Hello Kitty gets closer to goodbye as company searches for next big thing

TOKYO — At age 36, Hello Kitty may be running out of product lives.

That is the fear of executives at Sanrio, the Japanese company that created the cute, cartoonish white cat in 1974, and groomed her into a global marketing phenomenon worth $5 billion a year.

In Japan and around the world, Hello Kitty has been licensed over the years for products that include dolls, clothes, lunchboxes, stationery, kitchenware, a Macy's parade balloon and even an Airbus owned by Taiwanese airline EVA Airways.

But amid signs that Hello Kitty's pop-culture appeal is waning, especially at home, where sales have shrunk for a decade, the company has struggled to find its next-generation version of adorable.

Sanrio's recent flops include Spottie Dottie, a pink-frocked Dalmatian, and Pandapple, a baby panda. Even the moderately successful My Melody (a rabbit) and TuxedoSam (penguin) show no signs of achieving global Kitty-ness.

"We badly need something else," said Yuko Yamaguchi, who has been Sanrio's top Hello Kitty designer for most of its 36 years. "Characters take a long time to develop and introduce to different markets," Yamaguchi said. "But Kitty has been so popular it's overshadowed all our other efforts."

One of Sanrio's latest efforts is Jewelpet, a group of 33 sparkly eyed animals each with its own look. Diamond the black kitten is ladylike and decks out in pink bows. Sapphire is cool and prefers to wear blue. Sanrio's thinking is that with so many to choose from, one has to stick.

A Sanrio savior would arrive not a moment too soon. In a closely watched ranking of Japan's most popular characters, compiled each year using sales data by the Tokyo-based research firm Character Databank, Hello Kitty lost her long-held spot as Japan's top-grossing character in 2002 and has never recovered.

In the latest survey, released this month, Kitty ranked a distant third, behind the leader, Anpanman, a character that is based on a Japanese jam-filled pastry and is produced by Nippon Television. The second spot is still held by the venerable game and animation brand Pokémon, owned by Nintendo.

Sanrio is also being usurped by smaller, nimbler rivals. The formerly little-known stationery maker San-X has scored two huge hits in Japan with its panda character, Tarepanda, and its bear, Rilakkuma — which has charged up the Character Databank charts, ranking fifth in the latest survey.

Sanrio's sales, which come from products as well as licensing, have reflected Kitty's fading fortunes, shrinking for 10 consecutive years since 1999. The company's overall sales in Japan fell 3.3 percent in the 12 months ending in March, Sanrio recently announced, as both licensing and sales slumped. Hello Kitty fatigue is hitting Japan first, and hard, the company indicated.

But a one-time 28 percent jump in overseas sales — which Sanrio attributed to an accounting change, as well as several big contracts overseas tied to Hello Kitty's 35th birthday celebrations — helped the company swing back to a net profit of about $47 million, in contrast to a loss of $16 million.

Sanrio now relies on overseas sales for 30 percent of its revenue, said the company's executive director, Susumu Emori. But Emori was cautious about Sanrio's future overseas prospects. "The last quarter was extraordinary, and we expect both sales and profit to fall this year," he said.

Analysts say part of the problem is that Sanrio has oversold Hello Kitty, which appears on products as various as T-shirts, toilet paper and toasters.

"Sanrio was initially very careful in making sure the Hello Kitty phenomenon didn't get out of hand," said Naohiro Shichijo, an associate professor in creative industries at the Waseda Institute for Advanced Studies in Tokyo. "That's the unspoken rule of the character business: You can't let a character get too wildly popular all at once," he said. "You want to go for longevity."

Hello Kitty, introduced on a vinyl coin purse in 1974, became an instant phenomenon in Japan, and sales at Sanrio grew sevenfold in the cat's first three years.

But even then Sanrio's founder and president, Shintaro Tsuji, expressed nervousness that consumers would burn out on the brand. Sanrio's sales tapered off in the late 1970s, and then again in the mid-1990s when Japan entered a long economic slump.

But around 2000, Kitty surprised Sanrio by rebounding in a big way, with Hollywood stars wearing the cat on T-shirts and carrying Hello Kitty bags.

"But when you have a boom, you have a bust," said Shichijo, the professor. "People get sick of it. Now Sanrio's in trouble."

Sanrio has tried to keep Hello Kitty up to the times: Sensing a move away from Japan's love affair with the cute, or "kawaii" aesthetic, it has pushed an edgier look for the cat in the last three years, using as much black as pink.

Still, a sense of crisis is evident at the Tokyo offices of Sanrio, where 30 designers, led by Yamaguchi, are charged with developing with new characters. At periodic product meetings, each designer presents as many as 20 characters for consideration by Yamaguchi. Of those, perhaps a dozen are chosen for trial sales at a pilot Sanrio store in Tokyo.

These days, designers are also urged to make sure their characters work across multiple media — a lesson Sanrio learned the hard way with Hello Kitty. Because Kitty had no mouth, it was difficult for the cat to break into television animation, depriving Sanrio of a lucrative source of revenue.

Sanrio's designers are also told to aim their new characters at children in elementary school or younger — even if much of the marketing, especially in Japan, will be aimed at older consumers.

When younger children embrace a character, many tend to remain fans even later in life, said Miyuki Okumura, the lead designer behind the Jewelpet series.

"If a character captures the heart of a little girl, she's going to love that character into her teens, at least," Okumura said. "Then when she has children, she'll again buy that character for them," she said. "That's what we're aiming for."