Sanrio — Company History

How a Yamanashi trading company moved into gift goods

Tsuji Shintaro (辻信太郎) was born in Yamanashi Prefecture in December 1927. He graduated in 1947 from the department of industrial chemistry at Kiryu Technical College — today Gunma University — and in December 1949 entered the Yamanashi prefectural government. In August 1960 he resigned from the prefecture and established Yamanashi Silk Center Co., Ltd., taking the post of representative director and president. The head office was placed at Nihonbashi in Tokyo, and the stated purposes of the company were the design of silk products and confectionery containers, product planning, and their sale. Capital at founding was $2,778 (¥1m), and standalone sales for the year to July 1961 came to no more than $66,667 (¥24m). The trade at first was the buying and reselling of silk products and confectionery containers; the range later widened to kitchen and table goods and to stationery. In the middle of the 1960s Yamanashi Silk Center began printing strawberries and human figures on those goods, and in doing so made the substance of the gift business that would later become its mainstay.

Behind the shift of the product range towards gifts lay the president's own reading of the trade. In a July 1977 interview with the editor of 日経ビジネス (Nikkei Business), Tsuji said that neither a ¥30 summer greeting card nor a ¥1,000 block of yokan — a sweet bean jelly given as a present — can be measured by its price, and that Sanrio had been started out of the thought of whether that touching of one heart on another could be made into a business. In the same interview he looked back on an exchange from 1962, the company's second year, when the manager of the Bakurocho branch of Dai-Ichi Bank told him that it would be easier to join Matsushita Electric and rise to its presidency than to build a large company of his own. The manager added, by Tsuji's account, that the odds against a large company emerging from among his branch's customers were 99.99 per cent, but that if there were a 0.01 per cent chance it would be this one. The range widened into publishing in December 1967 with the launch of the Gift Book, a small picture book to be given as a present, and into the planning and sale of greeting cards in December 1969; standalone sales grew from $102,778 (¥37m) in the year to July 1962 to $2M (¥705m) in the year to July 1969.

Through the 1960s Yamanashi Silk Center sold mainly to wholesalers, but in December 1971 it opened a directly operated shop in Shinjuku Ward and so gained a place to sell to consumers face to face. In October 1972 it merged with Sanrio Denki Kogyo Co., Ltd. (サンリオ電機工業) in order to bring the businesses of affiliated companies together, and in April 1973 it changed its corporate name to Sanrio Co., Ltd.; in June of the same year it added a restaurant to the directly operated shop. In October 1973 it absorbed Sanrio Greeting Co., Ltd. to consolidate the greeting-card business, and with that its customers extended beyond the wholesale route to department stores, mass retailers and other shops. Standalone sales rose from $4.1M (¥1bn) in the year to July 1972 to $6.8M (¥2bn) in the year to July 1973.

Its own characters, and the turn to licensing

In February 1974 Sanrio put on sale gift goods carrying animal and human designs it had developed itself, and from then on it created and commercialised a great many characters, beginning with Hello Kitty, My Melody and Patty & Jimmy. As of 1976, Snoopy was an imported design, while the hits — Kitty-chan and Bunny & Matty — had been developed in-house. Sanrio at that time kept about seventy designers who drew and about seventy planners who worked up the concepts, and between them they produced more than 2,000 characters a year. The designers' proposals were screened by managers and senior designers inside the company, then put through roughly a week of test selling in retail shops, and only the goods that scored well went on to full release. By the time of the listing the company had 110 people — about 20 per cent of its total workforce — assigned to character planning and development, and in the year to July 1981 its gift goods ran to 3,124 items.

In April 1976 Sanrio began a licensing business allowing other companies to use its own characters on their products, and in May it set up a subsidiary, Sanrio, Inc., at San Jose in the United States to import and sell; together with the film subsidiary placed in Los Angeles in December 1974, this gave it two American bases. Sanrio held no manufacturing operations whatever. It either bought in products already sold by some 470 outside suppliers with its own characters applied to them, or, to hold costs down, supplied those suppliers with materials and purchased components either for payment or free of charge. Standalone sales grew from $6.8M (¥2bn) in the year to July 1973 to $125.3M (¥32bn) in the year to July 1977, and net profit reached $10.8M (¥3bn). Several things came together in that surge: high growth and rising income levels had increased both spending on children and the occasions for buying; decorative qualities such as prettiness were weighed heavily in the choice of goods; and the 1973 merger with Sanrio Greeting had carried the sales route beyond wholesalers to department stores and mass retailers across the country.

