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Goodbye Kitty?

Earlier in July as the storm clouds gathered over Japan’s Chugoku region a Hello Kitty-themed bullet train left Hakata station in Fukuoka bound for Osaka. 

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The specially wrapped pink-and-white shinkansen was the latest collaboration between JR West - 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.

"Hello Kitty is licensed pretty much everywhere and on everything.”

Hmm. Only 400 people? That's less than will fit on one third of a full-length shinkansen and certainly a lot less than would have been drawn to such an event back in the 1990s.

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 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?

Bewhiskered

Well, after nearly 40 years after her creation, the cat who is really a bewhiskered pre-teen British girl named Kitty White (yes, really, according to Sanrio), has been responsible for most of Sanrio's ¥60 billion (about $US5.5 billion) in sales last year.

A good slice of the profit - although only 20 per cent 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, full-year sales fell 20 per cent from three years ago in 2017 and profits also dropped 26 per cent year on year. 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.

The character not only appears on diapers and kids bathroom products, but also on jewellery, 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 there isn't anywhere or anything 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 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 1970s 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.

Phenomenon

Yeah, so she's quite a phenomenon. But her lustre is fading, especially at home. According to Tokyo-based Character Databank, in Japan's ¥1.56 trillion 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 and Rilakkuma brown bear character. Looking at these characters, it 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, Sanrio lays out a three-year plan which looks remarkably like what it has 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-energise 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 organisation;
  • Focus on China as a growth market; and
  • restructure in the Americas and enact growth measures in Europe.

Reading through this it's obvious that Sanrio's management have decided it needs 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.

Deficits

It seems obvious to us Sanrio has two serious deficits, which we put down to management ossification and salaryman thinking at the top of the company.

Firstly, it needs to open their coffers and pay for actual talent to come up with new characters which can repeat the Kitty market impact. If it 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 it is really serious about doing so, then the foray should be in stages, starting with online assets - something Sanrio is weak at monetizing and needs to ‘get’ fast.

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 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 freefall and at the current pace of disintegration the company will start experiencing financial difficulties within the next three to five years.

Sanrio needs 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).

Terrie Lloyd is a long-term technology and media entrepreneur living in Japan. This is an edited version of his weekly blog from Japan, Terrie's Take.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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