Overview: Rizap Group Inc. (“Rizap Group”) is a holding company with 72 consolidated subsidiaries (six of which are listed) as of March 2021. The group’s core company is Rizap Co., Ltd. (“Rizap Co.”; operates Rizap personal training gyms focused on weight loss). The group has grown through acquisitions, mainly of companies in the self-improvement industry. The company interprets “self- improvement” broadly; subsidiaries’ businesses are diverse, ranging from the sale of shapewear (body-shaping underwear) to the operation of stores selling CDs/DVDs, apparel, and variety goods to the publication of free newspapers.
Started with diet foods, launched the Body Making business in 2012: Takeshi Seto, president, established the company in April 2003 at the age of 24. The company got its start selling supplements, but performance was lackluster. However, one of the items the company had previously given out for free, a soy milk-based cookie, began selling well as a weight-loss food. The hit product helped boost sales above JPY10.0bn in the company’s fourth year, but sales of the cookies waned as competition grew. Later, the company experienced boom-and-bust cycles for other products, such as a facial massager using periodically replenished consumables, and a clay-based soap. In 2012, the company launched its current core business, the Rizap Body Making business (operation of Rizap personal training gyms). The catchphrase “Commit to the result®” and television commercials highlighting celebrities’ weight loss using Rizap have boosted the company’s name recognition, driving performance.
Rizap Body Making business: Consolidated subsidiary Rizap Co. operates personal training gyms (129 locations as of March 2021, some of which are overseas). In FY03/18, Rizap Co. generated revenue of JPY25.5bn (21% of consolidated revenue) and pre-tax profit of JPY2.2bn (J-GAAP). Excluding gains on negative goodwill, this amounted to 70% of consolidated operating profit (IFRS). With the Rizap service, a personal trainer provides guidance on exercise and diet, helping customers to lose weight and develop healthier bodies in a short period of time (two months). Rizap differs from general sports gyms in a number of ways. It emphasizes weight training and sugar restriction, but more notably, the coaching its trainers provide extends to daily nutritional guidance, encouragement, and praise when clients meet their targets.
Business model of the Rizap Body Making business: (Revenue = members x spending per customer). As of March 2021, cumulative members numbered 163,000 (+16,000 YoY). A two-month/16-session program (before tax, including enrollment fee) is priced at JPY348,000. If the customer elects to continue, a further two-month/16-session program costs JPY298,000 (before tax). The six-month retention rate is 45.6%. On average, members remain active for six months, and revenue per member comes to JPY600,000 to JPY800,000, including sales of supplements. As spaces are smaller and equipment more limited than at general, comprehensive sports gyms, return on investment is swift. Spend per customer is high, so GPM is 60–70%. Advertising makes up the majority of SG&A expenses, and OPM is 10–20% (Shared Research estimates).
Expanded through acquisitions, made M&A mistakes, and restructured: The company listed its shares in May 2006. At JPY2.4bn in FY03/06, consolidated revenue had grown to JPY169.6bn by FY03/21. Revenue growth from the Rizap Body Making business was a major reason for this growth. Aggressive acquisitions also played a key role. As mentioned above, the company vigorously acquired companies in the loosely defined “self-improvement industry” from FY03/16 to FY03/18, and business diversified. However, this rapid M&A led to slower improvement of subsidiaries’ performance, and in FY03/19 the company recorded an impairment loss, a loss on retirement of non-current assets, and a JPY19.4bn loss attributable to owners of the parent. To improve management quickly, the company announced it would pare back its subsidiaries, shrinking, withdrawing from, or selling those that did not deliver good return on investment or improve profitability. The company also plans to reinforce governance and has declared a general freeze on M&A.
Revenue and profit structure: Rizap-related businesses include Rizap Co., the group’s core subsidiary, and related products. (In FY03/20, revenue from Rizap-related businesses stood at JPY40.1bn. Shared Research estimates operating loss, which the company does not disclose, at JPY2.0–3.0bn.) Wonder Corporation (TSE JASDAQ: 3344) operates CD/DVD stores (FY03/21 revenue of JPY56.0bn, pre-tax profit of JPY954mn). MRK Holdings Inc. (formerly Maruko; TSE2: 9980) manufactures and sells shapewear (FY03/21 revenue of JPY18.3bn, pre-tax profit of JPY462mn). Other subsidiaries include IDEA International Co., Ltd. (TSE JASDAQ: 3140), which imports and sells variety goods; HAPiNS Co., Ltd. (formerly Passport; TSE JASDAQ: 7577), which operates variety stores; Dream Vision Co., Ltd. (TSE Mothers: 3185), an online apparel retailer; Jeans Mate, Inc. (TSE1: 7448), which retails casual wear; and Marusho Hotta Co., Ltd. (TSE2: 8105), which handles fabrics.
Financial condition: As of end-FY03/21, interest-bearing debt totaled JPY81.7bn (versus JPY101.2bn at end-FY03/20), with lease obligations accounting for about JPY37.1bn of this amount. The main reason for the rise in interest-bearing debt was the impact on lease transactions of adopting IFRS 16 (moving store leases onto the balance sheet; payable with cash flow as long as business continues). Excluding this, interest-bearing debt came to JPY44.6bn, and the amount has been decreasing in real terms since FY03/18.
