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Custom fit fashion retailer Zozo pulls out of overseas markets

CEO's global ambitions shredded as German and US losses pile up

A year ago, founder and CEO Yusaku Maezawa was boasting about Zozotown's goal of becoming "a top 10 apparel company" with a valuation of 5 trillion yen.   © Reuters

TOKYO -- Japanese online fashion retailer Zozo is pulling out of international markets barely a year after unveiling an ambitious plan to sell its unique brand of custom-made clothing in over 70 markets.

In announcing its annual earnings on Thursday for the year ended March 2019, the company said that "upon reviewing our international operations, we have decided to withdraw." Zozo said it will book a nearly 2 billion yen ($17.8 million) loss as an impairment charge for its subsidiaries in Germany and U.S.

The company's decision to retreat back to Japan will be a bitter disappointment for founder and CEO Yusaku Maezawa, who had hoped to "revolutionalize fashion" with his unique Zozosuits.

"When doing something new, you should focus on just one or two things," said Maezawa, explaining that the company took on more than it could handle.

Zozo's free polka-dot bodysuits provided to customers allow body measurements to be uploaded to the company, after which consumers can order the brand's custom-fit clothes online without the need for fittings.

A year ago, Maezawa boasted that the company intended to become "a top 10 apparel company" with a valuation of 5 trillion yen.

On Thursday, however, the group announced that 1.6 billion yen in extraordinary losses from its overseas business and problems with its private label division had helped push net profit down by 20.7% to 15.9 billion yen -- its first-ever drop in annual profit. This came despite a 20.3% rise in revenue to 118.4 billion yen.

As part of its overseas expansion plans, the company had set up offices in the U.S. and Germany, and had rolled out bold marketing campaigns, which included giving away 100,000 bodysuits.

Meanwhile, Zozo is launching an online retail operation in China to sell other Japanese brands. The company entered the market in 2011 but eventually withdrew as it failed to gain traction.

"Times have changed," Maezawa said, noting that individual earnings in China have increased by around 50% since Zozo's departure. It intends to launch its new China website by Nov. 11, "Single's Day" in China, online retailers' biggest annual sales event. Japanese apparel companies such as Mark Styler and Stripe International will be on board.

In Japan, Zozo will scale down its private label business, Maezawa said. The company will instead collaborate with other brands to create up to 50 sizes. Maezawa said Zozo's PB jeans and T-shirts are top sellers on Zozotown's website. "It is obvious there is big demand for multiple sizes," he said.

Beams and Levi's are among the brands Zozo is working with.

Analysts are optimistic about growth at Zozotown's online marketplace, which accounts for 97% of the company's transaction value.

With the domestic market's limited growth potential, Zozo's private label business and overseas expansion were looked at as potential long-term growth drivers.

But, Maezawa said, "this year's first priority will be to focus again on Zozotown."

The company has also had problems with its Zozotown online mall after discounts angered major apparel companies. Sweeping discounts were offered without apparel makers' permission, which prompted major companies like Onward Holdings to leave the site. The company said today the discounts would be stopped.

Zozo is also planning to be more aggressive in pushing its Zozo credit card by offering more loyalty points when items are purchased at Zozotown. In addition, it intends to work more closely with apparel brands by, for example, offering to share Zozotown data with labels that share their inventories.

Maezawa gave his brand a big boost last year when he announced he would be the first private passenger on Elon Musk's SpaceX mission to the moon. An avid art collector, Maezawa also made global headlines in 2017 with his $110.5 million purchase of Jean-Michel Basquiat's "Untitled," a 1982 painting of a skull that was initially expected to sell for just over $57.3 million.

Nikkei staff writer Kaori Yoshida in Tokyo contributed to this article.

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