By Sam Nussey, Chang-Ran Kim and Mariko Katsumura
TOKYO, June 11 (Reuters) – ’ Onitsuka Tiger, famed for its yellow and black sneakers, is embarking on a global expansion to capitalise on booming demand for its retro shoes, but analysts warn the ambition could put its impressive margins at risk.
Onitsuka Tiger, whose sneakers were flaunted by actress Uma Thurman in the 2003 hit movie “Kill Bill”, is opening flagship stores in Europe and the United States, an expansion it aims to speed up as the brand becomes its own company.
Asics, which has a market value of around $20 billion, said on Wednesday that Onitsuka Tiger would be transferred to OT Group, a wholly-owned subsidiary, via a company split, with existing brand head Ryoji Shoda set to lead the new company.
Onitsuka has already cashed in on tourists drawn to Japan by the weakened yen currency that fuels shopping sprees. Sales grew by a third in the January-March quarter, for an operating profit margin of around 40%, the highest among Asics’ businesses.
Such margins are at “a level far closer to luxury brands than traditional sporting goods companies,” said Mark Chadwick, an analyst who publishes on Smartkarma, warning that the brand’s new structure could endanger its fat margins.
The “exceptional margins” may be more difficult to sustain, as becoming a standalone business incurs costs, and the business also faces execution risk with its “capital-intensive” strategy of opening flagship stores, he said.
Onitsuka aims to re-enter the U.S. next February with a flagship store in Los Angeles, three years after closing one in New York.
Kateryna Illyushenko, portfolio manager at Union Investment in Frankfurt, which holds Asics shares, said the spinoff would be a positive for both brands as they set sights on the world’s biggest sportswear market, dominated by Nike.
“The big goal of Asics, the next big step is to be successful in America,” said Illyushenko. “If they tackle it for both Onitsuka Tiger and Asics that would bring the company to a different level.”
Onitsuka’s greater independence could help the brand pursue a more controlled distribution strategy with flagship stores and only select retailers, while Asics has a more mass-distribution model, said Illyushenko.
ONITSUKA BENEFITS FROM RETRO REVIVAL
The nearly 80-year-old Onitsuka Tiger traces its origins to a shoe business founded in the city of Kobe in 1949 by Kihachiro Onitsuka, but the Mexico line featuring its iconic stripes only launched in 1966, following products such as basketball shoes.
During that decade, Nike co-founder Phil Knight met officials at Onitsuka, and began importing and distributing the company’s running shoes in the United States.
After a hiatus, Asics relaunched Onitsuka Tiger in 2002 in Europe, reviving its classic design as a fashion brand. Its Mexico 66 shoe sells for 16,500 yen ($102.76) in Japan and €160 in Europe.
The popularity of Onitsuka Tiger, which appointed Momo from K-pop idol group TWICE as its brand ambassador in 2022, has surged in recent years, aided by a revival of retro-inspired trainers and a shift away from chunky basketball styles to narrower “low profile” shoes.
“Onitsuka Tiger was able to benefit from consumers switching their preference from maximalist shoes, which have a lot of cushioning, to minimalist shoes,” said Ivan Su, an analyst at Morningstar.
FATIGUE WITH BIG SNEAKER DOMINANCE
Asics said there were no plans for a listing of Onitsuka, but some analysts think the spin-off makes it easier for Asics to change the ownership structure if required.
“The move does not unlock value immediately, but it lays the groundwork for the market to recognise OT as a fundamentally different business with fundamentally different economics,” Chadwick said.
With almost 200 stores worldwide, Onitsuka Tiger plans to open more this year, in countries such as China, Italy and South Korea.
Japanese culture exerts a global fascination, said Glenn McMahon, a fashion and retail brand consultant in Los Angeles.
“The brand benefits from … growing consumer interest in alternative sneaker brands and increasing fatigue with the dominance of Nike and Adidas,” McMahon said.
RUNNING FOR GLOBAL EXPANSION
Designs such as pink cherry blossoms emphasise the Japanese roots of the company, which sells a premium “Nippon Made” line handmade in a small town in western Japan.
Onitsuka Tiger sneakers have “the vintage feel with the novelty to the U.S. market and the exotic vibe,” said American college student Kaito Hikino.
He bought a pair of Mexico 66 TGRS for his girlfriend during a family visit to Japan this year and said most of his women friends in the United States own a pair.
The brand sells clothes and bags at existing stores in swanky locations such as London’s Regent Street and the Champs-Elysees in Paris.
“We think some level of prior investment will be needed, including for opening directly managed stores in major U.S. cities and strengthening advertising,” Nomura Securities analyst Shintaro Umeda said in a note.
“When looking online for must-dos in Japan, getting Onitsuka Tigers is always talked about as a must-do,” said Brazilian Ana Lebl, who is visiting Japan after graduating from high school in the United States.
“I had found them online about a year ago through resellers but they’re always much more expensive,” said Lebl, who bought a pair of Mexico 66 SD trainers in Tokyo last week.
SMBC Nikko analyst Kenya Matsuo said Onitsuka’s sales growth could rise faster if it increased its pace of store openings, compared to its cautious approach currently.
But global heavyweights such as Nike, Adidas and Puma, have their own minimalist sneaker lines in a field of burgeoning competition among lines based on classic designs.
Yet fashion is fickle and Onitsuka Tiger could lose its footing, one analyst said.
“We have seen a lot of companies doing something like what Onitsuka Tiger has done with the Mexico 66 model and fashion trends are outside their control,” said Su of Morningstar.
“The Onitsuka Tiger brand has been popular for a while, but we think that might fade in the coming years, affecting margins.”
()