Standalone sales in the year to July 1978 rose only slightly, to $172.6M (¥35bn). Orders from each of the sales routes had been heavy up to 1977, so the sales side had not set about reviewing those routes, and competitors such as Kokuyo Co., Ltd. had entered the field. The fall to $146.5M (¥34bn) in the year to July 1979 came because the company cut its wholesale and retail margin rates by a few percentage points, to widen its share and to help fund the refurbishment of department stores and mass retailers as their outlets were reviewed. In the year to July 1980, a colour animated film on which both money and production days had been spent failed to recover its production cost, and the gross margin fell to 28.0 per cent. Even so, sales turned upward from the year to July 1980, reaching $206.8M (¥46bn) in the year to July 1981, of which 90.6 per cent was gift goods; in the same year the company also decided to install a voice-response system to answer stock enquiries from retailers. In April 1982 Sanrio listed its shares on the Second Section of the Tokyo Stock Exchange.

Surplus cash placed in shares, and two theme parks built

In April 1983 Sanrio established a subsidiary, Sanrio GmbH, in Hamburg, West Germany, and began importing and selling gift goods in Europe. In January 1984 Sanrio's shares were transferred from the Second to the First Section of the Tokyo Stock Exchange. Standalone sales grew from $245.1M (¥58bn) in the year to July 1983 to $286.7M (¥68bn) in the year to July 1984, with ordinary profit of $28.2M (¥7bn). Asked in 1990 why he had not chosen land as the object of his investment, Tsuji put it down to unpleasant memories of land, recalling the lawsuit over the house in Kofu where he was born. A $34.5M (¥5bn) plot, he said, takes trouble merely to check for its owner and for any encumbrance on it, whereas shares can be bought and sold with a single telephone call. He added the reservation that the rise in land had been the greater of the two, so that if one regarded the gains as unearned income, investing in land might have been the better course. In 1988 Sanrio set up a fund management office within the company.

In November 1987 Sanrio established Sanrio Communication World Co., Ltd. as the operating company for a combined cultural facility, Sanrio Puroland, and in October 1988 it also invested in the founding of the operating company for Harmonyland at Hiji, Hayami District, Oita Prefecture. In July 1990 Tsuji described Puroland as a scheme some fourteen years in the making: once income per head in Japan passed $20,000 and holidays increased, how those holidays were to be spent would become the question, and that was where theme parks came in. He added the reckoning that the United States had 600 theme parks run by about twenty companies, and that all but one or two were in profit. At around the same time, plans announced by private companies and local authorities since 1983 numbered 133 by the Ministry of Construction's count, of which some thirty had already opened. Of those, perhaps seven would succeed, said Ide Nobuo (井手信雄), senior researcher at Tokyu Agency, in 1991.

In December 1990 Sanrio Puroland opened at Tama in Tokyo, and in April 1991 Harmonyland opened at Hiji, Hayami District, Oita Prefecture. The initial investment in Harmonyland came to $104.1M (¥14bn). Puroland had been designed for a peak of 6,000 visitors a day, but guests bunched at particular attractions and formed queues an hour long, while the 900-seat restaurant filled all at once at mealtimes. Sanrio had taken planning and design assistance from Landmark Entertainment Group of the United States, but operations were handled in-house by its subsidiary Sanrio Communication World, and it was the gaps in that know-how that showed first. Tsuji reflected that visitors came wanting to walk into the attractions with the feel of Disneyland about them. Harmonyland drew close to 10,000 people on holidays, but on weekdays it fell short of its 2,000 target on most days.

Eight consecutive years of net losses, and the Hello Kitty boom

Valuation losses stood at $51.8M (¥8bn) at the end of March 1990, yet Tsuji answered a Nihon Keizai Shimbun survey by saying he would go on and on with it, and only afterwards learned that the other replies were all of retrenchment or withdrawal. His reason was that, having listed the shares and issued convertible bonds and new shares and asked people to buy them, it would not stand to reason for him to say that he himself would not buy shares. Saying that $1.1B (¥160bn) was beyond one man, he placed specialists in the fund management office, though he still looked over some four-fifths of it himself. In the year to March 1992 valuation losses on shares of about $126.3M (¥16bn) left the company set to pay no dividend for the first time since its listing. Share holdings had reached 40 per cent of total assets, and Tsuji observed that with cross-shareholdings in place a share once held could not be sold as one wished. To the verdict that the 財テク — the financial engineering — had failed, he retorted that no company anywhere had succeeded at it. The abolition of the fund management office in March 1992 was likewise an answer to criticism of an over-reliance on financial engineering, and did not, he said, mean that the scale of the investment would be reduced.

