Kanebo, Ltd.

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Kanebo, Ltd.

20-20 Kaigan 3-chome, Minato-ku
Tokyo 108-8080
Japan
Telephone: ( + 81) 3-5446-3002
Fax: ( + 81)3-5446-3027
Web site: http://www.kanebo.co.jp

Public Company
Founded: 1887
Employees: 14,718
Sales: $4.4 billion (2001)
Stock Exchanges: Nikkei
NAIC: 215620 Toilet Preparation Manufacturing; 313111 Yarn Spinning Mills; 313210 Broadwoven Fabric Mills; 313221 Narrow Fabric Mills; 422210 Drugs and Druggist Sundries Wholesalers; 312111 Soft Drink Manufacturing; 311330 Confectionary Manufacturing from Purchased Chocolate; 311423 Dried and Dehydrated Food Manufacturing; 311520 Ice Cream and Frozen Dessert Manufacturing

Kanebo, Ltd. is a conglomeration of businesses dedicated to bringing beauty to daily life through the application of new technologies to cultural and lifestyle preferences. The company produces and distributes premium cosmetics, toiletries, textiles, men’s and women’s fashion merchandise, and food products. The company distributes prescription and over-the-counter drugs and Chinese medicines. Cosmetics comprise more than one-third of the company’s revenue base, with broad distribution throughout Asia and Europe and exclusive sales outlets in the United States. Kanebo offers cosmetics and toiletries under a variety of brands, in accordance with different markets. Kanebo’s textiles operations produce threads, filaments, yarns, and fabrics in cotton, silk, wool, nylon, acrylic, and other materials. Fibers include absorbents and nonwovens for commercial uses. Fashion merchandise is produced and distributed for Christian Dior, Jean Lanvin, and other clothing designers. The Foods Division manufactures frozen desserts, nutritional beverages, chewing gum, and instant foods. Kanebo’s produc tion facilities are located in North and South America, Europe, and along the Pacific Rim, as well as in Japan.

Tokyo Company Grows into International Textiles Concern

Kanebo formed in 1887 as the Tokyo Cotton Trading Company, based in Kanegafuchi, Tokyo. Actual operations, spinning raw cotton into thread, began in 1889. The company adopted an emblem taken from a cross-section drawing of a thread spindle, found in a British report about spinning machinery. The company changed its name in 1893 to Kanegafuchi Spinning Company and instituted a trademark bearing a temple bell and the Kanegafuchi name.

The important milestones of Kanebo’s early years included the launch of new operations, such as the weaving of cotton textiles, begun with the completion of the Hyogo plant in 1905. The company then turned to the spinning and marketing of silk, opening a spinning plant in Kyoto in 1908 and a raw silk reeling factory in 1921. The company provided for its employees by establishing the Kanebo Mutual Aid Association in 1905 (now Health Insurance Association) and opening a free medical clinic in Hyogo in 1923. After the 1923 Kanto earthquake destroyed the original plant in Kanegafuchi, the company did not rebuild it.

Kanebo expanded distribution and launched new business ventures during the 1920s and 1930s. International trade began with the establishment of the South American Colonial Company in 1928 and extended to the United States in 1935. Within Japan, the Kanebo Service Company formed in 1931 to manage retail stores throughout the country. In 1934, the company initiated production of woolen yarn, chemical fiber, and flax fiber. Kanebo chemists invented the first Japanese-made synthetic fiber, Kanebian, in 1939. In 1936, the company introduced Kanebo Silk Soap, a premium quality soap containing oils extracted from the chrysalis of the silkworm; Kanebo distributed the product worldwide. The Kanegafuchi Industrial Company formed in 1938 to continue the development of new businesses.

World War II interrupted operations at Kanebo when almost all facilities were destroyed within Japan and overseas in 1945. Kanebo started fresh in 1947 with the institution of a modified company emblem, a new flag, and a company song. Kanebo reestablished operations under the 1949 campaign for “Speed, Service, Saving,” which reflected the company’s goals as it rebuilt. An employee badge carried three “S’s” in red, white, and blue along with the company emblem. In 1955, Kanebo restored operations in South America with the formation of Kanebo do Brasil S.A. The Kanebo Comprehensive Research Center, founded in 1958, generated new ideas for business ventures.

