Shiseido Expands Cosmetic Empire With Bare Escentuals Purchase

By Caroline Dobson
Caroline Dobson
Caroline Dobson
January 18, 2010 Updated: January 18, 2010

Japan's largest cosmetic company Shiseido Co. Ltd., last week purchased California-based Bare Escentuals Inc., for $1.7 billion, with the ambition of strengthening its U.S. market penetration.

The San Francisco-based Bare Escentuals is known for producing mineral-based cosmetics and operates in approximately 800 retail outlets in North America and 1,500 salons and beauty parlors. Bare Escentuals would have lifted revenues at Shiseido last year by 8 percent and operating income by 36 percent. Under the merger plans Bare Escentuals will remain with its existing label independent of the Shiseido brand, CEO Leslie Blodgett told Reuters.

In recent years, Shiseido has capitalized on the “made in Japan” slogan, whereas Bare Escentuals is famous for its skin and body care product lines under the banner of bareMinerals and RareMinerals. The combination of the two campaigns will not only increase distribution but also enhance the Japanese cosmetic giant’s consumer repertoire.

“Bare had good opportunities for growth internationally, but the size that they are, they needed greater resources. Shiseido provided them so many greater resources … into Europe and into Asia," Jason Gere, an analyst with RBC Capital Markets, said in a Reuters interview.

"It's just much more difficult for smaller companies to grow on their own when they want to grow internationally," he said.

Leslie Blodgett and Myles McCormick, the chief financial officer and chief operating officer of Bare Escentuals, will remain with the company after the acquisition.

The tender is scheduled to begin within 10 business days and is expected to be completed by the end of March. The purchase is making history in Japan, as Shiseido now becomes the country’s biggest cosmetics manufacturer since Kao Corp. bought control of Kanebo Cosmetics Inc. for $3.5 billion in 2006.

Shiseido was founded in 1872 as the first Western-style pharmacy in Japan set up by Arinobu Fukuhara, former head pharmacist in the Japanese Imperial Navy. Famous celebrities who have represented the brand include Oscar-Award winners Angelina Jolie and Cate Blanchett. Today British supermodel Agyness Deyn is the face of company.

As one of the world’s oldest cosmetic and hair care producers, Shiseido appears to have diverted its business growth in recent years to China to offset a $24 billion drop in sales due to Japan’s aging population and overall falling wages. According to Guardian U.K., the Japanese company as result of the merger will jump from No. 6 in the global cosmetics league to No. 4—behind L'Oréal, Procter & Gamble, and Unilever.