For FY03/21, the company reported full-year consolidated revenue of JPY169.6bn (-12.3% YoY), operating loss of JPY1.2bn (versus loss of JPY777mn in FY03/20), pre-tax loss of JPY817bn (versus loss of JPY3.2bn in FY03/20), and profit attributable to owners of the parent of JPY1.6bn (versus loss of JPY6.0bn in FY03/20). Revenue declined due to the impact of the COVID-19 pandemic. On the profit front, the earnings structure improved thanks to structural reforms the company has been carrying out since FY03/19. In addition, Rizap Group continued groupwide cost-cutting it had been implementing since the start of FY03/21 and moved forward with its “ONE RIZAP” policy, which seeks to integrate group functions. As a result, it was able to successfully promote cost optimization, mobilization of personnel among group companies, and the creation of businesses that do not rely on face-to-face contact.
For FY03/22, the company projects full-year consolidated revenue of JPY170.0bn (+0.2% YoY), operating profit of JPY7.0bn (+463.7% YoY), pre-tax profit of JPY5.0bn (versus loss of JPY817mn in FY03/21), and profit attributable to owners of the parent of JPY3.0bn (+92.8% YoY).The company aims to secure new sources of revenue by focusing on the three pillars of integrating common functions of group companies, groupwide cost optimization, and development of businesses that do not rely on face-to-face contact. Specifically, it will expand services using online tools at Rizap personal training gyms, and will develop private label products at all group companies engaged in retailing apparel and household goods while concentrating their management resources on the e-commerce divisions.
Shared Research sees Rizap’s strengths as 1) development, success, and recognition of the Rizap method for closely guiding customers toward their goals; 2) expansion into other business domains by leveraging expertise in the Body Making business and exhaustively pursuing related opportunities; and 3) motivation to succeed in acquisitions. We believe its weaknesses are 1) current measures insufficient to prevent M&A mistakes from recurring; 2) effectiveness of the Rizap Body Making business leads to a low retention rate; and 3) management’s risk appetite when targeting earning opportunities. (See the “Strengths and weaknesses” section.)
|Gross profit margin||61.2%||57.4%||58.9%||63.6%||60.3%||48.3%||51.1%||45.7%||45.5%||46.3%|
|Operating profit margin||6.8%||4.7%||4.7%||5.4%||5.9%||10.7%||9.7%||-||-||0.7%||4.1%|
|Pre-tax profit margin||6.7%||5.0%||10.6%||6.3%||5.2%||10.1%||8.4%||-||-||-||2.9%|
|Profit attributable to owners of the parent||888||402||2,698||1,636||1,588||7,678||9,075||-19,423||-6,046||1,556||3,000|
|Operating profit margin||6.6%||2.3%||11.3%||4.2%||2.9%||8.1%||7.4%||-||-||0.9%||1.8%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||309||30,859||30,859||123,536||127,436||127,436||254,872||556,218||556,218||556,218|
|EPS (fully diluted; JPY)||-||-||-||1.7||3.1||15.1||17.8||-35.6||-10.9||2.8|
|Dividend per share (JPY)||0.1||0.1||0.4||0.3||1.9||3.0||3.7||-||-||-||-|
|Book value per share (JPY)||4.9||5.1||10.4||6.7||20.1||33.4||55.7||76.2||45.6||49.7|
|Balance sheet (JPYmn)|
|Cash and cash equivalent||2,518||2,437||4,373||8,687||10,483||24,644||43,630||42,245||27,047||33,786|
|Total current assets||6,364||7,490||14,405||23,700||32,522||62,087||116,614||125,036||92,529||85,548|
|Tangible fixed assets||1,628||2,289||9,059||9,442||11,331||17,616||29,696||29,028||25,822||21,989|
|Total noncurrent assets||2,795||3,979||13,484||15,508||21,256||33,562||57,650||55,385||87,688||73,700|
|Trade and other payables||989||1,322||5,411||9,537||13,756||24,326||39,204||37,425||27,546||26,102|
|Total current liabilities||3,871||5,532||13,685||19,859||27,296||43,637||80,643||82,509||80,354||72,004|
|Total noncurrent liabilities||3,010||3,284||8,588||11,949||15,344||30,557||50,912||43,174||66,221||50,808|
|Total interest-bearing debt||4,811||4,991||12,839||16,917||23,768||41,201||76,784||62,724||101,212||81,742|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||18||478||789||2,024||868||176||87||-10,429||13,919||23,126|
|Cash flows from investing activities||-108||-919||363||680||-3,973||2,915||-3,495||-7,708||-3,389||-4|
|Cash flows from financing activities||268||39||966||1,570||5,138||11,089||22,725||18,684||-27,549||-16,448|
|ROA (pre-tax profit-based)||10.7%||8.6%||12.9%||7.3%||6.0%||12.9%||7.6%||-6.4%||-1.8%||-0.5%|
RIZAP Group announced its forecast for the first half of FY03/22.
The company had planned to announce its results for 1H FY03/22 on November 15, 2021, but decided to postpone the announcement after submitting a request for an extension of the deadline for submitting quarterly reports to the Kanto Local Finance Bureau.
In light of this, and since 45 days have passed since the end of Q2 , the company has announced its 1H earnings forecast in the interests of providing timely information to the market and to stakeholders.
