Kanebo
Corporate History & Strategy

In 1887, Tokyo Cotton Trading Company was established in Nihonbashi as a limited partnership through investment from five major trading houses and department stores in Tokyo. The investors were Mitsukoshi, Daimaru, Shiroki, Arao, and Okuda, and Mitsukoshi's participation positioned it as a Mitsui-affiliated trading company. Capital was 100,000 yen, and the core business was importing raw cotton from China and selling it to domestic spinning companies. At a time when the spinning industry was in an expansion phase, cotton imports were a business area where transaction volumes were expected to grow.

However, trade with China was subject to institutional constraints, and stable procurement of raw cotton was not easy. As transaction volumes stagnated, the business structure limited to trade intermediation reached the limits of revenue expansion. Of the processes from cotton import to spinning product manufacture, Tokyo Cotton Trading Company handled only raw material distribution, and most of the added value accrued to spinning factories. The option of the company itself taking on the manufacturing process beyond raw material trading came under consideration among management.

Tokyo Cotton Trading Company adopted a policy of transitioning from trading to manufacturing and decided to enter the spinning business. This was a decision to shift the business domain from raw material trading to the production process, meaning a change in the revenue structure dependent on trading functions. For entry, a plan was adopted to import ring spinning machines from England and construct a large-scale factory. The Kanegafuchi area along the Sumida River was selected as the factory site in anticipation of waterway convenience, securing the former Sumida Palace grounds as an integrated site.

To make clear its dedication to manufacturing, Tokyo Cotton Trading Company was dissolved, and 'Kanegafuchi Boseki Company' was newly established under Mitsui-affiliated capital. Equipment scale was set at 30,000 spindles, a large factory for the time. However, there was a domestic shortage of personnel versed in spinning technology, and securing engineers capable of adequately operating ring spinning machines proved extremely difficult. Technical literature was also scarce, and operations commenced without achieving the 'harmony between machines and people' essential for factory management.

In February 1889, the Kanegafuchi spinning mill began operations, and in August of the same year it was reorganized as 'Kanegafuchi Boseki Company.' However, technical problems erupted immediately after the start of operations. There were no engineers in Japan capable of managing a factory of 30,000 spindles, and the operating efficiency of spinning machines remained low. Even in England, ring spinning was in a transitional period of replacing mule spinning, and there was virtually no accumulated technology in Japan. Production could not keep pace with capital investment, and Kanebo recorded losses from an early stage.

Management was in dire straits from immediately after founding, and even dissolution was discussed. Due to the shortage of engineers and inadequate operational systems, factory operations fell far short of expectations. Nevertheless, through this process of struggle, Kanebo was gradually forming the foundation for accumulating spinning technology internally. The transformation from trading company to manufacturer came at a severe cost during the founding period, but it became the starting point for subsequent corporate acquisitions and large-scale factory expansion. Kanebo's history began at this spinning factory in Kanegafuchi.

In 1893, Kanegafuchi Boseki faced a management crisis that had persisted since its founding. Although it had operated 30,000 ring spinning spindles imported from England, the shortage of engineers caused factory production efficiency to remain low. Losses accumulated without generating revenue commensurate with capital investment, and cash flow was strained. With the possibility of dissolution being discussed, the treatment of Kanegafuchi Boseki became a subject of debate within the Mitsui zaibatsu.

At this juncture, Hikojiro Nakamigawa, the de facto financial officer of the Mitsui zaibatsu, assumed the presidency. Immediately after taking office, Nakamigawa simultaneously tackled three areas: finance, cost structure, and technology. He stabilized cash flow by increasing capital from 1 million yen to 1.5 million yen, and contained losses through factory expense reductions. On the technical side, he dispatched Chief Engineer Yoshida to Europe to establish a system for acquiring local spinning technology. These measures produced a surplus of 85,000 yen in the first year of restructuring, and dissolution was averted.

After confirming management stabilization, Nakamigawa conceived of scaling up through increased spinning production. As its centerpiece, he formulated a plan to build a new spinning factory in Wadamisaki, Hyogo Prefecture, in addition to the Kanegafuchi factory in Tokyo, to handle exports to China. The aim was to simultaneously achieve production volume expansion and sales channel diversification by placing production bases in both eastern and western Japan. Capital was raised to 2.5 million yen in advance, securing funds for large-scale capital investment.

