Drunk Elephant Isn’t Shiseido’s Only Problem

Japan’s largest beauty conglomerate Shiseido has never shied away from addressing the Drunk Elephant in the room, and its full-year 2025 earnings, announced on Tuesday, were no exception.

Shiseido paid ¥92 billion ($845 million) to acquire the skincare label in 2019, when the Japanese company was charting record sales and operating profit. But a downhill tumble was to come. The pandemic hammered Shiseido’s core China and travel retail segments, while its Americas business declined in step with sales of Drunk Elephant, which dropped 25 percent in 2024 and 39 percent in 2025. In late November, Shiseido wrote down its investment by just over half of what it paid, and ended the year with an operating profit loss of $186 million — its steepest loss in decades.

The fable of Drunk Elephant may have been etched into the annals of beauty commerce as a cautionary tale about fickle skincare tweens, but it’s only part of Shiseido’s story.

Overall sales in 2025 fell 2 percent — flat for flagship skincare label Shiseido, which comprises 23 percent of group sales, with slight gains for makeup brands Clé de Peau and Nars. And nearly every brand faced similar fates: Dr. Dennis Gross, the dermatological skincare brand acquired in 2023, and Anessa, its suncare-focused line, saw sales slip over the year.

The conglomerate’s recovery in China was hampered yet again in 2025 after comments made by Japan’s Prime Minister Sanae Takaichi on Taiwan triggered a diplomatic crisis between the two nations.

“Performance in China splits cleanly between brands that maintain prestige positioning and those caught in the crosscurrents of anti-Japan sentiment and mass-market competition,” said Carrie Zhao, a luxury strategist who has worked for L’Oréal and Alibaba Group.

2026 is forecast to be a triage year, with the company targeting a 2 percent sales lift to $6.4 billion and operating profit growth of 25 percent. In November, chief executive Kentaro Fujiwara outlined a recovery plan that would restore Shiseido’s operating profits to a 10 percent margin by 2030. The Japanese giant’s size is its greatest liability, and observers will be watching closely this year to see if the 150-plus year-old can, or can’t, evolve.

Though it remains focused on its prestige makeup and skincare offerings — especially in China — Shiseido faces stiff competition by new entrants, especially as inexpensive, innovation-driven Korean brands hit global shores. Medicube owner APR Corp and Beauty of Joseon parent Goodai Global both surpassed Shiseido’s market capitalisation in 2025.

The company has already initiated its turnaround, closing facilities and laying off workers to the tune of some $259 million in savings since 2024. In January, The Business of Beauty reported on Drunk Elephant’s marketing refresh focusing on Millennial consumers; Shiseido appointed Lisa Manobal, the Thai actress and Blackpink member, as a global ambassador for its flagship skincare brand; and Nars is looking at a packed 2026 product pipeline, kicking off with its new Kaia Gerber-fronted Natural Matte Longwear Foundation, the brand’s biggest launch in years.

But the Japanese giant has taken a reactive approach to recent consumer shifts, from an influx of young consumers to rising demand for skincare innovations or niche fragrances, making onlookers wonder just who its brands and products are really for.

Categorical Failures

Shiseido’s 2025 earnings cap a decade of turbulence for the Japanese conglomerate, which announced a plan in 2015 to achieve ¥1 trillion ($8.9 billion) in net sales by 2020. It met that goal ahead of time, and exceeded $10 billion in 2019, its biggest year yet.

But the company’s overexposure to the China and travel retail markets (both driven by Chinese consumers) made it more vulnerable than its peers to the pandemic. While acquisitions like Drunk Elephant powered early growth, the company failed to hold on to its core customer and let its Americas business slide in the process. Today, the majority of the company’s US sales come from Nars and Shiseido, according to Macquarie Equity Research, but the key to their turnaround in the US hinges on Drunk Elephant’s rebrand, wrote analysts Sunny Chow and Linda Huang in a January research note.

After Shiseido’s Tuesday earnings, Macquarie upgraded their stock rating to outperform, reflecting optimism that the business has “laid a solid foundation for [operating profit margin] turnaround,” Huang wrote. The company continues to rebalance itself away from dependence on China — a “fundamental repositioning of a company that built its modern identity on Chinese consumer demand,” Zhao added.

Consumers appear skeptical. Shiseido’s world class skincare should be winning in an era where shoppers seek science-backed, efficacious formulas. But most of this innovation is funneled through prestige labels like Elixir, which is only found in select markets, or the eponymous brand Shiseido, which doesn’t speak to young consumers. The company’s recent appointment of 28 year-old Manobal as the face of Shiseido’s Ultimune anti-ageing serum reflects a puzzling disconnect between the brand’s actual customer and the one they’re targeting.

Shiseido has also been slow to enforce and expand its sunscreen authority, with its suncare brand Anessa embracing new formats (like its 2025 brush-on mineral formula) years after competitors have already done so (Supergoop, 2017; Colorescience, 2018).

Nor has its small but significant fragrance business benefitted from an ongoing fragrance mania. While sales for Narciso Rodriguez and Zadig & Voltaire perfumes lifted, these gains were offset by a decline at Issey Miyake. A new Issey women’s fragrance will launch in the first half of the year to help bolster sales, as will its new Max Mara line rolling out in 2026. But these brands, which are licensed rather than owned outright, neither benefit from the Japanese company’s huge R&D investments nor seem to be part of the greater fragrance conversation.

Shiseido could be a global fragrance player due to its size alone, but has done little to ward off competition or get ahead of the perfume boom, where the rest of the beauty industry currently is. Maybe it’s for the best: The last thing the company needs is more distractions.

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