At its ordinary general meeting in October 1989 Sanrio changed its financial year to run from 1 April to 31 March, making the year to March 1990 an irregular eight-month period. Consolidated net results were in the red for eight consecutive years from the year to March 1991, and including $279.5M (¥35bn) in the year to March 1992 and $255.2M (¥24bn) in the year to March 1995 the losses came to $771.6M (¥101bn) in total. Consolidated sales over the same span shrank from a peak of $1.0B (¥131bn) in the year to March 1992 to $890M (¥97bn) in the year to March 1996. Total assets fell to half their peak as the financial engineering was unwound, but short- and long-term borrowings still stood above $991.6M (¥120bn) at the end of March 1997, and unrealised losses on specified money trusts and guarantee obligations to affiliates remained besides. The disposal of those trusts, the outstanding problem, was not completed until the year to March 1999. Even through the losses the overseas sales network was extended, with subsidiaries established in Taipei in May 1992, Hong Kong in April 1994 and the Republic of Korea in July 1998.

In 1996 Sanrio brought out the ピンクキルト Pink Quilt series aimed at adult women, and in March 1997 it opened specialist shops at several sites aimed at women in their twenties and thirties. The Hello Kitty craze, which began among high-school girls, spread to office workers; related goods ran to 3,000 items in 1997 alone and the market was worth more than $2.5B (¥300bn), by the estimate of Obayashi Yoshiyuki (大林佳幸), a section manager in Sanrio's merchandising department. The buyers at the centre of it were not children but adults, and the same phenomenon occurred with Doraemon and Ultraman. Consolidated sales grew from $886.6M (¥107bn) in the year to March 1997 to $1.3B (¥150bn) in the year to March 1999, and the net result turned positive with $44.8M (¥5bn) in the year to March 1999 and $189.3M (¥20bn) in the year to March 2000. In the half-year to September 1999, however, sales of character goods centred on Hello Kitty fell short of plan, and the sales forecast was cut from $465.6M (¥53bn) to $450.6M (¥51bn). What supported the raised profit forecast for that same half was more than $43.9M (¥5bn) of gains on share disposals and about $13.2M (¥2bn) of valuation gains from the switch to the lower-of-cost-or-market method.

Withdrawal from share dealing, and a replacement for retailing

In September 2002 Sanrio decided to give up the share dealing it had carried on for the forty-two years since its founding, announcing that it would book share-dealing losses of about $79.8M (¥10bn) in the half-year to September and fall to a consolidated net loss of $105.4M (¥13bn). Tsuji, who had called himself a professional of the market, said that its direction was uncertain and that, even if prices were to rise, he would never resume share dealing again. During the bubble the company had run $1.0B (¥150bn) in shares, including specified money trusts — about half of its total assets — and in the year to March 1992 it had fallen to an ordinary loss of $209.2M (¥27bn). Its main bank, the Bank of Tokyo-Mitsubishi, had repeatedly asked it to stop, yet the dealing continued, latterly capped at $239.5M (¥30bn) and still going on. Tsuji denied that he would resign to take responsibility and stressed that he would concentrate on the core business, but consolidated sales fell from $1.1B (¥137bn) in the year to March 2001 to $944.6M (¥110bn) in the year to March 2003, and the year to March 2003 carried a net loss of $166.5M (¥19bn).

Hello Kitty had been a craze among high-school girls and office workers in the late 1990s, but domestic sales were struggling somewhat by 2001. Tsuji observed that department stores, mass retailers and convenience stores all resembled one another in their product mix and their sales staff, and that winning customers back would take some staging of feeling; so he sent the live shows from the theme parks out on the road to the sales floors of his trading partners. In January 2003, to strengthen manufacture in China and establish a sales structure there, he set up Sanrio (Shanghai) International Trading Co., Ltd. (三麗鴎（上海）国際貿易有限公司) in Shanghai, and in April 2005 he placed a Hong Kong base, Sanrio Asia Merchandise Co., Ltd., to concentrate the supply of goods across Asia. In 2008 domestic same-store sales ran above the previous year from February onwards and reached 107.6 per cent in May; alongside the clearing out of unprofitable shops and the review of the product mix, a Kitty popularity that had spread to Europe and Russia was lifting souvenir demand from visitors to Japan. Tsuji put the largest part of the recovery down to foreigners and to the elderly, and by that point half of operating profit was being earned overseas.

