Terrie's Take 952 - Hello Kitty in Free-fall, Who's Going to Save Her? E-biz news from Japan.

Mon Jul 9 11:03:39 JST 2018

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term 
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, Jul 08, 2018, Issue No. 952

- What's New -- Hello Kitty in Free-fall, Who's Going to Save Her?
- News -- Tax revenues are back!
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Italian in Mori Town (Tokyo), 100 Lakes in Goshikinuma 
(Fukushima)
- News Credits

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+++ WHAT'S NEW

Hello Kitty in Free-fall, Who's Going to Save Her?

Last Saturday, while the storm clouds were still gathering over the 
Chugoku region, a Hello Kitty-themed bullet train left Hakata station in 
Fukuoka, bound for Osaka. The specially wrapped pink and white 
shinkansen was the latest collaboration between JR West, which is always 
struggling to find ways to get more people to travel southwards to 
Kyushu, and Sanrio, the equally struggling owner of the famous feline 
character. The train was waved off by about 400 fans and will run for 
the next three months on the JR West lines.

Hmmm, only 400 people? That's less than will fit on 1/3 of a full-length 
Shinkansen and certainly a lot less than would have been drawn to such 
an event back in the 1990's. In days gone by, we could have expected the 
entire train to be packed with fans, and for Sanrio to be tied up with 
JTB to bring in adoring ladies from East Asia, given that foreign 
tourists are currently the main customer base for Hello Kitty 
merchandise. Instead, the smallish crowd, along with the limited time 
the character will be running on the train, both point to the general 
decline that Sanrio is experiencing with its cornerstone character.

Up until recently, Hello Kitty has been an amazing phenomenon. Although 
Sanrio has milked the character every which way, including anime and 
gaming, the main income for the company has been the licensing of static 
images of Kitty, which speaks to the subtle but powerful emotional 
reactions she invokes in mostly female fans around the world. As a 
lecturer at Oxford University on Japanese sociology, Dr. Sharon 
Kinsella, says, Hello Kitty is a "...small, soft, infantile, mammalian, 
round, without bodily appendages [Ed: well, she does have some arms], 
without bodily orifices (mouths), non-sexual, mute, insecure, helpless 
or bewildered..." character. Later, she also referred to Kitty as "a bit 
farcical" and "a dumbed-down cultural icon" - but let's ignore that.

Just how big is the Hello Kitty money machine?

[Article continued below...]

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[...Article continues]

Well, after nearly 40 years after her creation, the cat who is really a 
be-whiskered pre-teen British girl named Kitty White (yes, really, 
according to Sanrio), has been responsible for most of Sanrio's JPY60bn 
(about US$5.5bn) in sales last year. A good slice of the profit, 
although only 20% of the company's income, is derived from Hello Kitty 
licenses to more than 3,000 overseas firms producing 50,000-plus 
products in 70-plus countries. Unfortunately, FY2017 sales are down 20% 
from 3 years ago, and profits have also dropped 26% y-o-y to JPY4.8bn 
(US$42.6m). To be fair, some of that profit drop was because of a 
disagreement with Japanese Tax Office over previous years of accounting, 
which led to some stiff penalties.

About the only person in the Sanrio hemisphere who hasn't been making 
money out of Hello Kitty is the original designer, Yuko Shimizu, who is 
now 72. Shimizu joined Sanrio in the mid-1960's and created Hello Kitty 
in 1974. Paid just the salary she earned at the time, she left Sanrio in 
1976 to get married, Hello Kitty went on to make tens of billions of 
dollars for the Tsuji family. This situation is of course not unusual in 
Japanese firms and may in fact be one reason why Sanrio keeps scratching 
around for another character to expand its empire on - no one with 
sufficient talent is interested in working with/for them.

Hello Kitty is licensed pretty much everywhere and on everything. 
Although nominally a child's character, since it represents innocence 
and neutrality, at least two generations of moms have grown up with 
Kitty and so the character not only appears on diapers and kids bathroom 
products, but also on jewelry, designer bags, automobile tires and 
engine lubricant, wine, cafes and food products, vibrators, and she even 
poses in the nude for some mushroom growers. It seems that there isn't 
anywhere or anything that Sanrio won't license Kitty for.

This of course is one of the biggest issues confronting Sanrio. How to 
milk the character for profits, while at the same time not diluting the 
brand to such an extent that people get bored of it. The company has 
been incredibly lucky up until now. A mixture of generational and 
regional awakenings of younger female consumers, have been enough to 
help the company get to where it is today.