The 28-year-old Sanji Muto, who had been working at the Kobe branch of Mitsui Bank, was appointed as the head of the Hyogo plant. The decision to place a banker with no practical spinning experience in charge of a large factory was a talent selection that prioritized management capability over technical expertise. The Hyogo plant, which began operations in 1896, had equipment capacity of 40,000 spindles and became a major facility with approximately 3,000 workers. Through managing this plant, Muto acquired practical knowledge of the spinning business and grew into the figure who would later lead Kanebo's management.

With the Hyogo plant operational, Kanegafuchi Boseki established a two-base system in Tokyo and Hyogo, and production volume expanded significantly. The Hyogo plant functioned as a frontline base for exports to China, and sales channels for spinning products expanded from domestic to overseas markets. However, because the Hyogo plant offered workers highly favorable terms, workers drained from spinning factories in the Osaka vicinity. The concentration of talent at Kanebo was problematized within the industry and also became a catalyst for discussions on adjusting labor conditions across the spinning industry.

Nakamigawa's management intervention turned Kanegafuchi Boseki around from the brink of dissolution and achieved the transition to an expansion-oriented path. The three measures of financial stabilization, new plant construction, and talent appointment formed the prototype of Kanebo's subsequent management model. The appointment of Sanji Muto in particular had a decisive influence on long-term management policy. Based on his experience at the Hyogo plant, Muto later advocated the Grand Spinning Consolidation Theory and promoted expansion through corporate acquisitions. The expansion path seeded by Nakamigawa was established as Kanebo's fundamental strategy under Muto's hand.

Throughout the Meiji era, the spinning industry experienced a nationwide founding boom. Because the business could be entered simply by procuring spinning machines and importing raw cotton, barriers to entry were low, and spinning companies were established throughout the country. However, the product—cotton yarn—was close to a standardized commodity and was a market-priced product that was difficult to differentiate. Under a structure where numerous companies supplied homogeneous products, price competition intensified during economic downturns, creating an environment where weaker companies were the first to see deteriorating profitability.

During the economic downturn around 1900, a succession of small and medium spinning companies went bankrupt. Aging equipment, insufficient fundraising capacity, and low production efficiency combined to produce a growing number of companies unable to continue operations independently. Meanwhile, major spinning companies with financial strength and equipment renewal capacity were in a position to lead industry reorganization. Among the struggling small spinning companies, there were also those approaching major firms for merger discussions, and the spinning industry had entered a phase of attrition and consolidation.

Under these conditions, Sanji Muto of Kanegafuchi Boseki advocated the 'Grand Spinning Consolidation Theory.' The concept was to acquire spinning companies with weak management strength, renovate their equipment and improve their operations for rehabilitation, while simultaneously expanding Kanebo's corporate scale. Scale expansion was expected to enable bulk procurement of raw materials, contributing to reduced production costs through improved purchasing conditions. Muto recognized that competition in the spinning business was a contest of 'scale and efficiency.'

From 1899 onward, Kanebo executed acquisitions of spinning companies in stages. Acquisition targets extended beyond the domestic market to expand the business base. In 1911, the acquisition of Kenshi Boseki brought nine domestic factories and the Shanghai factory into the fold at once, expanding the production base to a nationwide scale. Furthermore, through acquisitions, the product range expanded from cotton yarn to silk and woolen textiles, forming a business composition as a comprehensive textile manufacturer covering all natural fibers. Corporate acquisitions became the core means of Kanebo's growth.

The acquisition strategy based on the Grand Spinning Consolidation Theory propelled Kanebo to become one of Japan's largest spinning companies. In 1933, it ranked first in sales across all industries, surpassing Oji Paper and Dai-Nippon Sugar. With over 30 factories nationwide and tens of thousands of employees, the factory network was geographically dispersed from Gunma in the north to Kyushu in the south. The Grand Spinning Consolidation Theory was not merely a concept but bore fruit as actual corporate scale expansion.

However, this large-scale expansion also foreshadowed future management challenges. The nationwide network of factories and massive employment would become factors making downsizing and withdrawal difficult when the business environment changed. Among acquired entities, some continued to show inadequate production efficiency improvement after integration, and the structure contained inherent issues where scale expansion did not directly translate to improved profitability. Muto's vision of 'scale and efficiency' achieved the former, but the latter was left as a management challenge for the next generation.

