Sanrio
Corporate History & Strategy

Shintaro Tsuji, the founder of Sanrio, was a Yamanashi prefectural government employee who had been engaged in insurance premium rate calculations and gubernatorial campaign support activities. In the course of this work, he became involved with the operations of 'Yamanashi Silk Center,' an external organization of the Yamanashi prefectural government, and came to handle overseas exports of wine and silk products—specialties of Yamanashi Prefecture. However, within the prefectural government, voices of opposition arose against an administrative-affiliated external organization conducting business activities like a private company.

Shintaro Tsuji chose the path of leaving the prefectural government and becoming an entrepreneur. In August 1960, he incorporated the external organization Yamanashi Silk Center as a joint-stock company, founding it with 1 million yen in capital. Investors included the Yamanashi prefectural governor contributing 50,000 yen, the deputy governor 50,000 yen, and the chamber of commerce president 50,000 yen—the personal network built during his government service was reflected in the capital policy.

The head office was located not in Yamanashi Prefecture but in Kobunacho, Nihonbashi, Tokyo. For silk product exports, transactions with wholesalers were essential, and a wholesale district had formed in Yokoyamacho, Nihonbashi, Tokyo. The original business was a wholesale position—purchasing products as merchandise from Yamanashi Prefecture companies and selling them to wholesalers. Tsuji set Sony as his benchmark when founding the company and posted 'Catch up with and overtake Sony' in his office, though stakeholders around him viewed this goal with skepticism.

However, immediately after founding, the company was stuck with a 5 million yen dishonored bill in an export of silk brocade to South Korea, depleting its startup capital and facing the crisis of bankruptcy. With only 5 employees including President Tsuji at the time, the company was forced to cut costs by relocating its head office from Nihonbashi, Tokyo to Akihabara. Tsuji shifted the business focus to retail sales of sundries at department store entrances in Tokyo, without the landowners' permission, to secure daily cash flow.

There was an approximately 3x price gap between the wholesale prices in the Yokoyamacho district of Nihonbashi and the retail prices near department stores, and Tsuji spotted this opportunity. Through street vending in front of department stores, he paid off the 5 million yen debt in 3 months and succeeded in avoiding bankruptcy. The sundries sold at that time included sunglasses, gloves, hats, and wallets—items entirely unrelated to Yamanashi Prefecture's specialty products.

Subsequently, Sanrio entered the OEM business for beach sandals. This was a period when beach sandals were just beginning to gain popularity, and by supplying OEM products to 'San-ai,' a Ginza-based retailer, the company secured substantial revenue. Rather than the founding plan of exporting Yamanashi Prefecture specialty products, the business got on track through sundry sales and OEM supply. Tsuji is said to have earned a reputation in the industry as 'quite the idea man' after overcoming the founding-period crisis.

In 1962, Sanrio began handling gift products as its own original merchandise. The company designed products such as stationery featuring 'strawberry' motifs as in-house planned goods, expanding its product lineup targeting children and young women. This entry marked Sanrio's transformation from a sundry wholesaler to a company that planned gift sundries. In December 1967, the company began publishing 'Gift Book Series'—small-format books for gift-giving—also entering the publishing business.

Since its founding, Sanrio had operated as a wholesaler and had not engaged in retail. However, to build direct touchpoints with consumers in line with its growing product lineup, the company decided to enter retail. In 1971, it opened a directly managed store 'Gift Gate' in Shinjuku 3-chome, investing 200 million yen in key money alone against capital of just 20 million yen. The company subsequently expanded its non-directly-managed retail outlets nationwide, building a sales network of 125 stores (including 6 directly managed) by 1976.

From FY1973 to FY1975, Sanrio recorded annual revenue growth rates ranging from 122% to 350%. Pre-tax profit margins relative to revenue were maintained at levels between 11% and 20%, and Sanrio attracted attention within the industry as a highly profitable company. The strong performance during the oil crisis recession was described as the 'San-Rio Whirlwind.'