As of November 2021, the company's performance was in line with its expectations. The company has maintained its full-year FY03/22 forecast.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||44.4%||45.7%||45.8%||46.3%||47.8%||47.2%|
|Other income/expenses (net)||-1,266||-1,028||-1,178||-2,766||84||532|
|Operating profit margin||-||-||2.1%||0.9%||2.4%||3.0%||4.1%|
|Pre-tax profit margin||-||-||0.9%||-||1.4%||2.1%||2.9%|
|Gross profit margin||44.4%||46.8%||46.7%||47.8%||46.6%|
|Other income/expenses (net)||-1,266||206||-147||84||444|
|Operating profit margin||-||4.0%||6.8%||2.4%||3.6%|
|Pre-tax profit margin||-||3.0%||5.5%||1.4%||2.8%|
|By segment (cumulative)||FY03/21||FY03/22|
|Healthcare and Beauty||7,826||20,054||31,917||43,448||10,785||22,335|
|Operating profit margin||-||-||2.1%||0.9%||2.4%||3.0%|
|Healthcare and Beauty||-1,819||-674||444||-222||368||708|
|Operating profit margin||-||-||1.4%||-||3.4%||3.2%|
|Operating profit margin||3.1%||4.5%||5.4%||4.3%||3.2%||4.2%|
|Operating profit margin||-||-||0.4%||-||1.0%||1.6%|
|By segment (quarterly)||FY03/21||FY03/22|
|Healthcare and Beauty||7,826||12,228||11,863||11,531||10,785||11,550|
|Operating profit margin||-||4.0%||6.6%||2.4%||3.6%|
|Healthcare and Beauty||-1,819||1,145||1,118||-666||368||340|
|Operating profit margin||-||9.4%||9.4%||-||3.4%||2.9%|
|Operating profit margin||3.1%||5.8%||7.0%||1.0%||3.2%||5.3%|
|Operating profit margin||-||1.0%||2.3%|
|End Jun. 2020||End Sep. 2020||End Dec. 2020||End Mar. 2021||End Jun. 2021||End Sep. 2020||End Dec. 2021||End Mar. 2022|
|Cumulative total members ('000)||149||157||160||163||168||171|
|QoQ increase ('000)||2||8||3||3||5||3|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Maternity and baby-related||392||729||1,126||1,446||299||610|
|Operating profit margin||-||1.8%||2.5%||3.3%||-||2.0%||3.7%|
|Operating profit margin||-||4.1%||4.1%||5.4%||2.2%||4.7%|
|Maternity and baby-related||-11||-43||-29||-89||-35||-68|
|Operating profit margin||-||-||-||-||-||-|
|Maternity and baby-related||392||336||397||320||299||311|
|Operating profit margin||-||6.9%||3.8%||5.5%||-||4.1%|
|Operating profit margin||-||9.7%||4.2%||8.4%||2.2%||7.0%|
|Maternity and baby-related||-11||-32||13||-60||-35||-33|
|Operating profit margin||-||-||3.4%||-||-||-|
|Number of stores||266||269||268||253|
|Gross profit margin||36.0%||36.0%||35.2%||35.7%||0.0%|
|Operating profit margin||0.3%||1.5%||2.8%||2.9%||1.3%||2.9%|
|Operating profit (IFRS)||-||294||868||1,041|
|Gross profit margin||36.0%||36.0%||33.9%||37.2%|
|Operating profit margin||0.3%||2.7%||5.0%||3.2%||1.3%||4.5%|
|Cumulative (adjusted for FY ending in March; JPYmn)||FY03/21||FY03/22|
|Operating profit margin||13.1%||10.2%||10.1%||8.2%||9.4%||6.6%|
|Quarterly (adjusted for FY ending in March; JPYmn)||FY03/21||FY03/22|
|Operating profit margin||13.1%||7.1%||9.9%||3.0%||9.4%||3.9%|
|Operating profit margin||5.0%||5.5%||8.0%||5.0%||-||-|
|Operating profit margin||5.0%||5.8%||11.7%||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
|Operating profit margin||-||-||0.8%||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
|Operating profit margin||-||-||0.9%||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
|Operating profit margin||-||-||-||-||-||-|
Note: In FY03/21, the company sold its interests in SYS Inc., Hokuto Printing Co., Ltd., and Nihon Bungeisha, and in FY03/22 it reclassified Act Co., Ltd. as a discontinued operation. Thus in 1H FY03/22, SYS Inc., Hokuto Printing Co., Ltd., Nihon Bungeisha, and Act Co., Ltd. all were classified as discontinued operations.
Revenue decreased YoY in 1H FY03/22, depressed by temporary closures or shortened opening hours for bricks-and-mortar stores in compliance with state of emergency and quasi-state of emergency declarations. Online sales increased YoY, as the company shared the best practices of Auntie Rosa and BRUNO throughout the group.
On the earnings front, the company’s move back into the black was driven by a combination of cost-cutting under its “ONE RIZAP” policy that seeks to merge common business processes across the group, right-size the group’s cost structure, and further integrate the group through the transfer personnel between group companies.
Within SG&A expenses, personnel costs were down JPY2.0bn YoY due to redeployment of personnel, and depreciation costs also fell by JPY790mn owing to declines in tangible fixed assets and lease assets.
The segment's main businesses are the Rizap-related businesses and MRK Holdings. Both revenue and profit at MRK Holdings increased, while Rizap-related businesses reported increased profit.