During wartime, Kanebo had been engaged in military production, manufacturing materials other than textiles. After losing military demand with the end of the war in 1945, the company reverted its business to textile product manufacturing. Rehabilitation of factories that had been halted by war damage progressed gradually, and the production system recovered. As of 1953, Kanebo operated over 30 textile factories domestically, with 18 of them having more than 1,000 employees.

The product lineup was composed primarily of natural fibers—cotton, wool, and silk—with the addition of the chemical fiber staple fiber. The large-scale factory network distributed across the nation formed a supply system capable of meeting the postwar increase in demand, but at the same time the fixed-cost burden was substantial. Natural fibers are commodities with high market sensitivity, and as a business had the characteristic of limited means of price adjustment in response to economic fluctuations. While high profit margins could be expected during booms, it was structurally difficult to secure profitability while maintaining employment and equipment during market downturns.

For postwar reconstruction, Kanebo chose the policy of maintaining and rehabilitating the nationwide factory network built since prewar times as-is. The production system spanning all product lines—cotton, wool, silk, and staple fiber—was continued without plant closures or product line rationalization. Behind this decision was the fact that textiles were a major postwar Japanese export product with expected demand recovery, and that each factory functioned as a base supporting regional employment, making rapid downsizing socially unacceptable.

As a result, Kanebo entered the Korean War special procurement period with a system comprising over 30 factories and tens of thousands of employees. The outbreak of the Korean War in June 1950 caused a surge in demand for supplies for the U.S. military, bringing unprecedented prosperity to Japan's textile industry. In this period known as the 'Gachaman boom'—meaning that starting a loom once yielded 10,000 yen in profit—Kanebo's large-scale production capacity ran at full utilization, positioned to capture the surge in demand.

In the fiscal period ending April 1951, Kanebo posted sales of 16.8 billion yen and after-tax profit of 4 billion yen, with a profit margin reaching approximately 24%. This was an exceptionally high level for the postwar period, as factories deployed nationwide simultaneously ran at full capacity, maximizing the capture of demand driven by special procurement. The maintenance of large-scale production capacity functioned as a factor boosting earnings in this phase. However, this strong performance was the result of a temporary surge in demand causing price increases for natural fibers as market commodities, and did not mean that Kanebo's business structure had fundamentally improved.

By 1952, when the Korean War special procurement had run its course, market conditions changed rapidly. Cotton, wool, and silk—all mainstay products—were market-sensitive commodities, and Kanebo had limited means to maintain prices against declining demand. Profits began declining on a net income basis from the peak of the April 1951 fiscal period, and the vulnerability of a revenue structure dependent on market conditions while bearing over 30 factories and tens of thousands of employees became apparent. This structure was also the starting point that would make the subsequent textile recession and the drift toward diversification inevitable.

Throughout the 1950s, Japan's textile industry was undergoing a structural transition. While natural fibers such as cotton, silk, and wool had supported demand during postwar reconstruction, market conditions had been on a steady decline since the reversal of the Korean War special procurement. Kanebo was highly dependent on natural fibers, with a business structure where main product price fluctuations significantly affected earnings. Around 1958, plant suspensions became unavoidable, and the company was forced to close key plants such as Hakata, Nakatsu, and Nakajima, making the contraction of natural fiber operations inescapable.

Additionally, in the synthetic fiber field, Toray and Teijin had taken the lead in expanding nylon and polyester markets, leaving Kanebo in a late-mover position. With natural fiber profitability declining while unable to secure competitiveness in the growth field, maintaining employment of tens of thousands and the nationwide factory network would become difficult. A new management concept to transform the revenue structure while maintaining corporate scale was required.

In October 1961, under President Itoji Muto, Kanebo announced the 'Greater Kanebo Construction Plan.' The basic policy was to move away from the overconcentration on natural fibers and advance diversification by positioning nylon, cosmetics, and food as new growth areas. The plan set numerical targets of 47.8 billion yen in semi-annual sales and 2.4 billion yen in semi-annual profit by October 1964. The intent to simultaneously break away from textile dependence and maintain corporate scale was explicitly stated.