In the 1970's the original target was kids and moms with young kids. The 
1980's Sanrio struggled a bit, then in the 1990's the kids who'd grown 
into moms rediscovered the character and revived its fortunes. At the 
same time, Kitty was "discovered" by American celebrities and suddenly 
became all the rage in the West. More recently, Kitty is being adored by 
an East-Asian audience (particularly China), which is responding with 
the same gusto that Japan did right back at the start. Currently, Kitty 
has 13,293,040 likes on Facebook, and 12,911,446 people are following her.

Yeah, so she's quite a phenomenon. But her luster is fading, especially 
at home. According to Tokyo-based Character Databank, in Japan's 
JPY1.56trn character licensing marketplace Hello Kitty is now only the 
fourth most popular character, coming in after Anpanman, the bean 
paste-filled bread superhero, Mickey Mouse, and Snoopy. Smaller rival 
companies are also becoming a threat, such as a competing stationery 
maker San-X, which has had two big hits with its Tarepanda panda bear 
character, and Rilakkuma brown bear character. Looking at these 
characters, they should really have come from Sanrio's own design studios.

So what can Sanrio do to turn the boat around?

In their latest IR materials, they lay out a 3-year plan that looks 
remarkably like what they have been trying to do over the last 10 years 
- which isn't a good sign, although the elements of the plan are at 
least logical. A shortened list is:
* Re-energize Hello Kitty
* Invest in strategic marketing to nurture secondary characters beyond 
Hello Kitty
* Establish a strategic animation and game business within Sanrio
* Create animation and game-based content; restructure content-related 
organization
* Focus on China as a growth market; restructure in the Americas and 
enact growth measures in Europe

Reading through this, it's obvious that Sanrio's management have decided 
they need to strike out to become a competitor to Disney. While this is 
understandable given that market share-wise Mickey is eating Kitty's 
lunch, one wonders if a "non-sexual, mute, insecure, helpless and 
bewildered" Kitty is really capable of taking on a smart-mouthed mouse 
and a host of other challengers with much-better developed personalities 
and capabilities.

It seems obvious to us that Sanrio has two serious deficits, which we 
put down to management ossification and salaryman thinking at the top of 
the company. Firstly, they need to open their coffers and pay for actual 
talent to come up with new characters that can repeat the Kitty market 
impact. If they can't breed or borrow these people, then Sanrio should 
do something a bit dramatic, like trying to buy out San-x or a similar 
competitor.

Secondly, it's a far cry for the company to try to take on Disney, and 
if they are really serious about doing so, then the foray should be in 
stages, starting with online assets - something that Sanrio is weak at 
monetizing and needs to "get" fast. Again, a good way of doing this 
would be to buy out a rising but still small online games company. On 
the other hand, trying to put out Hello Kitty feature anime movies would 
probably break the company.

Lastly, the company needs a top management shakeup. Although the 
founding family had the right instincts historically, firstly with 
developing the character then later in the second generation with the 
overseas licensing business, it's clear that the family members at the 
helm of the firm now are just not up to the challenge. The company's 
sales and profits are in free fall, and at the current pace of 
disintegration, the company will start experiencing financial 
difficulties within the next 3-5 years. They need to have the confidence 
to bring in someone accomplished in the branding industry to lead the 
company out of trouble, much as Sony did (although it had to have 
several tries to get things right).

...The information janitors/

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ NEWS

- Tax revenues are back!
- But the GPIF loses a chunk as well
- Crypto server firms moving to Fukui
- What happens to all the trash?
- Advantage Partners finds new deal flow

=> Tax revenues are back!

The government must be sighing a breath of relief that the nation's 
FY2017 tax take has surged to a 26-year high, hitting JPY58,787bn. 
Perhaps most interesting of the tax results has been the amounts raised 
in each of the three major categories. These were: Income Tax of 
JPY18,881.5bn, Corporate Tax of JPY11,995.3bn, and Consumption Tax of 
JPY17,513.8bn. ***Ed: Remember when there was no consumption tax? It's 
no wonder the government wants to up it another fifth to 10%.** (Source: 
TT commentary from the-japan-news.com, Jul 06, 2018)

http://bit.ly/2MXFHQz

=> But the GPIF loses a chunk as well

The government may be raking in the taxes, but it has a leaky gasket - 
in the form of the Government Pension Investment Fund (GPIF), which is 
the world's largest pension fund. Apparently the GPIF lost JPY5.5trn 
mostly on foreign stocks in the first quarter of fiscal 2018. The losses 
have been exacerbated recently by fears of a trade war between the Trump 
administration in the US, and China. ***Ed: The GPIF is about 49% 
invested in stocks, and just under half are in foreign companies listed 
overseas. Foreign stock movements - you really have to stay on top of 
them - something the GPIF hasn't proven itself terribly adept at yet.** 
(Source: TT commentary from reuters.com, Jul 06, 2018)

https://reut.rs/2KWN2Td

=> Crypto server firms moving to Fukui

What does Fukui city, located in a rather remote part of western Japan, 
have that other cities don't? The answer is cheap industrial electricity 
and reduced factory rents, which apparently is drawing a number of 
cryptocurrency miners and their thousands of servers. The city 
apparently covers about 50% of rent on refurbished factories and don't 
care how the electricity is being used. ***Ed: The downside? All that 
cheap electricity comes from a nuclear power plant at Oi, just 30km (as 
the crow flies) SE of Fukui city...!** (Source: TT commentary from 
ccn.com, Jul 07, 2018)

http://bit.ly/2u31fEy

=> What happens to all the trash?

