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Tuesday, Sept. 9, 2003

INTERNATIONAL RATIONALE

CHARACTER GOODS ARE HOT OVERSEAS

Hello Kitty, Pokemon, Doraemon battle for global supremacy


Staff writer

A number of U.S. celebrities have been spotted toting Hello Kitty paraphernalia in the past year or so, leaving officials of Sanrio Co., the maker of the long-selling character, scratching their heads.

News photo
Shoppers cram a Sanrio character products store in Hamburg, Germany, on its opening day in October. PHOTO COURTESY OF SANRIO CO.

Mariah Carey has been seen carrying a Hello Kitty boom box, Cameron Diaz has a Hello Kitty necklace and figure-skater Michelle Kwan has been photographed with a Hello Kitty purse dangling from her shoulder.

Longtime Hello Kitty devotee Lisa Loeb even put the mouthless feline on the cover of her latest album, aptly titled "Hello Lisa." And New York fashion design duo Heatherette has incorporated Hello Kitty motifs into its line of punk-inspired couture.

"Our characters are all intended to look cute," said Kazuhiro Suzuki, assistant manager of Sanrio's import and export department. "But these people seem to think of Hello Kitty as something 'cool' and we haven't exactly figured out why. Kitty wouldn't be cool if we meant her that way."

Baffled it may be, but Sanrio is basking in the glow of the character's newfound popularity in the U.S. and elsewhere. In the fiscal year that ended March 31, Sanrio raked in 17.2 billion yen from overseas sales -- or 15.6 percent of its consolidated sales -- mostly from Hello Kitty-related products. Sanrio hopes to boost its overseas sales to 22 billion yen, or 20 percent of all sales, in two years.

Sanrio is among a number of character merchants reaping the rewards of growing recognition of Japanese characters abroad. The timing couldn't be more right. Prospects are bleak at home, where the character merchandise market is almost saturated and the population is aging.

Character goods have a variety of backgrounds.

Sanrio is unique in its longtime strategy of creating all characters in-house, outsourcing production to manufacturers and selling the goods through its vast distribution network -- 1,600 outlets in Japan and 7,800 across Asia, the Americas and Europe.

Most other characters -- ranging from long-seller Doraemon to creations such as Crayon Shinchan and Chibi Maruko Chan -- have their roots in comics, animated TV series and movies.

According to industry experts, Japan is the world's largest character goods market. Japanese buy between 2 trillion yen and 3 trillion yen worth of merchandise featuring domestically created characters each year.

A separate survey of the Japanese animation industry by the Japan External Trade Organization has found that the U.S. market for Japanese animated characters in 2002 was worth an estimated $4.3 billion (about 523 billion yen), of which licensing revenues for character merchandise accounted for 90 percent of the total.

"Although the U.S. economy is twice as large as Japan's, the character merchandise market there is only one-fourth or one-fifth of the market here," said Tsutomu Sugiura, director of Marubeni Research Institute, an affiliate of the major trading house. "I expect to see the gap in the size of the two markets become smaller in the future."

Japan already has a solid track record. The phenomenal success worldwide of "Pocket Monsters," popularly known as Pokemon, in the late 1990s positioned Japan at the forefront of the global character-merchandising business and underscored the importance of a marketing strategy known as "media mix."

"The success of Pokemon has shown to the world that Japanese animation can truly compete," said Yutaka Saito, executive director of the media division at Shogakkan Production Co., which acts as a licensing agent for Pokemon. "It was after Pokemon that character industry officials in the U.S. and Europe started showing great interest in Japan."

Pokemon appeared in 1996 as a role-playing game on the Nintendo GameBoy platform and later evolved into a marketing behemoth that included animated TV shows, movies and card games. Since 1996, cumulative sales of Pokemon-related products in Japan have totaled 1 trillion yen, of which game software sales account for just 93 billion yen.

Seventy percent of total sales have been generated through 4,000 varieties of "related merchandise," including toys, food, stationary and clothes.

In overseas markets, Pokemon merchandise has raked in sales worth a cumulative total of 2 trillion yen, including revenue from TV broadcasts of animated shows in 68 countries, shipments of 100 million GameBoy machines and 8,000 licensed Pokemon items sold through 400 licensees, according to Shogakkan Production.

To achieve the optimal mix of media, post-Pokemon producers craft TV cartoons with the assumption that the shows' characters will later turn up on other merchandise, Sugiura said.

"Characters with origins in animation easily win the hearts of consumers because (when they appear on store shelves) people are already familiar with them," Sugiura said. "The latest trend is that marketers use TV programs as a tool to sell character goods."

Animated shows are designed to tickle consumers' appetite, according to Saito, but that doesn't mean licensing agents are earning easy money.

The animation industry is currently experiencing "excessive supply," Saito said, pointing out that about 80 animated TV shows are aired each week -- the highest level ever -- and most are being marketed overseas. For Saito, that means tough negotiations with foreign clients.

"For a while, foreign clients were willing to buy whatever we had to offer," Saito said. "Now they are very picky about the choices they make."

Industry officials said China has potential for future growth. Futabasha Publishers Co., which holds the copyright for its "Crayon Shinchan" comic series, has high hopes for China, which has a rapidly growing economy that is expected to continue expanding at least through the Beijing Olympics of 2008 and the Shanghai Expo of 2010.

"I've heard China has around 20 million people who can easily afford the latest cell phone products that cost 100,000 yen apiece," said Masatoshi Nakano, an employee in charge of overseas marketing at Futabasha Publishers. "As we try to expand our character merchandising, we consider China a very attractive market."

Crayon Shinchan earns the publisher 1.5 billion yen in licensing revenues per year, a third of which comes from outside Japan.

But the key to enduring success for any character, whether in Japan or elsewhere, is to constantly give it new life, like Sanrio's Yuko Yamaguchi has done with Hello Kitty for more than two decades.

When Yamaguchi became the firm's Hello Kitty designer in 1980, the character was on the verge of obscurity.

To give Hello Kitty, then 6 years old, a face-lift, Yamaguchi spent the next two years making appearances at Sanrio outlets in and around Tokyo. She signed autographs at storefronts, drew some of her designs and asked passersby which colors or motifs they liked best.

Shogakkan Production is hoping for the same kind of longevity for its character lineup, according to Saito.

"I can't predict exactly what will happen in the market, but we might not get a character as big as Pokemon for the next 50 years," Saito said. "Our goal is to turn Pokemon into a longtime seller like Doraemon, whose animated version is now 25 years old."



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