What changed the way the company earned abroad was Hatoyama Rehito (鳩山玲人), brought in as an adviser in 2008 by Tsuji Kunihiko (辻邦彦), the founder's eldest son and a vice-president of the company. Hatoyama, who came from Mitsubishi Corporation, had studied Sanrio while at Harvard Business School and had concluded that the greatest problem was that students everywhere knew Hello Kitty and yet had nowhere to buy her; he joined in May 2008 and became a director at thirty-four. He first broke with the practice of running everything from head office, handing authority to the local offices, and switched the business from retailing to licensing. In January 2009 Sanrio License GmbH was established in Germany. Selling through directly operated shops gave head office control, but shops could be added only slowly and the burden of stock and staff was heavy; so retailing was cut back in favour of lending out the right to use the characters and letting partners do the selling. Unlike Disney, which lays down its usage standards in detail, Sanrio required only that the core of the design be preserved and allowed latitude beyond it, so the number of licensees grew to 1,245 by September 2010 and royalty income accounted for a little under seven-tenths of overseas sales.

Western licensing stalls, and a succession that will not settle

European sales swelled from $69.7M (¥7bn) in the year to March 2008 to $186.8M (¥15bn) in the year to March 2011, and on the strength of the overseas licensing the company raised its consolidated operating profit forecast for the year to March 2010 to $102.5M (¥9bn). Consolidated operating profit grew to $188M (¥15bn) in the year to March 2011 and $207M (¥20bn) in the year to March 2013, reaching a record $198.4M (¥21bn) in the year to March 2014. In December 2011 Sanrio established Sanrio Global Ltd. in Britain and through it acquired all the shares of the character company Mister Men Ltd. and its subsidiary, THOIP. In 2012 Tsuji said that before creating Kitty he had looked into which animals were liked worldwide, and had chosen not the dog, unfamiliar in the Islamic world for religious reasons, but the cat, kept by the well-to-do. In the same interview he set out a plan to spread across the world through a franchise arrangement under which 8 per cent of sales went to head office, in place of retailing through directly operated shops and department stores. By 2014 Sanrio was doing business in well over a hundred countries.

From the peak in the year to March 2014, licensing income in Europe and North America began to thin. The Western Kitty craze subsided; the rise of electronic commerce, Amazon among others, weakened the selling power of the large licensees; well-funded competitors such as Disney pressed harder; the response was slow; and the overseas licensing that had earned more than seven-tenths of group profit shrank fast. European sales fell from $186.8M (¥15bn) in the year to March 2011 to $15.6M (¥2bn) in the year to March 2019, and North America from $111.5M (¥12bn) in the year to March 2014 to $23.9M (¥3bn); from the year to March 2017 both were in loss. The group posted five consecutive years of falling sales and profits from the year to March 2015, and in the year to March 2019 recorded sales of $542.2M (¥59bn) and operating profit of $44M (¥5bn). The theme-park business was carried by Sanrio Entertainment Co., Ltd., created by a company split in July 2009; through the admission-price cut of April 2014, the change of mindset and the capital spending brought by its general manager Komaki Aya (小巻亜矢), and the 2.5-dimensional musicals begun in 2015, it emerged in the 2017 financial year from losses that had run since the 2007 financial year.

On 19 November 2013 Tsuji Kunihiko, the vice-president, died suddenly in Los Angeles at the age of sixty-one. He had joined the company in 1976, and from that time it had been common understanding within Sanrio that the next president would be Kunihiko, a former employee said. Tsuji Shintaro had been laying the ground for two years and had arranged to announce the handover in the spring of 2014 and pass the company to his eldest son after the June general meeting. A share price in the ¥4,000s fell into the ¥2,000s within six months, and when Tsuji told a briefing on 21 May 2014 that it would take two years to decide on the next president, the shares fell limit-down the following day. Hatoyama Rehito was removed from responsibility for overseas operations in 2015 and left the board in June 2016; the director who took his place was Tsuji Tomokuni (辻朋邦), Tsuji Kunihiko's eldest son, promoted two and a half years after joining the company in January 2014. As of January 2019 Tsuji Shintaro's tenure as a director was the second longest at any listed company in Japan, and the Tokyo Stock Exchange, in its corporate governance code revised the previous year, was requiring boards to oversee succession planning.