At Rizap-related businesses, revenue was depressed by temporary closures or shortened opening hours for bricks-and-mortar stores in compliance with state of emergency and quasi-state of emergency declarations. Profit increased YoY amid ongoing efforts to cut costs and improve cost efficiency. Starting with its Rizap personal training gyms, the company took steps to create an atmosphere that would assure the safety and peace of mind of its members by having its personal trainers and counselors receive COVID-19 vaccinations.
MRK Holdings reported 1H revenue of JPY9.1bn (+5.6% YoY) and an operating profit of JPY183mn (+16.4% YoY). At its women’s underwear and related businesses, MRK Holdings saw a good response to its limited-time offer of special color selections for its mainstay shapewear products. Its new M.B.M.S. (Maruko Beauty Make Supplement) business selling doctor-recommended original supplements also saw growth in both new sales and regular purchases, reporting higher sales and higher earnings.
Revenue and profit both fell YoY at BRUNO (former IDEA International Co., Ltd.), but increased at the various unlisted subsidiaries that are included under the segment. Also noteworthy, in April 2021 the company brought Wonder Corporation, HAPiNS, and Jeans Mate under the umbrella of REXT Inc., a newly formed holding company.
REXT reported an operating profit of JPY85mn on revenue of JPY25.5bn.
Wonder Corporation: Wonder Corporation opened APORITO outdoor specialty stores within some WonderGoo stores, selling original outdoor items developed by APORITO using collaborators' original characters and IP. The company also worked to improve profit margins through the rollout of new stores combining the recycled goods specialty store WonderREX, the entertainment specialty store WonderGoo, and the trading card specialty store Ganryu. In this manner, the company continues to open new stores with formats designed to better meet customer needs while also making over existing stores.
HAPiNS: Sales at brick-and-mortar stores were down, hurt by the drop in customer traffic in the wake of another state of emergency declaration. The company expanded its merchandise lineup aimed at people spending more time at home, also rolling out new, high-margin private brand goods. In addition, it sought to boost recognition and attract new fans for the original character Fuku Fuku Nyanko by ramping up various marketing strategies, also expanding the range of character IP content including LINE stickers. In its online business, the company opened new stores in online malls, invested in internet advertising, and released special offerings available only to online shoppers. As a consequence, online sales grew 105.8% YoY. At bricks-and-mortar stores struggling under state of emergency conditions, the company strove to improve finances through cost optimization.
Jeans Mate: Nearly all of management’s efforts here were put into growing online sales, which it did with the help of a wider variety of online sales promotions, the expansion of its offering of specialty goods, and other means, ultimately realizing a YoY increase in online sales of 41.7%. Its brick-and-mortar stores continued to struggle, though, the state of emergency declaration playing a big role in depressing store traffic. The tough operating environment notwithstanding, Jeans Mate stores continued working to approve the appeal of their merchandising with the help of new visual merchandising techniques aimed at bring more shoppers into its stores. Elsewhere, the company noted that efforts to sell more private brand goods and strengthen promotions paid off as the broadening of its lineup of private brand goods pushed up the private brand goods sales weighting up to 51% versus 39% in the same quarter last year.
BRUNO: For April–September 2021 (adjusted to a March year-end), BRUNO reported total revenue of JPY7.7bn (-1.8% YoY) along with an operating profit of JPY510mn (-36.5% YoY). Sales of mainstay compact hotplates beat prior-year levels, and sales of steam & bake toasters also increased with the aid of advertising. Overseas sales were strong, thanks in part to a boost to compact hotplate sales from an advertising campaign featuring a recipe competition. Sales were down YoY, though, for the Milesto brand of travel goods. While the company reported higher sales of products catering to working from home and other new lifestyle habits (e.g., commuter bags and computer covers), sales of travel-related goods were depressed by a slump in travel demand. Profit fell due to lower sales and increased advertising aimed at enhancing brand recognition.
SD Entertainment reported 1H revenue of JPY1.9bmn (+8.8% YoY) and an operating loss of JPY206mn (versus loss of JPY163mn in 1H FY03/21).
Revenue at the mainstay wellness business grew 1.3% YoY. User numbers continued to recover at facilities transitioning from “comprehensive-type” fitness centers to always-open fitness centers, but recovery was sluggish at the traditional type of facilities.
Revenues from the childcare business rose 17.7% YoY amid steady growth in capacity utilization at new facilities opened since FY03/21.
The creation business, though, reported a decline in revenue. With a view to expanding services and improving the profitability of its online crane games, in September 2021 the company announced the integration of its Pochikure and Toretane services. Revenue fell as services were limited during the integration period.
Dream Vision reported 1H revenue of JPY2.3bn (-21.5% YoY) and an operating loss of JPY85mn on an IFRS accounting basis (versus year-earlier loss of JPY278mn). At its apparel business, existing brand DearMyLove continued to perform well, but sales were down as a result of temporary store closes in the wake of a resurgence in coronavirus infections. The business returned to profitability, though, with the help of additional cost-cutting at the SG&A expense level. The picture was mixed elsewhere, with its jewelry business seeing increases in both sales and earnings while sales and earnings at its toy business came in below year-ago levels.
Marusho Hotta reported 1H revenue of JPY1.8bn (+3.1% YoY) and an operating loss of JPY97mn (versus year-earlier loss of JPY265mn). Earnings improved (losses narrowed), even though sales through department stores and specialty stores were hurt by the resurgence in coronavirus infections during the period, as this prompted these types of retailers to shorten store hours, scale back or cancel special sales events, and take other measures that depressed store traffic. Other contributing factors included a recovery in spending at the kimono business, new orders obtained by consolidated subsidiaries and the overseas operation through efforts to cultivate new customers, and a solid performance by the materials business' yarn wholesaling division.