Postwar Diversification and Expansion

During the 1960s and 1970s, Kanebo diversified into new areas of business, including cosmetics, clothing, prepared foods, and pharmaceuticals, and expanded into new fields within the textiles industry. In 1961, Kanebo acquired cosmetics manufacturing operations from Kanegafuchi Chemical Industries Company. Kanebo established 14 sales organizations throughout Japan to distribute the premium quality cosmetics. Kanebo established a laboratory in Paris in 1965 and opened a new cosmetics plant in Odawara in 1969. Kanebo began clothing manufacturing activities in 1964 when the company signed a licensing agreement with French fashion designer Christian Dior to produce and distribute men’s and women’s couture and ready-to-wear apparel in Japan. For Warnaco, Inc., Kanebo began to manufacture and market men’s shirts under the Hathaway brand.

Kanebo Haris, Inc., formed in 1964 as a confectionary maker when Kanebo acquired Tachibana Confectionary Company, producer of frozen desserts. Kanebo created new products, such as the popular Chewing Bon gum, and began to produce chocolate. In 1971, Kanebo purchased another frozen dessert maker, Izumi Confectionary, and combined frozen dessert manufacturing into one facility. The acquisition of Watanabe Confectionary Company expanded Kanebo’s product line to instant beans, soups, and rice cakes. The company began to sell the Belmie canned brand of coffee in 1973 and non-fry noodles in 1976. A new chewing gum, Play Gum, was introduced in 1978.

Kanebo expanded operations to accommodate demand for synthetic fibers and chemical materials. A new plant in Hofu began production of nylon in 1963 and polyester filament in 1969. Kanebo produced synthetic leather and acrylic fibers beginning in 1969 and 1970, respectively. Production of polyester expanded to a plant in Hokurika in 1972. New subsidiary companies supported Kanebo’s interest in synthetic materials. A 1978 joint venture with Asahi Kasei, the Japan Synthetic Textile Company, addressed rising demand for synthetic materials for absorbents, nonwovens, and other uses. A 1975 joint venture with National Starch Company developed and distributed chemical products with industrial applications, such as adhesives, resins, and specialty chemicals.

With the acquisition of Yamashiro Pharmaceuticals Company in 1966, Kanebo entered into yet another new field of business. The division expanded into traditional herbal medicines with the establishment of a laboratory for product research and development in 1976. Two years later, Kanebo introduced Herbal Extract Tablets, a line of Chinese herbal medicines.

The final area of business diversification transpired in 1977 with the formation of Information Systems. The subsidiary marketed IBM-compatible software for business uses. Sold internationally, the software included applications for accounting, banking, securities, manufacturing, and distribution.

Cosmetics proved to be the most enduring and profitable venture as Kanebo expanded the business internationally in the 1970s. Asian distribution included Thailand, Taiwan, Indonesia, the Philippines, Singapore, and Hong Kong. Kanebo Cosmetics of Hawaii was established in 1975. The company entered the European retail market in 1979 with the introduction of its Lady ‘80s brand of cosmetics at Harrods of London. Kanebo formed a joint venture, Kanebo Cosmetics Europe, Ltd., with UTC International, establishing marketing operations in Zurich. UTC International, a warehouse group, distributed the cosmetics to 1000 distribution outlets in nine countries: Switzerland, Germany, France, Austria, Finland, Norway, Sweden, Spain, and England. UTC also operated Jelmoli, an upscale department store and natural market for Kanebo cosmetics.

Entering the 1990s with Strong Financial Standing

Kanebo celebrated its centennial anniversary in 1987 amidst economic prosperity in Japan, with strong consumer spending and capital investment. In fiscal year ended March 30, 1989, Kanebo recorded revenues of ¥481.6 billion ($3.6 billion) and net earnings of ¥2.9 billion ($21.5 million). These represented an increase over fiscal 1987-88 of 26.1 percent and 22.7 percent, respectively. Approximately 40 percent of sales originated from the company’s fibers operations and approximately 25 percent came from cosmetics. In order of highest sales, fashion, foods, chemicals/materials, and pharmaceuticals comprised the balance.