In the nylon field, a large-scale investment of approximately 20 billion yen was made at the Hofu plant based on technology partnerships with overseas companies, aiming for full-scale entry into the synthetic fiber market. In non-textile fields, business expansion through acquisitions was pursued, with the cosmetics business acquired from Kaneka in 1961 and investment in sales organizations commenced. In 1964, Harris was acquired for entry into the food business. The approach of improving the overall sales composition through nurturing new businesses rather than contracting the textile business was adopted.

In the early 1960s, Kanebo improved its sales composition through the expansion of synthetic fibers and non-textile businesses. The cosmetics business in particular rapidly expanded its sales scale in a short period and was establishing its position as the core of the non-textile division. The transition from over-dependence on natural fibers to a multi-business revenue composition was progressing, and the plan's direction showed certain results. The focused investment in sales organizations for the cosmetics business became the most clear-cut success story within Kanebo's diversification strategy.

However, market deterioration from the 1965 recession and intensifying competition in the nylon field caused overall company sales to decline in the October 1965 period. In nylon, competition with established players was fierce, and the handicap of late entry was not easily overcome. While diversification contributed to improving the sales composition, it could not fully compensate for the decline in existing textile business profitability, leaving challenges in establishing sustained growth capability. The Greater Kanebo Plan indicated the direction for structural improvement but was not brought to completion.

From the late 1950s onward, Kanebo had been exploring a redesign of its business composition against the backdrop of textile business revenue volatility. After the reversal of the Korean War special procurement, it had become difficult for natural fibers to secure profits through volume expansion alone, and dependence on market fluctuations was increasing. Amid successive plant closures, securing a stable revenue source to replace textiles became an urgent management priority. Under the Greater Kanebo concept, the idea of incorporating peripheral fields while maintaining textiles as the core to enhance overall corporate group strength was being considered.

Entry into the cosmetics business was one attempt to implement such a diversification concept as a concrete revenue-generating business. In Kanebo's diversification, the approach tended to be entry through acquisition of existing businesses rather than building from scratch. Since the prewar Grand Spinning Consolidation, expanding the business base through corporate acquisitions had been Kanebo's traditional growth method, and entry into cosmetics was positioned on this same trajectory.

In 1962, Kanebo acquired the cosmetics business from Kanegafuchi Chemical (Kaneka) and made a full-scale entry into the cosmetics market. After the acquisition, Kanebo prioritized the establishment of the sales system over investment in manufacturing facilities. Sales companies were established throughout the country, and the expansion of sales personnel and construction of distribution networks were advanced. Cumulative investment in the sales organization reached approximately 10 billion yen, making cosmetics an exceptionally heavy investment target within the group. This was a judgment based on the recognition that cosmetics is a business that competes on the density of sales touchpoints rather than product capabilities.

The shares of sales companies were held 100% by Kanebo, effectively transitioning to a direct management format. By thoroughly strengthening the chain-store-style sales organization, a nationwide sales network was built in a short period. The fact that the brand image of 'Kanebo cosmetics' was well received by consumers also provided a tailwind for sales. As a result, semi-annual sales reached 6.5 billion yen as of September 1964, with sales expanding approximately tenfold in just three years after the acquisition.

The cosmetics business grew into the enterprise with the highest profit margin within the Kanebo group. As the textile business continued to decline in profitability under structural recession, a structure formed in which cosmetics supported more than half of the company's total profits. In the later-advocated Pentagon Management as well, cosmetics was positioned as the core of the five businesses, bearing the role of underpinning the entire group's earnings. The success of the cosmetics business was the greatest achievement of Kanebo's diversification strategy.

However, ironically, the high profitability of cosmetics also became a factor delaying company-wide structural reform. The more cosmetics earned, the greater the financial room to maintain unprofitable businesses including textiles, and withdrawal or downsizing decisions were deferred. The cosmetics business fell into a structure of being consumed as a 'stabilizing device supporting the entire company' rather than being strengthened as a 'core business to be reinforced.' The paradox where the existence of a highly profitable business weakened structural reform pressure became one of the structural factors defining Kanebo's long-term decline.