With its move back into the black at both the operating and after-tax profit levels, the company reported that, as of the end of 1H FY03/22, all the financial covenants that had been violated in the loan agreements with major financial institutions continuing from Q1 FY03/22 were eliminated. The company attributed the improvement in its financial position to a combination of (1) its ongoing efforts to cut costs across the entire group since the end of previous fiscal year, and (2) the rebound in customer traffic and sales at most group stores since their reopening, though in this relation added that the third and fourth state of emergency declarations issued by the Japanese government in April and July had forced the temporary shutdown of some of its stores and had otherwise acted as a drag on sales.
It must also be said that it remains unclear just when the pandemic will come to an end, despite a gradual easing of restrictions including lifting of the latest state of emergency declaration by the Japanese government in September 2021. Depending on the progress at its various group businesses and their own finances going forward, there is still a chance the company might encounter difficulties raising funds in the future. The conditions in Japan are still such that events could conceivably arise that would cast serious doubts about the ability of the Rizap Group to remain a going concern.
In recognition of its situation, during FY03/22 the company will continue focusing its efforts on the execution of its pandemic emergency response plan, the main pillars of which are the merger of all common business processes across group companies, the right-sizing of its cost structure on a group-wide basis, and the development of businesses that do not require person-to-person interface or direct contact. With the help of these efforts, the company is looking to both develop new sources of revenue and put itself on a firm financial footing.
Specifically, it will expand services using online tools at Rizap personal training gyms, and will develop private label products at all group companies engaged in retailing apparel and household goods while concentrating their management resources on the e-commerce divisions. In addition, REXT will strive to create new customer value by harnessing digital transformation (DX) in the integration of online and offline aspects of its operations. The company does not expect to have any problems when it comes to funding group businesses based on its expectation that it will be able to meet its funding needs by using funds held at the group level and other means, including the sale of businesses. Based on this, the company sees no major uncertainties that would justify serious doubts about its ability to remain a going concern.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.||1H Est.||2H Est.||FY Est.|
|Cost of revenue||43,686||46,921||90,607||41,809|
|Gross profit margin||45.7%||46.9%||46.3%||47.2%|
|Operating profit margin||-||2.2%||0.9%||3.0%||5.1%||4.1%|
|Pre-tax profit margin||-||0.8%||-||2.1%||3.6%||2.9%|
|Operating profit margin||-||4.3%||1.1%||1.3%||2.7%||2.1%|
|Profit attributable to owners of the parent||-1,902||3,510||1,608||643||2,357||3,000||-||-32.8%||86.6%|
|Operating profit margin||-||4.0%||1.0%||0.8%||2.6%||1.8%|
For FY03/22, Rizap Group projects full-year consolidated revenue of JPY170.0bn (+0.2% YoY), operating profit of JPY7.0bn (+463.7% YoY), pre-tax profit of JPY5.0bn (versus loss of JPY817mn in FY03/21), and profit attributable to owners of the parent of JPY3.0bn (+92.8% YoY).
The company expects revenue to be essentially flat YoY, based on the assumption of an ongoing impact from the COVID-19 pandemic. It booked impairment loss of about JPY3.2bn in FY03/21, but anticipates no such booking in FY03/22. In FY03/21, it reduced SG&A expenses by JPY11.7bn YoY (including about JPY450mn in variable costs and about JPY11.2bn in fixed costs). In FY03/22, it plans to continue reducing SG&A expenses and aims, as part of Business Process Transformation (BPX), to improve profitability by selecting which businesses to continue and which to abandon, establishing and utilizing best practices, and building and utilizing an integrated database (refer to the “Medium-term outlook” section).
In addition, office rent totaled JPY1.7bn in FY03/20, but the company reduced the amount to JPY980mn in FY03/21 by promoting teleworking. It plans to further reduce rent to approximately JPY340mn by FY03/23 and therefore expects rent to fall YoY in FY03/22 as well.
In Q1 FY03/21, revenue and profit both declined YoY due to requests for stores to be temporarily closed when the first state of emergency declaration was issued. From Q2 FY03/21 onward, after the government lifted the restrictions put in place under the first emergency declaration, revenue and profit recovered somewhat versus Q1. As a result, the company expects Q1 FY03/22 to display earnings improvement YoY. Quarterly results for FY03/21 were as follows.
In April and May 2020, when the state of emergency declaration was in effect, the company reported that a total of 780 stores (or roughly 70% of all stores operated by group companies) were either temporarily closed or otherwise had restricted operations. As a result, it posted operating loss of JPY2.4bn in Q1 FY03/21.
Once the first declaration ended and stores operated by group companies resumed operations in June 2020, customers started returning. At the same time, each group company enhanced its e-commerce operations to capture demand from people staying home more due to the pandemic, and Rizap Group reported operating profit of JPY1.9bn in Q2 FY03/21 and JPY3.3bn in Q3. In Q4, due to the second state of emergency declaration in January 2021, the company booked some JPY2.0bn in impairment loss and recorded operating loss of JPY1.5bn. Shared Research understands that, had it not been for the impairment loss, Rizap Group would have posted operating profit in Q4.