Key Dates:

1889:: Cotton thread spinning operations begin at Kanegafuchi.
1905:: Kanebo begins to weave cotton fabric.
1908:: The company begins to spin silk thread.
1928:: South American Colonial Company is formed.
1934:: Production of woolen yarn, chemical fiber, and flax fiber begins.
1947:: Recovery from the destruction of World War II begins with “Speed, Service, Saving” campaign.
1961:: Kanebo enters the cosmetics industry.
1964:: Kanebo diversifies into the manufacture of fashion merchandise and confectioneries.
1971:: The company name is changed to Kanebo, Ltd.
1980:: Kanebo Cosmetics Europe joint venture is formed.
1988:: Ten Year Management Program to expand the company and its improve operations commences.
1995:: Kanebo restructures its operations to adapt to a decline in sales as Japanese economy stagnates.
2000:: Kanebo Cosmetics enters the mainland United States market with a store in New York City.
2002:: Kanebo Foods Division introduces several beverages for nutrition and weight loss.

In order to maintain steady growth, Kanebo developed a long-term strategy to improve operations and increase revenues. The Ten Year Management Program involved four goals: to develop the fashion and non-textile divisions, particularly the cosmetics division; to continue to generate steady growth in the textiles; to create overall solidity of the organization; and to explore opportunities in new fields of business. The company reorganized its operating divisions to place emphasis on competitiveness in the marketplace based on merchandise, quality, and customer service. The company adopted a new philosophy at this time. “Art Through Technology” reflected Kanebo’s emphasis on beauty and lifestyle. Kanebo sought to use technology to enhance the beauty of daily living and launched the LIFE Institute to study culture and lifestyle.

In the fashion sector, Kanebo implemented a variety of strategies to increase business activities. The company began to manufacture and distribute footwear and apparel for Fila Holding S.p.A., an Italian fashion house, in 1986. A joint venture with China, established in 1987, initiated operations in Shanghai for the production of hosiery. The facility produced eight million pairs of nylon stockings, about half for the Chinese market and the balance being exported to the United States, Japan, and southeast Asia. Kanebo and Warnaco expanded its licensing agreement to include men’s clothing and accessories in traditional American styles, such as suits, sport coats, jackets, sweaters, and belts. Made in Italy for the Japanese market, suits priced at ¥120,000 or $920. The two companies changed the brand name to “Charles F. Hathaway.” Also, in 1989 Kanebo purchased 20 percent of Jacqueline de Ribes, a ready-to-war fashion house in Paris.

The company’s attention to the cosmetics market involved improvements to customer service and the ability to respond to local trends more quickly. The Chain Store Distinctive Design Plan reorganized the cosmetic sales space and developed sales techniques to correspond with local patterns of consumption at more than 1,600 chain store locations.

Kanebo also addressed increased competition from self-help cosmetic counters. The company identified three kinds of sales outlets: self-selection, recommendation, and “beauty related.” New brand development for the self-selection market included the men’s NFL line. The recommendation market engaged consultants to assist customers in choosing the right products for their skin. Blush Up Salons sold the Lissage brand at chain stores and charged for beauty services. The beauty related market involved fitness and professional salons where cosmetics were made part of overall appearance.

New products for the European market included Device cosmetics for men, the Tiffa Alga skin care line, and Affinique CN Essence FX Cream, or “La Crème,” introduced in 1989. A result of several years of research, the La Crème skin moisturizer incorporated key new ingredients, such as kanzou, a rare Chinese herb used for over 4,000 years, and a new Silk Fibroin Derivative. Marketed at “the world’s most expensive cream,” the product retailed at £250 in the United Kingdom and FFr2,500 in France for a 40 gram jar. Despite the high price, Kanebo sold 160,000 units immediately and 9,000 units per month afterward.