In the late 1960s, Kanebo faced the dual challenges of declining textile business profitability and organizational bloat. Natural fibers were susceptible to market fluctuations, and competition with established players in synthetic fibers was intensifying. The diversification initiated under the Greater Kanebo Plan had shown certain results but had not sufficed to compensate for the structural underperformance of the textile business. A management concept was needed that would fundamentally transform the revenue structure while maintaining the remaining nationwide factory network and employment of tens of thousands.

At this juncture, the Muto family, which had been involved in management since the founding era, withdrew from the front lines of management. In 1968, Junji Ito, who came from the labor relations department, assumed the presidency at age 45. Ito was adept at internal coordination and had led the stabilization of labor-management relations. The appointment of a president from a labor relations background suggested that the basic management policy would be a gradual business transformation premised on employment maintenance and organizational stability, rather than structural reform involving large-scale plant closures and workforce reductions.

Meanwhile, this management transition was also a consequence of internal politics and represented a shift from the previous textile-centric management to a new regime. The option of rapidly downsizing the bloated organization was not realistic, and a concept was required to develop new revenue sources premised on employment maintenance. The question of which fields to redirect surplus textile division personnel to was inseparable from the direction of diversification, and business structure transformation and personnel deployment needed to be considered simultaneously.

In 1967, Kanebo advocated 'Pentagon Management,' setting forth a policy to reorganize the business composition into five fields: textiles, housing, food, cosmetics, and pharmaceuticals. A distinctive feature of this concept was the consolidation of the textile business—previously managed separately as natural fibers, chemical fibers, and synthetic fibers—into a single business category. This was intended to manage textiles as a whole, as the synthetic fiber market had also entered a maturation phase with increasing market volatility.

Simultaneously, expansion into non-textile fields was accelerated to compensate for the textile business's underperformance. Cosmetics and food already had a certain business foundation, but housing and pharmaceuticals were newly positioned as growth areas. The housing business was expected to utilize former factory sites, and the pharmaceutical business was anticipated to grow as a high-value-added field. The design aimed to increase resilience against fluctuations in specific businesses by having five business pillars, thereby stabilizing company-wide earnings.

However, in practical terms, the allocation of surplus textile division personnel to new businesses had a strong coloring, and talent selection suited to each business's characteristics or utilization of external specialist talent was limited. Diversification was simultaneously a redesign of the business portfolio and a measure to secure an employment receptacle. Consequently, the tendency emerged for redeployment of existing personnel to take precedence over building competitiveness in new businesses, and the establishment of autonomous growth capability in each business was structurally delayed.

Through Pentagon Management, Kanebo raised the banner of breaking away from textile dependence and advanced the expansion of business domains. In the short term, business diversification was expected to increase resilience against market fluctuations. However, of the five businesses, cosmetics was the only one consistently generating profits; textiles carried structural losses, and housing, food, and pharmaceuticals had not achieved sufficient earning power. While diversification contributed to improving the sales composition, it did not directly lead to company-wide improvement in profitability.

In the process, decision-making premised on maintaining scale and employment became normalized within the organization. The restructuring of loss-making businesses and closure of unprofitable plants tended to be deferred, and achieving performance targets became a company-wide imperative. As the business composition became more complex, the actual profitability of each business became less visible, and the distance between management decisions and numerical management widened. Mechanisms to correct the gap between plans and results did not function adequately, and the tendency to prioritize showing stable numbers over reflecting reality intensified.

This structure did not directly cause the accounting fraud that would surface in later years. However, it formed an organizational culture within the company that was tolerant of gaps between reality and numbers, and prepared the soil where accounting treatments such as pushing products onto sales subsidiaries and inventory manipulation would be tacitly approved. Pentagon Management transformed Kanebo into a diversified company but came at the long-term cost of hollowing out the governance structure.

Throughout the 1970s, Kanebo's business composition began to show significant distortion. The cosmetics business continued to expand in both sales and profits, posting sales of 54.4 billion yen and profits of 6.4 billion yen as of 1976, growing into a highly profitable business. Meanwhile, the housing, food, and pharmaceutical businesses, which had been developed under Pentagon Management, continued to post losses and had not achieved company-wide profit contribution. The structure became fixed where cosmetics was essentially the only one of the five businesses actually generating profits.

Even in this situation, the textile business still had the largest sales scale and headcount, and business contraction or fundamental structural transformation did not progress. The textile division had approximately 14,000 employees, posting annual recurring losses of approximately 10 billion yen. While high-profit cosmetics underpinned the company's overall cash flow, it also created room to defer the restructuring of unprofitable businesses, and management continued while containing the profitability gap between businesses.