Shared Research understands that Rizap Group’s main subsidiaries, Rizap Co., Ltd., REXT, Inc., and IDEA International, will drive earnings. In addition, SD Entertainment, Dream Vision, and Marusho Hotta, which belong to the Investments segment, have each announced company forecasts, in which they project operating profit, improving from operating losses they recorded in FY03/21.
Shared Research understands that Rizap Co., Ltd., posted operating loss in Q1 FY03/21 due to the temporary closure of locations in response to the government’s declaration of emergency issued in April 2020. However, earnings recovered in Q2 and Q3 FY03/21 due to an increase in the number of new members once the first declaration ended and to the closure of unprofitable stores. Shared Research understands that the company expects improvement in operating profit in FY03/22, with the disappearance of the operating loss that occurred in Q1 FY03/21 and the impairment loss booked in Q4 FY03/21. In addition, the difference in profit/loss between the Healthcare and Beauty segment and MRK Holdings (primarily operating profit/loss from Rizap-related businesses) was JPY1.6bn in Q1 (difference in loss), JPY795mn in Q2 (difference in profit) and JPY978mn in Q3 (difference in profit), and JPY898mn in Q4 (difference in loss).
IDEA International anticipates earnings growth in FY03/22, since sales of BRUNO kitchen appliances are increasing in the e commerce channel amid expanding demand from people spending more time at home in the face of the pandemic. In addition to Japan, sales to China and Taiwan are increasing, and IDEA International is expanding its territory. Sales in North America began in September 2020.
REXT (established April 2021), the holding company for Wonder Corporation, HAPiNS, and Jeans Mate, is aiming for earnings growth. In FY03/21, Wonder Corporation and HAPiNS generated lower revenue but higher profit YoY. In addition to downsizing and withdrawal of unprofitable items and the introduction of highly profitable products and services, Wonder Corporation promoted the optimization of its workforce. HAPiNS made progress on expanding its lineup of private label products, keeping discounting under control during sales events, and curbing SG&A expenses. In FY03/22, it will strive to create new customer value through the integration of online and offline aspects of its operations. Specifically, it aims to increase sales by unifying, analyzing, and utilizing customer information to develop private label products and by proposing products and services to customers.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.||1H Act.||2H Est.||FY Est.|
|BRUNO (former IDEA International Co., Ltd.)||7,866||9,107||16,973||7,723||-1.8%|
|Consolidated operating profit||-450||1,940||1,490||2,401||4,599||7,000||-||137.1%||369.8%|
|Operating profit margin||-||2.2%||0.9%||3.0%||4.1%|
|Operating profit margin||-||1.8%||0.8%||-||-||-|
|Operating profit margin||1.8%||4.7%||3.3%||2.0%||5.3%||3.7%|
|BRUNO (former IDEA International Co., Ltd.)||803||583||1,386||510||-36.5%|
|Operating profit margin||10.2%||6.4%||8.2%||6.6%|
|Operating profit margin||-||-||-||-||15.8%||4.6%|
|Operating profit margin||-||-||-||-||5.9%||2.6%|
|Operating profit margin||-||-||-||-||3.5%||0.4%|
|Operating profit margin||-||-||-||0.3%||2.9%||1.6%|
|Operating profit margin||1.5%||4.1%||2.9%||2.9%|
|Operating profit margin||5.5%||4.5%||5.0%||-|
|Operating profit margin||-||-||-||-|
In FY03/19, Rizap Group posted a JPY19.4bn loss attributable to owners of the parent, stemming from impairment losses and a loss on retirement of non-current assets. A surge in acquisitions since FY03/14 has led to delays in improving performance at subsidiaries. To improve its own management, Rizap Group has positioned FY03/19 as a period for eliminating negative factors and FY03/20 as a time for building the foundations for growth. To achieve this, Rizap Group plans to shrink, withdraw from, or sell companies it judges unlikely to deliver positive return on investment or that will have difficulties improving profitability. The company is also strengthened governance and put a general freeze on M&A.
In 1H FY03/20, business restructuring expenses were down YoY, so major consolidated subsidiaries Wonder Corporation and MRK Holdings posted higher profits. This led to improved performance for Rizap Group, centered on listed subsidiaries. Also, the adoption of IFRS 16 led to a decrease in rent. As a result, in 1H Rizap Group recorded operating profit of JPY2.7bn (operating loss of JPY5.9bn in 1H FY03/19) versus a full-year operating profit forecast of JPY3.2bn.
In FY03/20, Rizap Group expected consolidated operating profit and profit to turn positive and was positioning FY03/21 as a year for returning to growth. It planned to formulate a new medium-term management plan. However, in light of the impact of the COVID-19 pandemic in Q4 FY03/20, it recorded a one-time valuation loss of about JPY5.9bn on stores and other fixed assets and on inventory. This was the main cause of the JPY752mn operating loss booked in FY03/20 (operating loss of JPY8.4bn in FY03/19).
In FY03/21, the company planned to move to a growth track and make progress toward sustainable growth under a new medium-term management plan, but the pandemic caused the business environment to deteriorate, and the outlook became uncertain. As a result, it turned its attention to responding to the COVID-19 crisis. Specifically, it worked to integrate the common functions of group companies to maximize economies of scale and optimize costs across the whole group. In addition, it worked to develop businesses that do not rely on face-to-face contact and to secure new earnings sources.
The company returned to profitability in FY03/21 with operating profit of JPY1.2bn and achieved YoY gains in monthly operating profit from August 2020 onward. It says that it completed management restructuring in FY03/21 and is steadily responding to the COVID-19 crisis, and will be able to return to a growth track in FY03/22.
