Canadian businesses have a lot to learn from Ray Hatoyama, managing director of Sanrio Ltd. and the man who made Hello Kitty a global success. Launching the Asia Pacific Foundation of Canada's new speaker series, "Japan Today: Architects of Change," Hatoyama revealed his winning strategy: Minimize business risk by licensing and localizing your product. Thanks to the implementation of this strategy, Hello Kitty has seen its profit margins soar.
In the early years of its attempts to enter the global arena (mid-1970s until the late 1990s), Sanrio took the same approach as other Japanese companies: It exported its "made-in-Japan" products to its overseas markets and invested heavily in setting up retail outlets and marketing its products.
In 2010, when Hatoyama took over the helm of Sanrio's global expansion strategy, Hello Kitty shifted gears and began licensing out its products—significantly reducing operational costs. He also hired local design talent who could adapt product lines or develop new market-specific products that took into account the tastes and preferences of local consumers.
This strategy also opened Sanrio to a wide assortment of new distribution networks: General merchandise stores, toy stores, department stores, drugstores, fashion, and other retail outlets in the licensee's region or country. In the U.S. alone, retail giants carrying Hello Kitty products now include Walmart, Target and Toys R Us, to name a few.
Hello Kitty has been able to develop "cool" and in vogue products that are distributed through their partners' sales channels.
By offering licensing opportunities, Sanrio has successfully attracted international business partners and brand names interested in collaboration. Hatoyama reported that by teaming up with international brands, particularly in the fashion industry, Hello Kitty has been able to develop "cool" and in vogue products that are distributed through their partners' sales channels. A few examples of successful collaborations that have boosted Hello Kitty sales and brand include Sephora, a member of a French luxury goods group, Swarovski, Austria's jewelry and cut-glass company, and Major League Baseball.
Hatoyama disclosed that the most profitable collaboration projects have been with apparel companies—with revenues from apparel products increasing by over 30 per cent in recent years. Hello Kitty has five well-defined fan bases, with infants on one end of the spectrum and the 30-plus groups on the other, each offering distinct markets of their own. He pointed out that by targeting these 0 to 30-plus markets, an enduring revenue model is established as consumers, or rather their parents, will replace products as new fashion trends emerge or as consumers outgrow their apparel.
Since implementing this licensing strategy, Hello Kitty has increased the number of global licences to over 130 countries around the world, from which the company continues to enjoy rising revenues.
Hatoyama surprised the audience at the APF Canada event in his admission that Sanrio's marketing budget is a mere pittance compared with budgets allocated by major partnering brands, especially in the U.S. and Europe. Efforts by these partners, who invest heavily in advertising, have certainly helped to boost the Hello Kitty brand internationally and at no cost to Sanrio.
Katy Perry's unannounced appearance at "Hello Kitty Con 2014," a convention in Los Angeles to celebrate Hello Kitty's 40th anniversary, attracted incredible media attention.
Hatoyama added, however, that personal and spontaneous promotion by celebs like Lady Gaga, Katy Perry, Paris Hilton and our own Canadian, Avril Lavigne, all of whom are huge Hello Kitty fans, has also been a tremendous help in raising the profile of the "kawaii" (cute) mouthless character. Katy Perry's unannounced appearance at "Hello Kitty Con 2014," a convention in Los Angeles to celebrate Hello Kitty's 40th anniversary, attracted incredible media attention resulting in a sold-out crowd of over 25,000 during the four-day exhibition. Reports on the convention indicated that due to venue capacity limitations, countless numbers of fans were disappointed and turned away.
In closing, Hatoyama identified three guiding principles that he claims have helped him to drive the change at Sanrio and expand revenue streams. He believes that these general principles could be applied to any merchandising business with intentions to globalize:
1) license as opposed to producing, exporting and marketing products to minimize risk and upfront costs of operation
2) localize production to address local consumer tastes
3) hire local staff particularly design staff who understand local culture and values and can reflect them in products (but depending on the market, he stressed the importance of having quality control measures firmly in place)
Hello Kitty's distinctive brand is refreshed at periodic intervals and this ensures that the product evolves and yet stays true to its everlasting appeal.
This was the first in a series of speaking events featuring dynamic and innovative leaders who are driving change in Japan. Stay tuned for the next event with Mr. Fumihiko Maki, Pritzker Prize winning Architect and Founder of Tokyo's Maki and Associates, who designed the Delegation of the Ismaili Imamat in Ottawa and the Aga Khan Museum in Toronto.