he would have no problem surviving in the high-end cosmetics sector, even though Hong Kong’s economy had not yet fully recovered. “Honestly, I didn’t know anything about cosmetics, but my wife does. She saw that cosmetics and skincare would be big in the future.” Luckily for him, she was right.◆
“Despite its small size, Hong Kong is a very important market for Shiseido Group in terms of sales, says Yu. “For beauty brands to be successfulin China, and Asia for that matter, it is very important that they have a very strong presence in Hong Kong.”