by Zhou Fangying

Japanese beauty giant Shiseido is merging its China and travel retail businesses, as international cosmetics groups confront falling sales, mounting inventories, and widening rifts between duty-free and domestic channels.

The combined unit will adopt a unified strategy for Chinese consumers, whether at home or abroad. Shiseido says the move will strengthen brand foundations, boost growth, and improve cost efficiency.

Toshinobu Umetsu, previously CEO of Shiseido China, will lead the new division. Philippe Lesné, who headed travel retail, has retired.

The restructure follows a 24% drop in Shiseido’s global travel retail sales in 2024, with revenue in Hainan and South Korea both down 30%. Japan was a rare bright spot, thanks to a 60% surge driven by tourism.

Shiseido’s China business—its second-largest market—has also struggled, partly due to consumer backlash over Japan’s release of treated radioactive wastewater. The company has implemented multiple organizational changes in response to declining earnings, aiming to tighten cost control and lift profitability.

In a January interview with Nikkei Asia, Shiseido CEO Kentaro Fujiwara said that prioritizing supply over demand had led to bloated inventories and a “vicious cycle.” With Chinese shoppers making up a large portion of duty-free customers, Shiseido plans to align product development, pricing, and investment decisions with its China strategy. The company also aims to reduce reliance on distributors.

During the pandemic, travel retail surged as traditional sales channels faltered. In China, the sector boomed after new duty-free policies in 2020 drove a wave of luxury spending in Hainan, a designated duty-free zone aimed at transforming the island into a global shopping and tourism hub. But that momentum has faded. As outbound travel resumed post-pandemic, Hainan’s dominance slipped.

In 2024, Hainan duty-free sales fell nearly 30% to 30.94 billion yuan, with shopper numbers down 15.9%, according to Haikou Customs. At the 2021 peak, sales hit 49.5 billion yuan.

Brands typically use exclusive duty-free sets to avoid direct price clashes with domestic channels, but during the boom, heavy stocking still distorted pricing. Estée Lauder’s Advanced Night Repair, for example, was priced as low as 350 yuan in duty-free versus 990 yuan on Tmall.

According to Reuters, Estée Lauder now faces a shareholder lawsuit accusing it of relying too heavily on China’s grey market resellers without disclosing the risks. Plaintiffs claim the company boosted short-term sales—particularly in Hainan—but undermined pricing and brand control, hitting long-term profits.

In mid-2024, Estée Lauder denied plans to take back direct control of its Chinese duty-free operations or abandon its “dual-track” model. Even so, it replaced its global travel retail head later that year.

Other global players have also reshuffled leadership. Many of these changes have similarly centered on the Asia-Pacific region, where travel retail's rise and fall has been most pronounced. L’Oréal and L’Occitane appointed new heads of Asia-Pacific travel retail in 2024, though neither fully folded the channel into local units. In 2023, L’Oréal said it had formed a cross-functional task force to align pricing and promotions between travel retail and domestic China teams.

According to Ling Hu, partner at consultancy AlixPartners, many beauty brands are rethinking travel retail’s autonomy. Once a prized channel, it’s now seen as a risk—fueled by price wars and excess inventory—that’s hurting company-wide performance.

True reform, Hu said, requires more than an org chart overhaul. Integrating supply chains, pricing systems, and data analytics is key. Brands must pivot from channel-first thinking to consumer-first strategy.

As China’s beauty market stabilizes and duty-free policies tighten, travel retail is no longer a guaranteed growth engine. Whether beauty giants can restore pricing coherence and brand equity across Asia’s fragmented markets may define the next phase of the competition.