What Does Bare Escentuals Bring to Shiseido?

On the surface, Shiseido’s $1.7 billion acquisition of Bare Escentuals looks like a winner. After all, it gives the Japanese cosmetics giant a larger footprint in the U.S. and access to Bare Escentuals’ mineral makeup empire. One thing’s for certain—it will boost Shiseido’s global sales significantly. At a press conference in Tokyo, Shiseido’s president and CEO Shinzo Maeda noted that when Bare Escentuals’ 2008 sales were added to Shiseido’s ledger, the Japanese company’s sales climbed to nearly $8.2 billion at current exchange rates.

Moreover, with the acquisition, the Japanese company’s portion of its sales generated in North America would rise to 14% from 8%, and its reliance on its core home market of Japan would decrease.

“This [acquisition] will actually help us to grow globally,” Maeda said.

During the press conference, Maeda reiterated Shiseido’s long-term target to surpass 1 trillion yen, or nearly $11 billion, in sales, more than half of it generated internationally, by 2017. He said the company would consider other potential acquisitions if it finds an appropriate target, but it doesn’t have anything specific planned at this time.

Japanese analysts certainly liked the deal. Shiseido saw its shares climb 5 percent on Friday on news of the Bare Escentuals acquisition.

But other analysts aren’t so sure. A few have called Bare Escentuals a one-product wonder that offers no patent protection for its new owner. In fact, nearly every cosmetics company now offers a mineral makeup line. Moreover, detractors point out that Bare Escentuals’ plays in the home-shopping space and via Sephora at retail. Both channels are foreign to Shiseido.

“Shiseido needs to get big and get a foothold in the U.S. and this is a cheap way to do it,” explained one analyst. “Buying Estée Lauder would have been much smarter. It would have fit perfectly. But it would have cost Shiseido an arm and a leg.”

Despite these problems, other analysts noted that Bare Escentuals remains a strong brand with a proven leader at the helm.

“Bare Escentuals is one of the few scale players in the U.S. and scale in personal care is extremely difficult,” noted Ken Wasik, managing director, Stephens Investment Bankers. “Plus, it remains one of the more profitable brands in the U.S., with significant share in a proven category.”

At the same time, Wasik pointed out that Leslie Blodgett has agreed to remain with Bare Escentuals—a key factor going forward.

“Leslie is the most successful spokesperson and business woman in the direct marketing space,” he added.

Now, let’s see how Blodgett’s act plays out on the international stage.