After bodysuit blow, Japan's Zozo embarks on hiring spree to shore up online mall
24/04/2019 07:55
* Next stage of made-to-order business under debate
-executive
* Zozo hiring roughly 200 people over two years, mostly
engineers
* Zozo to report earnings, offer full-year guidance on
Thursday
By Sam Nussey
TOKYO, April 24 (Reuters) - For Japan's Zozo Inc 3092.T , a
brash online fashion retailer, 2018 marked a turning point, but
not in the way that anyone had hoped.
Its body-measuring Zozosuit, which was supposed to put the
firm at the cutting edge of made-to-order fashion, failed to
drive sales. Executives came under fire in the media for wildly
optimistic targets and the company said in November it was
phasing out the product.
Adding to its woes, fashion brands that helped make the
reputation of Zozo's billionaire founder and CEO Yusaku Maezawa
became increasingly unhappy with what they saw as excessive
discounting at its core Zozotown online mall. Japanese apparel
firms like Onward Holdings Co Ltd 8016.T and Right On Co Ltd
7445.T left the site.
The turmoil forced Zozo to slash its profit outlook in
January. Soon after, publicity-loving Maezawa, known for signing
up to be the first private passenger on Elon Musk's SpaceX
voyage around the moon, said he was taking a hiatus from Twitter
to concentrate on his "real job".
According to Yuki Kanayama, chief innovation officer at unit
Zozo Technologies, the Zozosuit was no failure - just the first
iteration of the company's made-to-measure business.
The next stage for made-to-order services "is still under
debate internally" while Zozo concentrates on shoring up its
online mall, he told Reuters in an interview.
The dropping of the suit, however, underscores the
challenges in making mass-customization a fashion industry
reality. Numerous retailers, from startups to giants like Amazon
AMZN.O , are pushing forward with body measuring technology
including in-store scanners and apps that capture data via the
smartphone. None have had break-out success.
To bolster its mall business, Zozo is recruiting engineers
to make shopping online more tailored to a user's preferences as
well as to work on areas such as advertising, said Kanayama, who
started up fashion tech company Vasily before selling it to
Maezawa in 2017.
Zozo Technologies, the firm's research and development hub,
hired just under 100 people in the past financial year, most of
them engineers, lifting the unit's headcount to 280. This year
it plans to hire another 100 people or more, also mostly
engineers.
"It's about search. When you have more products, search
becomes more difficult, so it's about things like
personalisation and discovery - not only things you want but
things that get recommended and that you discover."
How Zozo, which secured a 15 billion yen ($135
million)commitment line from banks in late March, can rebuild
its image and finances will be a key focus when it reports
annual earnings and guidance for the current financial year on
Thursday.
It has said it expects operating profit to have dropped to
26.5 billion yen, down by a third from an earlier estimate and
19 percent below the previous year's results. Cash and deposits
have also fallen sharply, to 8.2 billion yen as of end-December,
down by two-thirds compared to nine months earlier.
Zozo's problems have seen its stock slide almost 60 percent
since its peak last July, valuing the company at 653 billion yen
($5.8 billion).
The company has, however, seen the number of shops on
Zozotown climb by roughly a 100 to 1,200 over the past year, as
it attracts more inexpensive brands like Shimamura Co Ltd
8227.T . Zozo also has moved to make discounts less visible to
users.
UNSUITED
Michael Causton, an analyst at JapanConsuming, describes the
Zozosuit as a nice idea but "very badly executed."
The first version, launched in late 2017, used embedded
sensors to upload data via a smartphone but was afflicted with
high costs and production problems. Zozo quickly abandoned that
approach in favour of an easier-to-manufacture polka-dot version
that used a smartphone camera to capture data.
But a bigger problem soon became apparent: customers who
received one of the one million bodysuits distributed for free
did not order many clothes and some did not even upload their
data in the first place.
"It was a hassle for them," said Kanayama, adding that
positive results from test customers ahead of the bodysuit's
launch fed into Zozo's overly optimistic sales targets.
"That's a big point of reflection for us," he said.
Zozo compounded the problems by extending its made-to-order
offerings beyond basics like t-shirts to far more ambitious
items like business suits, leading to delivery delays and
complaints about poor sizing.
Zozo is, however, not going to abandon its bold approach to
business, said Kanayama, who like Maezawa, used to be in a rock
band and helps cultivate the firm's unconventional image with
his penchant for cowboy boots.
"Zozo will not mature," he said, dismissing the idea that
2018 represented a rambunctious teenage period for a firm that
needed to grow up. "We are still punk."
($1 = 111.8000 yen)
(Reporting by Sam Nussey; Editing by Jonathan Weber and Edwina
Gibbs)
((sam.nussey@tr.com; https://twitter.com/SamNusseyRTRS;
+81364411596; Reuters Messaging:
sam.nussey.thomsonreuters.com@reuters.net))