Company history

Kanebo was founded in November 1886 as Tokyo Menshosha, a trading house set up by five Tokyo cotton wholesalers — among them the forerunners of Mitsukoshi, Shirokiya and Daimaru — to broker raw cotton. Within months the partners concluded that spinning the cotton into yarn and selling that was the better business, raised capital tenfold, and built a 30,000-spindle mill at Kanegafuchi on the edge of Tokyo. The cotton-broking business was closed in 1888, the company renamed Kanegafuchi Boseki, and the mill started up in 1889. It was, in other words, a trading firm that rewrote itself into a manufacturer because its first business would not grow.

The rewrite nearly killed it. The mill opened into a downturn, and Japan had almost no engineers who could run a plant on that scale, so losses accumulated from the first year. Rescue came from outside: Mitsui sent Nakamigawa Hikojiro, who took the presidency in 1893, and Nakamigawa in turn plucked a 28-year-old Mitsui Bank man, Muto Sanji, to build and run a second base at Kobe. When Nakamigawa died in 1901 Muto inherited the idea that would define the company: the great consolidation of the spinners — that only sheer scale would give a Japanese firm bargaining power over raw cotton.

From 1899 Muto bought failing small and mid-sized spinners one after another, re-equipped them with British machinery and folded them in; in the Meiji and Taisho periods alone the tally reached fifteen companies and twenty-six mills. Silk followed from 1906, dyeing and printing from 1916, reeling from 1921, and overseas mills in Shanghai, Qingdao and Tianjin through the 1920s. By 1936 Kanebo was, excluding the semi-state Japan Iron & Steel, the largest company in Japan by sales. Thirty-odd mills and tens of thousands of employees had become the company’s pride — and, quietly, its internal logic: that survival meant keeping the scale.

Under wartime mobilisation the textile business was cut back and the company was pushed into everything else. A separate vehicle, Kanegafuchi Jitsugyo, was created in 1938 to hold the non-textile operations, and it spread into mining, chemicals, timber, metals and finally aircraft; in February 1944 the two halves were merged back into Kanegafuchi Kogyo, capitalised at ¥324m, running the whole sprawl as one. Defeat erased it. Every overseas asset was lost, domestic mills were bombed or converted, subsidiaries and affiliates were surrendered — losses heavier than any of its peers. In 1946 the old name came back.

The rebuilding under president Muto Itoji, Muto Sanji’s son, was a deliberate amputation. In April 1949 seven chemical plants were spun out as a second company, Kanegafuchi Chemical (today Kaneka); by September the timber, machinery and mining businesses had been wound up entirely, and only fibre was left standing. Capital was rebuilt from ¥324m to ¥1.63bn, and by 1955 cotton spindles were back to some 637,000 — roughly three times the wreckage of 1945. Kanebo had made itself, for the first time, a pure textile company.

That focus was immediately shown to be a trap. The Korean War boom nearly tripled half-year sales, to ¥24.7bn by September 1951, with a 24% after-tax margin; two years later profit had collapsed to ¥200m. From 1958 the company began shutting mills — first small provincial filature plants, then, in 1959, main mills employing a thousand people each — and pushed through a company-wide wage cut to survive. Cotton spinning was by then being called “an industry at three in the afternoon”, and it was in these years that Kanebo first raised the banner it would carry for the rest of its life: to become a company of beauty in daily life, moving sideways into cosmetics, pharmaceuticals and food while integrating forward from yarn into fabric, finishing and fashion.

In October 1961 Muto Itoji announced the Greater Kanebo plan: to break the dependence on natural fibre by building three growth businesses — nylon, cosmetics and food. He had flown to Italy himself to license nylon technology from Snia Viscosa, and about ¥20bn went into the Hofu plant. Cosmetics were bought back from Kanegafuchi Chemical in 1961 and absorbed in 1962; confectionery came with the Harris and Tachibana acquisitions of 1964–65, pharmaceuticals with Yamashiro in 1966. But the plan was addition, not substitution: the textile business was not shrunk to pay for it, and the new arms were framed as support troops for the synthetic-fibre push.

The 1965 recession broke it. Latecomer nylon never earned its keep, borrowings had ballooned, and Muto was forced out in a boardroom coup. His successors reframed the same idea as Pentagon management — five pillars of textiles, cosmetics, food, pharmaceuticals and home products — and Ito Junji, president at 45 from 1968, ran it for three decades. Ito’s achievement was real: he built cosmetics, sold through wholly-owned regional distributors and a chain-store network, into Japan’s second-largest and by far the group’s most profitable business — ¥54.4bn of sales and ¥6.4bn of profit by 1977. The company renamed itself Kanebo in 1971.

The other four pillars never arrived. When the 1973 oil shock left synthetic fibre in chronic oversupply, there was nothing to absorb the losses: Kanebo passed its dividend in 1975 and posted five straight years of recurring losses. The pentagon was, as its own managers admitted, a badly unequal one. Textiles were hived off into subsidiaries in 1977 — Ito called it “stripping naked and fighting with our backs to the river” — and the group financed itself by selling roughly ¥90bn of land over eleven years. By 1985 the shape was fixed and would not change again: cosmetics earned over ¥10bn, textile losses ate about half of it, and what remained was barely positive. Because resources went to the new businesses while the old ones were never actually closed, Kanebo fell behind in fibre productivity and new materials just as imports took more than 70% of the domestic cotton-goods market.

In April 1993, with the benchmark cotton-yarn price at ¥58,000 a bale — near its 1966 all-time low and far under the ¥90,000 domestic producers needed — Kanebo announced the closure of two spinning mills and a weaving mill. The founding business, which had run 1.3 million spindles before the war, dropped below 100,000. Restructuring continued for a decade: confectionery, beverages and frozen desserts into Kanebo Foods in 1993; cotton, wool and synthetics transferred to subsidiaries in 1996; ¥37.2bn of land sold across 1994–95 simply to avoid consolidated negative net worth. It was not enough. By March 1996 the group was ¥24.9bn in the red on a net-asset basis with ¥500bn of interest-bearing debt.

Hoashi Takashi, president from 1998, was the first outsider to the company’s usual pedigree — a salesman from the Osaka cosmetics distributor, neither a Keio graduate nor a textile man. He cut 10% from the base pay of 15,000 union members for three years, sold the ethical-drug business to Organon and the chemical-products arm to Aion, and got consolidated recurring profit back to ¥10.6bn in the year to March 1999. He also named the company’s vice out loud: that Kanebo managed by manipulating numbers. Yet under him the manipulation grew — deferred tax assets on the balance sheet swelled from ¥12.5bn in 2000 to ¥40.2bn by March 2003 while shareholders’ equity ran below ¥1bn.

In September 2003 the company disclosed that it faced roughly ¥63bn of negative net worth. A plan to sell 49% of a carved-out cosmetics company to Kao collapsed in February 2004 when the main bank demanded a complete sale and the union refused; the talks were cut off on 16 February, and on 10 March the state-backed Industrial Revitalization Corporation of Japan took the group on, valuing cosmetics at ¥380bn. The fraud — run by parking losses in dormant companies and friendly counterparties to keep them off the consolidated books — eventually totalled around ¥200bn; three ChuoAoyama auditors were indicted in 2005. The IRCJ chose realisable value over corporate survival: more than twenty businesses were sold off separately, cosmetics went to Kao for about ¥410bn in December 2005, textiles to Seiren, and food, home products and pharmaceuticals to Kracie. The listing ended in June 2005, and in February 2007 shareholders voted to dissolve the 120-year-old company, which was renamed Kaigan Bell Management to be wound up.