International expansion of cosmetics distribution involved new markets and expansion within existing markets. Kanebo Cosmetics Europe established a new plant in 1991. The company focused on West Germany and the United Kingdom for 50 percent sales growth. Kanebo entered the South Korean cosmetics market in 1992. Kanebo’s popular fade resistant lipstick, T’Estimo Rouge II, launched in Japan in 1992 with great success, was introduced to Europe, Taiwan, and Thailand in spring 1993.

A third area of capital investment involved the pharmaceuticals division. A¥l billion production facility opened in 1989 as the company prepared for expansion in the pharmaceuticals industry. The company reorganized its research and development for prescription drugs into three categories: cardiovascular, dermatological, and immunological. Biomedical research with University of Pittsburgh Medical Center focused on cancer immunology, while Product Design Labs, Inc., a U.S. subsidiary, began clinical tests on an antibody for leukemia. New products in the early 1990s involved drugs developed by other companies. Kanebo acquired rights to distribute Hexalen, an oral anti-cancer agent for advanced ovarian cancer, and for Reslin Tablet, an antidepressant.

The Textiles and Fibers Division expanded through new distribution, increased production, and the introduction of new products. Kanebo began to produce a biodegradable pineapple leaf fiber. The company established a cotton spinning operation with Kanematsu-Gosho Trading Company in Tifton, Georgia, close to raw material and the American consumer market. Kanebo Spinning Company built a new facility which housed machinery with 20,000 spindles. Eastman Chemical Products Company signed an agreement with Kanebo to distribute throughout North America a special kind of colored polyester staple fibers. Kanebo exported its nonwoven Belima X fiber, made of polyester and nylon, for use in production of wipes for polishing eyeglasses.

Activities at the company’s other divisions included new products, licensing agreements, and technological collaboration. In 1992, the Toiletries Division obtained exclusive import and sales rights for Claude Montana fragrance and bath line. Limited distribution involved 450 premium cosmetics outlets in Japan. The Foods Division introduced new ice cream products and began to produce and sell Samontana brand ice cream under an agreement with the Italian licensor. The Electronics Division, established in 1985, began to manufacture megabit DRAM (dynamic random access) chips in 1988. In 1991, the division opened an office in Indonesia to market software through a joint venture with Perkom Indah Muni. New technologies and products in the early 1990s included a rechargeable lithium battery developed with Seiko Instruments, a textile printing technology developed with Cannon, a self-crimping hosiery yarn, and a new pigment for cosmetics made of silk coated grains of gold.

After several years of steady growth, executives at Kanebo thought the company was well positioned for sustained growth. The Asian economic crisis unexpectedly changed the situation in Japan, leading the company into losses in fiscal 1992, at ¥6 billion on revenues of ¥681.4 billion. While cosmetics and toiletries sales increased, due to the company’s customer service programs, other areas of business reported slower sales. In fiscal 1993-94, revenues declined in all areas of operation. Kanebo reported sales of ¥418.9 billion and a net loss of ¥3.7 billion. Revenues from cosmetics declined 4.9 percent, while clothing manufacturing declined 19 percent. Synthetic fibers sales declined 19.7 percent and natural fibers declined 29.5 percent. Kanebo reduced its wool production by one-third, nylon filament by 40 percent, and polyester filament by 20 percent. The company reduced its workforce by 2,000 over three years through attrition and limited hiring. Natural and acrylic fiber production operated profitably in 1995, but the depreciated value of the yen required the company to reduce its volume of exports. The devastating Kobe earthquake in January 1995 negatively affected consumer spending in Japan.

Kanebo took several actions to restructure operations for profitability and efficiency. The company terminated its joint venture with National Starch and Chemical Company in 1994 and separated the textiles and fibers division into subsidiary companies in 1996. Kanebo withdrew from the polyester staple business and converted the plant to the production of resins, establishing a new subsidiary. Overseas production lowered overhead, prompting Kanebo to modernize and increase production at its Indonesian spinning and weaving facilities. Through a transfer of stock from UTC, Kanebo took complete control of Kanebo Cosmetics Europe in 1998 to take advantage of its annual 10 percent sales growth. Kanebo sold its pharmaceutical development operations to former collaborator Nippon Organon in 1999 but retained drug distribution operations.