The oil shock of October 1973 plunged the Japanese economy into recession, and demand for industrial products in general stagnated. At Kanebo, revenue declines in both natural and synthetic fibers became apparent, and combined with losses from diversified businesses, the company fell to zero-dividend status in the April 1975 fiscal period. While management recognized the structural losses of the textile business, they did not proceed with large-scale plant closures or workforce reductions, choosing instead a policy of supplementing company-wide income and expenditure with cosmetics profits and asset sales.

Specifically, some textile plants were closed and the sites sold to secure funds. Urban-located factory land had high value as real estate, and sales gains served to partially offset recurring losses. While recurring losses reached approximately 10 billion yen annually, this approach made it possible to contain net income at around 3 billion yen. This technique contributed to short-term numerical stabilization but also had the effect of deferring fundamental rebuilding of the textile business.

The company posted recurring losses for five consecutive periods from the April 1975 to April 1979 fiscal periods. The textile business took on the character of a structural recession, and cost reductions and minor workforce reductions could not absorb the losses. Cosmetics business profits were consumed in subsidizing textile losses, leaving limited capacity for growth investment. The paradoxical structure took hold where the more cosmetics earned, the greater the room to maintain unprofitable businesses.

Also, in response to poor sales, the pushing of products from headquarters onto sales subsidiaries became normalized, and accounting practices referred to as 'low utilization' came to be tacitly approved. This method of circulating goods between headquarters and sales companies to maintain the appearance of sales formed a practice within the organization of tolerating gaps between reality and numbers. These responses did not directly constitute the later accounting fraud, but they became a factor in fixing an organizational culture that prioritized business survival over numerical consistency.

By the late 1990s, Kanebo had developed serious distortions in both its business composition and financial structure. While the cosmetics business continued to generate stable profits, the textile business could not escape structural recession, and diversified businesses such as housing, food, and pharmaceuticals lacked sufficient earning power. Since Pentagon Management, the structure of subsidizing other businesses' losses with high-profit cosmetics had continued for nearly 30 years, and this structure of mutual dependence had become fixed without correction.

Company-wide employment maintenance was treated as a management premise, and closure of unprofitable plants and business withdrawal continued to be handled cautiously. Textile plants remaining in regional areas were bases supporting local employment, and closures required coordination with local governments and labor unions. In 1996, the plan to close the Hofu plant was temporarily reversed due to local opposition, demonstrating how structural reform execution faced resistance both within and outside the organization. Management decisions were always made under the constraint of employment maintenance, and fundamental business reorganization continued to be deferred.

As a result, loss subsidization between business divisions became normalized, and the gap between actual earning power and financial figures widened. From around 1999, in the context of prioritizing corporate survival, accounting treatments such as pushing products onto sales subsidiaries and inventory rotation manipulation came to be tacitly approved, continuing uncorrected under a closed organizational culture. Checks and balances through accounting audits and the board of directors became hollow, and a structure that organizationally tolerated the gap between reality and numbers had been established.

In September 2003, accounting fraud at Kanebo was exposed, and the company fell into insolvency with a 63 billion yen capital deficit. The credibility of financial figures maintained for many years collapsed at its foundation, and trust from markets and business partners was lost. The scale of the fraud was not limited to single-year adjustments but represented the accumulation of organizational accounting manipulation spanning multiple years. Management was held responsible, and Junji Ito, who had been involved in management for many years, had already retired from his honorary chairman position, but the structural problems had reached an irreparable stage.

In February 2004, the main lender banks decided on restructuring utilizing the framework of the Industrial Revitalization Corporation of Japan (IRCJ). The restructuring plan was built on pillars of business reorganization premised on the sale of the cosmetics business, restructuring of unprofitable businesses, and renewal of the management structure. To clarify management responsibility, it was decided that all directors including the then-president would resign. Kanebo was cut off from the path of self-reliant restructuring, and disposal of businesses through piecemeal sale proceeded under the management of a public institution.