Now that the Chinese government has throttled exports of trash from 
other countries to China for re-processing, Japan apparently is faced 
with a growing mountain of plastic and other domestic recyclable waste. 
According to the Yomiuri Shimbun, prior to the Chinese government 
restrictions about 510,000 tons of plastic waste was sent to China each 
year, but now that number has fallen to just 30,000 tons. Local 
authorities here are scrambling to set up the equipment needed to 
recycle in this country - something that hasn't been considered until 
now. ***Ed: If Tokyo can ban smoking, why not ban use of plastic bags at 
supermarkets, or at least charge a high price for each one? That would 
soon encourage frugal consumers to pack their own reusable bags.** 
(Source: TT commentary from scmp.com, Jul 04, 2018)

http://bit.ly/2u45iQT

=> Advantage Partners finds new deal flow

Interesting article/interview in the Bloomberg site about Advantage 
Partners and one of its founders, Taisuke Sasanuma. The article centers 
on the fact that Advantage has found a new source of smaller buy-out 
deals, by targeting younger serial entrepreneurs. As a result, 
apparently Advantage has raised about JPY406bn and invested into 71 
companies. The article covers a number of acquisitions where the 
original founder came back to re-purchase the business after a spell 
under Advantage. ***Ed: What's particularly interesting is the trend 
where Japanese serial entrepreneurs are starting to think of their 
companies as assets rather than family members. And thus, selling and 
re-purchasing them becomes a business activity with the usual logic of 
profit and loss - rather than an emotionally loaded activity that causes 
most Japanese business owners become enmeshed in go down with their 
business as they get aged and less capable.** (Source: TT commentary 
from bloomberg.com, Jul 04, 2018)

https://bloom.bg/2udMmhT

NOTE: Broken links
Some online news sources remove their articles after just a few days of 
posting them, thus breaking our links -- we apologize for the inconvenience.

***------------------------****-------------------------***

+++ UPCOMING EVENTS

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Date: Monday 30th July, 2018
Time: 6:30pm Doors open
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RSVP: By 6pm on Friday 27th July 2018
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-----------------------------------------------------------

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

No corrections or feedback this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Cafe Bar Foret in Mori Town, Tokyo (Akishima)
An fusion of Italian and Japanese tastes

Mori Town in the western part of Tokyo (Akishima) is home to a small 
town-like shopping center that provides various stores and restaurants 
in the area. One of the best things about the place is their huge 
selection of food shops, and that's where we found Cafe Bar Foret. The 
small Italian restaurant greeted us immediately as we stopped by the 
entrance to the grounds leading to several other lines of food shops.

Cafe Bar Foret, like the other restaurants in the country has a very 
pleasant ambience. And while it is labelled Italian, it appeared more 
Japanese as it feels more relaxed and quiet inside, and not so much like 
the traditional Italian restaurants where waiters are shouting orders at 
each other. The restaurant, hence, portrays a more Japanese style but in 
a much modern concept. And yes, they do serve Italian food but with 
tastes and presentation mostly infused with the Japanese culture as well.

http://bit.ly/2u9F1AX

=> The Amazing Hues of Goshikinuma, Fukushima
Stroll along rainbow hued lakes

The Bandai highland ("Bandai Kogen") is a wide area in the northern part 
of Fukushima prefecture. Located at more than 800 meters above the sea 
level, it's also known as Urabandai which translates as Behind Bandai. 
It's a very popular outdoor destination for nature lovers, and offers 
various hiking trails, countless amazing lakes and also skiing 
opportunities in winter.

The history of this territory is surprisingly recent. With the July 
15th, 1888 last eruption of Mount Bandai, a massive debris flood ended 
up blocking the majority of the lower Nagase river. As a result more 
than hundred lakes were formed. Just south of Hibara Lake, the biggest 
of them, you can find a pond-dotted area called Goshikinuma, literally 
the "Five Colored Ponds". Famous for their intense color, ranging from 
emerald green to deep cobalt blue, their sight will surely leave you 
astonished.

http://bit.ly/2lZ5rRk

***------------------------****-------------------------***

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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