Unrelated to the company’s financial challenges, in 1997 Christian Dior discontinued its licensing agreement with Kanebo for the production and distribution of men’s apparel, preferring to handle those operations itself. Kanebo continued to manufacture and distribute women’s and children’s clothing for Christian Dior. The company compensated for the loss when it signed an exclusive agreement to manufacture and distribute a new collection of women’s ready-to-wear by Jean Lanvin beginning in spring 1998. The agreement involved importing to Japan a collection by designer Ocimar Versolato, establishing Lan vin collections in Japanese department stores, and opening 13 boutiques specifically for Lanvin fashions.

Recovery in the Late 1990s and 2000s

As Kanebo recovered from financial difficulties, the company renewed its emphasis on cosmetics as a source of revenues, particularly in foreign markets. Kanebo entered the mainland United States cosmetics market for the first time in February 2000. The company opened a store in New York City, selling the Sensai Cellular Performance and Sensai Ex-Bio brands of skin care products as well as Kanebo make-up. Bergdorf Goodman in New York began to sell Kanebo cosmetics the following May. During the first month, the staff sold 35 jars of Sensai Ex La Crème, billed as “a facelift in ajar,” at $500 per jar.

Kanebo’s Cosmetics Division continuously launched products attuned to the latest trends, applying new cosmetic technology. Almost all of the products in the Make-up Collection contained a silk derivative to prevent the colored pigments from drying the skin. Kanebo Cosmetics sought to attract young career women with medium-priced merchandise; the Aqua brand was set to compete with Shiseido’s Auprès line. The Inner Balance line of skin care products for young women used natural ingredients and applied the principles of aromatherapy; Kanebo introduced the line to European outlets in July.

Kanebo sought to increase its market presence in Asian countries, particularly China, Taiwan, and Thailand. Finding women in Thailand to be more concerned with cosmetics than in other places, Kanebo formed a joint venture with Tasin Industrial in Thailand in early 2001 and launched four lines of cosmetics. The Kate line was priced inexpensively to appeal to young women, while It Be Switch was priced higher and displayed behind the sales counter. The company introduced two high end lines, RMK Ramiko and Shic Shoe. Hair-care and body-care products were offered for both men and women.

Kanebo’s textiles and fibers subsidiaries applied new technologies to develop products. These included a biodegradable fiber derived from cornstarch and an antibacterial yarn, LivefreshN. In June 1999, Kanebo launched New Supreino, a high-luster cotton fabric which maintained its smooth texture after several washes. Kanebo increased production of the highly water-absorbent Bell Oasis fiber made from a proprietary acrylic polymer. In early 2000, Kanebo Goshen launched a new polyeurethane fabric useful for laminating other fabrics as a moisture-proof film.

Kanebo streamlined operations by selling it chemical and information systems subsidiaries in 2000 and focusing on development of health products. The company purchased over-the-counter and prescription drugs for sale in convenience stores and volume retailers where Kanebo brand cosmetics and toiletries were sold. Kanebo’s Foods Division developed nutritional beverages supporting children’s growth, eye health, blood pressure control, and weight control. In early 2002, Kanebo launched “diet cosmetics” products after clinical research found that the aroma of raspberry helped the body burn fat and assisted with weight loss. The products included diet supplements and a lotion and competed with Shiseido’s grapefruit-based products.

Kanebo expanded distribution of cosmetics in the United States. When Barneys New York unveiled a new cosmetics department in spring 2002, a Kanebo cosmetics counter was included. Under the agreement, Kanebo product sales were to be exclusive for six months before Kanebo sought new outlets on the West Coast and in the Midwest. In addition to the two Sensai brand products, Kanebo introduced a mid-priced line of cosmetics under the brand name Cynthia Rowley. The company planned to launch a new premium cosmetics line by 2005.

Principal Subsidiaries

Kanebo Cosmetics; Kanebo Cosmetics Europe, Ltd.; Kanebo COSMILLION, Ltd.; Kanebo Goshen Spinning Corporation; Kanebo Home Products Company, Ltd.; Kanebo Textiles Company, Ltd.