The first change at the top in sixty years, and losses under the pandemic

On 11 June 2020 Sanrio settled the appointment of Tsuji Tomokuni, an executive vice-president, as president with effect from 1 July, with the founder Tsuji Shintaro stepping back to the post of chairman with representative authority. It was the first change of president since the founding in 1960: Tsuji Tomokuni was thirty-one on taking office and Tsuji Shintaro was ninety-two, so the succession skipped a generation, from grandfather to grandson. Tsuji Tomokuni had moved to Sanrio from an operating company in January 2014, became a director in 2016 and an executive vice-president in 2017 before taking the presidency. Two problems remained outstanding at the handover: the falling sales and profits that had run since the year to March 2015, and a structure in which earnings leaned on Hello Kitty alone.

Consolidated sales in the year to March 2021 were $373.5M (¥41bn), with an operating loss of $30.1M (¥3bn) and a net loss of $35.5M (¥4bn), the first net loss in twelve years. Sanrio Puroland was closed from February 2020 until the middle of July, and in retailing the closure of shops coincided with a collapse in demand from schoolchildren and in gift-giving. At a briefing on 25 May 2021 Tsuji Tomokuni said he reflected keenly on an operating loss without precedent in the company's history, and that he would run the business with the resolve of a second founding. In the medium-term management plan published at the same time he himself cited the low scores in the staff survey — a culture in which taking risks was not praised, and unclear criteria for evaluation — and placed the reform of the organisational climate first among his tasks. The average age of directors and managing executive officers was then sixty-five, and he also undertook to recruit from outside and to bring younger people onto the board.

Retailing cut back, and the earnings pillar moved to licensing

Domestic retailing was a business the founder held dear, and one that Tsuji Tomokuni himself called a sanctuary. Its sales were $119.3M (¥13bn) in the year to March 2021, but, as he later reflected, the company had been making too many goods in chasing sales against the previous year; the swelling number of items had inflated stock and worsened the economics of the shops. Sanrio cut the number of items it handled from 5,000 to 1,900 and closed unprofitable shops, switching to a way of selling that weighed profit, and as a result domestic retailing booked an operating profit of $40.3M (¥6bn) in the year to March 2024. Tsuji Shintaro left the board in 2022, during this period, and has served since as honorary chairman.

In the year to March 2014 Hello Kitty had accounted for more than nine-tenths of overseas sales, and that imbalance in earnings was a problem in itself. In North America, where licensees had been taken on without strategic selection in pursuit of sales volume, Kitty became a cheap motif, and when the Disney film Frozen, released in 2013, took hold, Sanrio's goods were pushed off the shelves of the mass retailers. Tsuji Tomokuni set about restructuring North America from around 2018, while still an executive vice-president, withdrawing from directly operated shops and narrowing the licensees from a little over 230 to about 190. Total followers on North American social media grew to 49 million, and head office began setting out its branding policy several years ahead. The strengthening of Cinnamoroll and My Melody and a way of selling that used several characters together also advanced, and Kitty's share of overseas sales fell to half in the year to March 2024. Six consecutive years of losses in North America ended in the year to March 2023, and by the year to March 2025 the region was earning sales of $183.8M (¥28bn) and operating profit of $59.5M (¥9bn), a pillar of profit second only to Japan.

Consolidated operating profit rose from the loss of the year to March 2021 to $93.9M (¥13bn) in the year to March 2023 and $492.5M (¥78bn) in the year to March 2026, when sales reached $1.2B (¥194bn). Licensing income is expected to grow from $143M (¥16bn) in the year to March 2021 to about $600.7M (¥95bn) in the year to March 2026, so that the pillar of earnings has changed over from retailing to income from the right to use the characters. In April 2022 the company moved to the Prime Market under the Tokyo Stock Exchange's restructuring of its market segments; the share price set a new all-time high in March 2024, the first in thirty-four years, and market capitalisation stood at $5.4B (¥820bn) in July of that year. Tsuji Tomokuni said in the same year that there had also been a following wind from outside, in the recovery of demand after the pandemic. Against that, manipulation of the timing of revenue recognition in the licensing business came to light in 2023, and the special investigation committee pointed to the possibility that pressure to meet budgets, dating from the founder's time as president, remained in the field. In April 2026 suspicions also emerged that a managing director had received improper remuneration, leaving the overhaul of the governance structure as an outstanding task.