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Can Mercari follow Marie Kondo and 'spark joy' in investors?

Success of Japan's former unicorn depends on Americans emptying their closets

Mercari has had a difficult 12 months since it IPO'd in Tokyo: It has closed its U.K. operations, shut down its video streaming service and bled more red ink in America.

TOKYO -- Investors are focusing their attention on the U.S. operations of Mercari, which operates an eBay-like app and was known as Japan's first tech unicorn before its initial public offering one year ago.

It has been a difficult 12 months since Mercari listed. In December, it withdrew from the U.K. Earlier this month it said it was pulling the plug on its live video streaming service. In the U.S., Mercari is plugging away but operates in the red.

Mercari's growth prospects and stock price are at the mercy of its U.S. operations. It needs to attract more sellers, and is eager to break into what it considers a buried treasure chest of goods -- Americans' closets, garages and storage lockers.

Now, how to convince Americans to pull these unwanted but attractive items out from where no one ever sees them and post them for sale on the Mercari app? Here, the young company might have an unwitting co-conspirator in a much more famous Japanese brand, Marie Kondo, who has found phenomenal success selling tidying-up tips around the world.

John Lagerling, CEO at Mercari's U.S. subsidiary, on June 13 expressed confidence that Mercari can find success in America.

Speaking to reporters in Tokyo, he said American sellers post more than 150,000 items a day on the app and that the number is rapidly increasing. Lagerling said this testifies to Mercari's ability to penetrate the U.S market.

Lagerling, who was headhunted from Facebook by Chairman Shintaro Yamada, joined Mercari's management team in 2017.

That was three years after Mercari began operating in the U.S and four years after the startup's Japan launch.

Since 2013, Mercari's cumulative gross merchandise sales in its home market have totaled 1 trillion yen ($9.23 billion).

In the U.S., though, the Mercari platform is an also-ran.

Mercari incurred a consolidated operating loss of 2.3 billion yen for the January-March quarter, though its Japan business posted an operating profit of 2 billion yen.

Mercari does not disclose the U.S. business's operating profit or loss. But the U.S. operation is a drag on the group, and uncertainty lingers as to whether it can swing into the black.

Nevertheless, the size of the U.S. market has Mercari striving to cash in.

According to a survey commissioned by Mercari, Americans are big hoarders. They stash stuff in closets, drawers and garages. Plus, 20% of Americans rent storage space away from the home, the survey shows.

This is where Mercari's potential treasure chest is buried. In all, there are an estimated 5.3 billion unwanted items in the U.S. They are estimated to be worth $93 billion. But first they have to be put up for sale.

Lagerling said that the U.S. subsidiary's mission is twofold -- to make putting goods up for sale easier than buying them and to demonstrate to Americans that its easy to sell things.

In this regard, he has that co-conspirator.

Marie Kondo is a katazuke, or tidying up, consultant. She starred in her own Netflix series and has made tidying up a social phenomenon.

As luck would have it, Lagerling finds the U.S. in the midst of a "KonMari" boom in which increasing numbers of Americans are tidying up their closets and garages and clearing away their unwanted items, adhering to Kondo's tokimeki, or spark joy, philosophy.

Before the internet, it was common for Americans to clear away their unwanted possessions by holding garage sales, sometimes called yard sales. In Japan, Mercari's platform is known as a flea-market app, but in the U.S., "garage sale app" might be a more appropriate description.

After Lagerling took the helm, Mercari shifted its U.S. advertising strategy and began emphasizing "selling" rather than "buying."

John Lagerling, CEO of Mercari's U.S. subsidiary, says his mission is twofold -- to make putting goods up for sale easier than buying them and to demonstrate to Americans that its easy to sell their stuff.

Mercari has taken other measures, especially when it comes to making it easier for sellers to deliver items to buyers. First of all, sellers can decide who pays for shipping. It offers prepaid postage labels so sellers can send things off on their own. It has also teamed up with UPS, a big logistics services provider, so sellers can go to a UPS Store and not have to worry about finding a box and packaging everything themselves.

It is gaining some traction. Gross merchandise sales for the in the January-March quarter surged 70% from a year earlier to $103 million. But even if the U.S. business continues to grow at its current pace, it would take two years or so for monthly gross merchandise sales to top $100 million, considered a threshold for moving out of the red and into the black.

Given the potential for competition in this space to further intensify amid the KonMari boom, it will not be a cakewalk for Mercari. Many market participants are skeptical that the company can reach its goal of becoming the No. 1 flea-market app in the U.S.

Ahead of its June 19 anniversary of its listing on the Tokyo Stock Exchange's Mothers board, Mercari's stock has been hovering around its initial offering price of 3,000 yen, half of the 6,000-yen peak registered immediately after the floating.

"Expectations [for Mercari] that existed immediately following its listing are falling off," said Masamitsu Oki, chief portfolio manager at Fivestar Asset Management. "It is now recognized that companies born in Japan face high hurdles to becoming big platform providers in the U.S."

If Mercari stock is to "spark joy" among investors again, accelerated U.S. growth is essential.

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