Japan's Zozo sees profit recovering this year after bodysuit blunder

Japanese online fashion retailer Zozo Inc said it expects its profit to recover in the current fiscal year, after booking its first-ever annual drop in earnings on a failed experiment with bespoke tailoring and clashes with fashion brands.

But Zozo’s results also show its liabilities mounting and cash position dwindling, underscoring worries about the finances of the company that runs the popular Zozotown online mall.

Zozo has captured nearly half of Japan’s online sales of mid- to high-end clothes by setting up a website catering to fashion-forward, higher-income customers.

It has sought to transform itself in recent years from an e-commerce site into a tech-retail hybrid by starting a private brand and launching a made-to-measure service using a bodysuit that allowed users to upload measurements online.

The bodysuit, along with billionaire CEO Yusaku Maezawa’s plans for a lunar flyby as the first private passenger on Elon Musk’s SpaceX mission, had helped spread Zozo’s name globally. The end of the Zozosuit has cast a shadow on its strategy.

Many people who ordered the bodysuit did not use it to buy clothes, leaving Zozo saddled with the huge cost of distributing the suits without seeing returns. It also struggled to cope with orders that did come in, forcing some customers to wait several months for delivery.

Zozo’s operating profit for the year ended March fell 21.5 percent to 25.7 billion yen ($229 million). That was worse than its most recent forecast of 26.5 billion, which had been marked down from an initial projection of 40 billion yen.

Adding to its woes, some fashion brands that helped Zozo build its reputation have left the site. Some of them launched their own e-commerce sites, while others grew unhappy with what they saw as excessive discounting at the Zozotown online mall.

Apparel company Onward Holdings Co, fashion retailer United Arrows and childrens’ brand Miki House have left the site.

Zozo has been trying to regain momentum by adding more mass-market retailers such as Shimamura, but some analysts say this has hurt its initial, fashion-focused image.

Shares of Zozo have nearly halved in the past year on fears that its popularity may be waning, and that its cash position looked weak. The company secured a 15 billion yen commitment line from banks in late March.

Thursday’s results show Zozo’s cash and cash equivalents fell to 21.6 billion yen by end-March, versus 24.6 billion a year earlier, while total liabilities jumped to 56.3 billion from 29.9 billion.

But the company said it expects business to pick up as Japanese consumers were just beginning to buy clothes online.

It forecast a 24.7 percent rise in operating profit to 32 billion yen for the current financial year.