The sales composition centered on writing instruments, paper products, and accessories, all of which were products supported by the emotional value of their characters rather than functionality. The company captured the needs of young female consumers, primarily junior and senior high school students, and the gift angle—positioning products as presents—functioned as a purchasing motivation. The business structural shift from gift product planning to retail store expansion formed the foundation supporting Sanrio's rapid growth.

In the process of expanding its character merchandise, Sanrio conducted a large-scale purchasing survey targeting children. The survey results showed that dogs and cats were the most popular animals among children, and the hypothesis was formed that there was demand for 'a white dog with floppy ears.' Coincidentally, at this time a US company was planning to license Snoopy (PEANUTS) for sale in the Japanese market, and Sanrio decided to acquire the license.

At the time, Snoopy had low name recognition in Japan, and reportedly no companies other than Sanrio showed interest in the license. Snoopy merchandise won children's support and became a hit, but since it was not an exclusive license for Sanrio but rather limited usage rights for certain products, Sanrio could not monopolize domestic revenues. This led Shintaro Tsuji to begin exploring the creation of original characters that would not depend on other companies' licenses.

The character designs were created by female employees in their 20s working at Sanrio's design studio. Amid daily drawing of cats, dogs, bears, and other animal characters, Hiroko Suzuki created 'Patty & Jimmy,' while Yuko Kusunoki (a Musashino Art University graduate, around 20 years old at the time) created 'Hello Kitty.' In 1975, My Melody was also created, and multiple original characters emerged from Sanrio's design studio.

Shintaro Tsuji was skeptical of these characters. His first impression of Patty & Jimmy was 'This won't work,' and regarding Hello Kitty, he assessed it as 'not charming,' 'drawn with simple lines,' and 'lacking in movement,' and did not believe it would become a hit product. However, when small goods featuring the characters were experimentally placed in stores, they captured children's hearts and sold beyond expectations.

Contrary to Tsuji's predictions, Patty & Jimmy and Hello Kitty won children's support and grew into Sanrio's flagship characters. The development of original characters made it possible to reduce dependence on other companies' licenses, and Sanrio established its business foundation as a character planning company. In the fiscal year ending July 1977—three years after Hello Kitty's launch—revenue reached 19.5 billion yen and ordinary income 4 billion yen.

Yuko Kusunoki (Yuko Shimizu), who created Hello Kitty, and Hiroko Suzuki, who created Patty & Jimmy, both left Sanrio upon marriage. The management of the characters was subsequently entrusted to successor in-house designers. The fact that character merchandise development continued even after the creators' departure marked the progression from individual designer creations to organizational character management.

Beginning in 1976, Sanrio started licensing its original characters. The business granted partner companies the right to use Sanrio's characters in their product lines, and the number of product types reached 3,124. Characters were deployed across a broad range of products from writing instruments, stationery, and paper products to cosmetics, hygiene goods, and food items. Revenue expanded rapidly with the Hello Kitty merchandise rollout, reaching 19.5 billion yen in revenue and 4 billion yen in ordinary income for the fiscal year ending July 1977.

However, from 1978 onward, the market became flooded with imitation products mimicking the characters, and this, combined with the poor performance of Sanrio's film business, caused profit margins to decline. On the other hand, the demand-stimulating effect of licensing continued, and by FY1982, revenue surpassed 50 billion yen. Having put the unprecedented business of character merchandising on track, Sanrio was in the spotlight as a company that achieved both high growth and high profitability.

Against the backdrop of expanding revenue, Sanrio listed its shares on the Second Section of the Tokyo Stock Exchange in April 1982. It was unusual at the time for a character planning company to go public, and the company attracted attention from market participants as a next-generation service industry. The listing opened the door to capital market fundraising, establishing the capital foundation for further expansion of the character business.

At the time of listing, Sanrio's business composition was dominated by retail product sales, with royalty income accounting for only about 2% of revenue. However, royalty income was revenue earned without bearing inventory risk or product development costs, and in terms of profit margins, it had a structure that surpassed the retail business. This licensing model would later come to form the core of Sanrio's revenue structure.