Rizap Group has not announced a new medium-term management plan, but has identified BPX (see below) as a key theme for FY03/22. Shared Research understands that new programs (Senior Program and Medical Body Making Program) in the Rizap Body Making business will drive earnings growth.
In FY03/21, the company continued groupwide cost-cutting measures, while also optimizing costs, enabling the flow of human resources between group companies, and creating businesses that do not rely on face-to-face contact under its ONE RIZAP project for integrating group functions. As a result, SG&A expenses declined JPY11.7bn YoY, including a drop of about JPY11.2bn in fixed expenses. In FY03/22, the company will promote Business Process Transformation (BPX) as follows.
BPX is a term coined by the company, which says it is a broader concept of the Business Process Reengineering (BPR). Rather than reengineering existing business processes, the idea is to innovate business processes to achieve optimal ones.
Shared Research understands that the BPX advocated by Rizap Group comprises business process innovation and the building and use of an integrated database.
The company will implement business process innovation in administrative and business divisions as follows.
In terms of administrative divisions, each group company will review its back-office operations, and Rizap Group will work to integrate common functions to streamline groupwide value chain and management support functions, specifically in regard to logistics, human resources, planning, accounting and finance, and systems. In addition, it will work to reduce personnel demand by outsourcing or automating (utilizing BPO and RPA) any non-core operations (including data entry, expense settlement, printing and mailing, sales-related clerical work, design, and document preparation). The company will then use internal resources freed by these initiatives to promote digital transformation (quantification and indexing of best practices and building of an integrated database), develop private label products, and concentrate management resources in e-commerce.
In terms of business divisions, the company will identify employees who contribute most to the company’s performance from among Rizap Body Making business trainers and sales staff at group companies operating stores. It will then quantify, index, and visualize their conduct, and, where reproducible, endeavor to get all employees to engage in similar conduct. As an example, it plans to quantify, index, and visualize the conduct of trainers who achieve high customer satisfaction in the Rizap Body Making business, and disseminate that information to trainers nationwide for horizontal deployment. Many new members of the Rizap Body Making business are gained through customer referrals. By establishing and sharing best practices, the company aims to improve customer satisfaction and increase the number of referrals.
Each of the group companies manages its own customer information, loyalty points, and other data. In some cases, they even manage online and offline customer information separately. Rizap Group plans to unify and standardize such data. Furthermore, as part of the ONE RIZAP project, it plans to make it possible for each group company to analyze and utilize customer information, making them able to propose goods and services customers need right when they need them.
For example, if a customer is planning to get married, the company can propose goods and services such as weight-loss training in the Rizap Body Making business or shapewear or wedding venues from MRK Holdings. The company aims to maximize customer lifetime value by increasing the number of contacts with customers who have purchased or used its products and services, serving as a partner throughout their lives, and providing high value-added goods and services.
In the past, the Rizap Body Making business has grown through the beauty and diet domain, centering on people in their 20s to 40s. In addition to this area, the company says it expects to drive growth further by adding customers in the healthy living and healthcare domain, focusing on corporate and middle-aged/senior customers.
In the beauty and diet domain, the company aims to increase the number of Rizap Body Making members and step up efforts to attract senior members.
Increase the number of Rizap Body Making members: The number of Rizap Body Making studios expanded from 30 in September 2014 to 123 in June 2021. During that period, cumulative membership swelled from 22,000 to 163,000. Over the medium term, along with this sort of growth the company plans to boost the number of members by making studios more efficient.
Step up efforts to attract senior members: The company’s briefing materials for Q3 FY03/20 noted that people aged 60 and above accounted for 5% of Rizap Body Making members. At general sports clubs, 30–50% of members are 60 or older. (In FY03/21, 45.5% of members at Central Sports Co., Ltd. [TSE1: 4801] were 60 or older. The figure was 35.9% for Renaissance Inc. [TSE1: 2378].) Rizap Group thinks these figures suggests it has room to increase its own 60+ membership, as well. In July 2020, the company launched the Rizap Senior Program, aimed at improving the physical fitness and muscle strength of people aged 60 and older to extend their healthy life expectancy. With this program, Rizap medical trainers assigned to individual customers provide one-on-one guidance and support in training and daily diet. Fees are set at a level similar to the standard training program.
|(end of month)||Mar 2013||Mar 2014||Mar 2015||Mar 2016||Mar 2017||Mar 2018||Mar 2019||Mar 2020||Mar 2021|
|Total number of facilities||10||25||42||83||130||149||189||198||181|
|Rizap Body Making||10||24||40||76||115||120||129||129||123|
|(end of month; '000)||Mar 2013||Mar 2014||Mar 2015||Mar 2016||Mar 2017||Mar 2018||Mar 2019||Mar 2020||Mar 2021|
|Total number of members||-||13||33||58||79||106||130||147||163|
|Net increase YoY||-||-||20||25||21||27||24||17||16|
|Member retention rate (six-month mark)||-||-||-||31.2%||38.1%||44.6%||45.6%||-||-|
The company plans to carry on joint research with universities in the healthy living and healthcare domain, train and station medical trainers, and strengthen its system for accepting members with illnesses, so that it can bring in customers with lifestyle diseases. Rizap Group will also continue to work with local governments and companies to promote health improvement initiatives.
