Moody’s, the credit ratings agency, downgraded Japanese beauty conglomerate Shiseido’s outlook to “Baa1” on Thursday, citing its limited growth potential.
“The downgrade… reflects Shiseido’s prolonged low profitability and our expectation of challenging market dynamics, driven by soft consumer sentiment and intense competition across its key markets,” said Shunsuke Kimura, an analyst from Moody’s in a statement. Following the downgrade on Thursday, Shiseido announced in a release that it was withdrawing its Moody’s rating and that it had a new “A” rating from Ratings and Investment, saying that since the beginning of this year it had not held any meetings with or provided information to Moody’s.
Shiseido has struggled in recent years as its overexposure to its home market of Japan and neighbouring market of China have become a drag on its overall earnings, while its global bets on brands such as Drunk Elephant have failed to pan out into long-term successes.
Moody’s downgrade also reflects its persistently weak profitability, currently at 6.4 percent for the twelve months ended June 2025. While Moody’s noted that restructuring efforts and brand withdrawals have supported gradual margin improvement, it believes the company is now ill-equipped to handle the competitive intensity of the global beauty market. Kimura said even as cost savings are realised, it expects topline growth to remain limited, and that the company will lack the economies of scale to further improve its margin.
Moody’s noted that the company still has a solid market position in Japan, and that its high-quality premium brands like its namesake line and fragrance licenses for the likes of Narciso Rodriguez are well-known and innovative.
However, in a climate where even nimble firms like L’Oréal and E.l.f. Beauty are finding growth more elusive, Shiseido’s sluggishness is a liability.
“The negative outlook reflects our view that recovery in market dynamics across key regions is unlikely in the near term… Shiseido has struggled to adapt to such changes… we see limited potential for meaningful progress in geographic and product diversification,” said the note.
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