The Industrial Revitalization Corporation summarized Kanebo's problem as 'business groups with entirely different earning power and business characteristics having been mixed within a single corporate entity, resulting in the loss of competitiveness as a whole.' It pointed out that mutual dependence between business divisions had inflated excessive debt, and that fundamental transformation was needed in organizational management as well. The direction of restructuring adopted a policy of dismantling Kanebo by business unit for individual rehabilitation, rather than rebuilding it as a comprehensive manufacturer.

As the core of the restructuring plan, Kanebo sold its sole highly profitable business—the cosmetics business—to Kao for approximately 410 billion yen. This transfer income was used to resolve the excessive debt. The cosmetics business had been the profit pillar within the Kanebo group for over 40 years, but was ultimately disposed of as an asset to be liquidated for corporate survival. This outcome demonstrates that the ability to nurture strong businesses and the mechanism to concentrate management resources on those businesses are separate things.

In the textile business, a sale to Seiren was executed, and remaining unprofitable plants were closed. The Hamamatsu, Ogaki, Hikone, and Izumo plants became closure targets, and withdrawal decisions that had been deferred for many years were finally carried out. The food, daily necessities, and pharmaceutical businesses were transferred to Kracie Holdings and came to be operated under the direction of an investment fund. Kanebo was reorganized through being divided and sold by business unit.

In June 2005, the listing on the TSE First Section was delisted, and at the shareholders' meeting in February 2007, company dissolution was resolved. The trade name was changed to 'Kaigan Bell Management Co., Ltd.,' and following liquidation procedures, Kanebo ceased to exist as a legal entity. The prestigious company that had stood at the top of all-industry sales in Japan in 1933 closed the curtain on its history through being dismantled business by business. Management that simultaneously pursued diversification and employment maintenance ultimately arrived at the conclusion of the company's own extinction.

Kanebo had expanded its business domains from a textile business starting point, forming nationally significant sales scale and brand power in the cosmetics business. However, from the late 1990s onward, the decline in textile business profitability combined with the burden of past investments caused the financial situation to deteriorate steadily. In 2003, triggered by the exposure of accounting fraud, the company fell into insolvency with a 63 billion yen capital deficit, making self-reliant restructuring impossible. Restructuring under the involvement of financial institutions and the Industrial Revitalization Corporation became unavoidable.

While the cosmetics business was still generating stable profits at the time, it had not reached a scale sufficient to resolve the group's overall excessive debt. Kanebo lost the capacity to attempt restructuring through independent fundraising or gradual business reorganization, and the very form of corporate existence came into question. The option of restructuring while keeping the business portfolio intact receded, and which businesses to spin off and liquidate became a practical issue.

During the restructuring process, Kanebo did not choose to continue as an independent company centered on the cosmetics business. Under the IRCJ framework, the policy of selling the cosmetics business as a source of debt resolution funds was finalized. In January 2004, Kao announced its acquisition of the cosmetics business, and transfer negotiations proceeded over two years. The sale of the cosmetics business was a decision in which Kanebo itself brought an end to its history as a comprehensive manufacturer.

In February 2006, Kanebo transferred its cosmetics business to Kao for approximately 410 billion yen. This sale price represented the consideration for the sales network and brand assets cultivated over more than 40 years. However, relinquishing a profit-generating business meant that Kanebo had finally abandoned the option of maintaining its business portfolio as an independent company. The cosmetics business was disposed of not as 'a core business to be strengthened' but as 'an asset to be liquidated for restructuring.'

The cosmetics business sale proceeds enabled the resolution of excessive debt, and the restructuring plan moved to the execution phase. The textile business was sold to Seiren and remaining unprofitable plants were closed. The food, daily necessities, and pharmaceutical businesses were transferred through business transfer to Kracie Holdings and came to be operated under an investment fund. Kanebo separated the business portfolio it had held together for 120 years one by one, progressively losing its substance as an independent company.

In June 2005, the listing on the TSE First Section was delisted, and at the shareholders' meeting in February 2007, company dissolution was resolved. The trade name was changed to 'Kaigan Bell Management Co., Ltd.,' and following liquidation procedures, Kanebo ceased to exist as a legal entity. The prestigious company that had stood at the top of all-industry sales in Japan in 1933 closed the curtain on its history through being dismantled business by business. The fact that the ability to create strong businesses and the mechanism to concentrate management resources on those businesses were separate things was the essential factor that defined Kanebo's conclusion.