Connection with medical treatment, improvement in lifestyle diseases: In the past, in the Rizap Body Making business the company focused on attracting members interested in weight loss. As Japan’s society ages, over the medium term the company plans to expand its business by attracting members with lifestyle diseases and helping them improve their health.
Joint university research: The company is conducting joint research with a number of universities and medical institutions. The company presented research it is conducting on the “safety of low-sugar diets” in collaboration with the Institute for Adult Diseases of the Asahi Life Foundation at a conference of the Japan Diabetes Society in October 2018. The presentation was on research results showing that “short-term low-sugar diets for treatment of obesity are safe and effective.” The company also has case studies showing that people with severe diabetes can use Rizap’s method to reduce visceral fat and normalize blood glucose and HbA1c (hemoglobin A1c) levels. According to the Japan Clinical Trial Association, Rizap’s personal training has helped to reverse metabolic syndrome and improve blood pressure, triglyceride, and blood sugar levels.
Launch of Rizap Medical Body Making Program: In November 2020, the company launched its Rizap Medical Body Making Program, in which it creates an original program based on the trainee’s blood test results to improve health-related indicators (weight, body fat, blood pressure, triglycerides, and blood sugar) under the supervision of a physician through the cooperation of a medical institution. The program aims to improve the health-related indicators through one-on-one training with a dedicated Rizap trainer twice a month, weekly dietary guidance by a nutritionist, and management via a smartwatch. There is an enrollment fee of JPY50,000 (before tax) and monthly fee of JPY29,800 (before tax) (conditional on maintaining membership for 12 months). Since the number of times one-on-one training is held is smaller than with other programs, the fees are set lower than for the standard training program or the Senior Program.
Rizap Group has positioned FY03/19 as a period for eliminating negative factors and FY03/20 as a time for building the foundations for growth. To achieve this, it moved to shrink, withdraw from, or sell companies it judges unlikely to deliver positive return on investment or that will have difficulties improving profitability. Rizap is also strengthening governance and put a general freeze on M&A. It says it completed management restructuring in FY03/21 and will return to a growth track in FY03/22.
Rizap Group is undecided about resuming M&A activity as it returns to a growth track. However, even if the company resumes such activity, Shared Research thinks it will be more attentive to reducing the risk associated with acquisition-related failures than it has been in the past. A sudden increase in the number of acquisitions between FY03/16 and FY03/18 led Rizap Group to post significant losses. We will be monitoring the company’s analysis of the reasons for these losses, its efforts to reinforce governance, and the functioning of the newly established Investment/Finance Committee.
Numerous acquisitions between FY03/16 and FY03/18 caused the number of consolidated subsidiaries to grow from 19 in FY03/15 to 76 in FY03/18.
Japangals SC (formerly As’ty)
Sankei Living Shimbun
|Consolidated subsidiaries: 14||19||31||51||76||86|
Notably, many of Rizap Group’s acquisitions in FY03/17 and FY03/18 generated gains on negative goodwill, which lifted operating profit. Of the JPY10.2bn in operating profit the company generated in FY03/17, JPY5.8bn was from gains on negative goodwill. Similarly, gains on negative goodwill accounted for JPY8.7bn of JPY11.8bn in operating profit in FY03/18. The company says acquiring negative goodwill was not the objective of the acquisitions, but the company did take this factor into its assumptions when making forecasts, and Shared Research thinks it figured into the company pursuing a large number of M&A to generate profit with little emphasis on post-merger integration and synergy creation. Some of the companies Rizap Group acquired were in business sectors in structural decline, such as apparel retailers, free newspapers, and CD/DVD retailers, and had needed to downsize multiple times. After acquiring such companies, performance improved temporarily after unprofitable departments were pared away. Even so, it is unclear whether sustainable management reorganization is possible.
|Gain on negative goodwill||5,832|
|Gain on negative goodwill||8,665|
|Sankei Living Shimbun||1,867|
The company says it has learned from its experience of having to record impairment losses on the goodwill generated in past acquisitions, so it tries to acquire companies as inexpensively as possible. The company also believes it can take advantage of the negative goodwill generated when it buys a company at a price below the net asset value, and use the gains on negative goodwill in corporate restructuring.
The sharp increase in M&A activity led Rizap Group to post significant losses in FY03/19, as it was unable to focus sufficient attention on corporate and business restructuring. As the companies it purchased for less than net assets were often understaffed, they required management attention on the personnel front, and Rizap Group says some of its integration efforts were insufficient. The company explains that it knew what elements corporate and business restructuring needed but was unable to allocate sufficient personnel to create management structures at the acquired companies and to then formulate and enact restructuring plans.
The company does not consider the acquisitions themselves to have been a failure. By analyzing the reasons for its failures, Rizap Group believes it can grow through M&A. Shared Research understands this to mean the company intends to recommence acquisitions in the medium term. That said, we understand that the company intends to consider the acquisition frequency and PMI improvement more carefully than in the past.
Organizational changes on the Board of Directors:
In FY03/18, the company had 12 directors: a representative director/president/CEO, a representative director/COO, seven other directors, and three outside directors.
As of FY03/19, the Board had six members: five outside directors and only one inside director (President Seto). Since June 2019, Nobuhide Nakaido (outside director, former vice president and representative director of Sumitomo Corporation, as well as former chairman and president of SCSK Corporation) chaired the company’s Board of Directors.
In June 2020, in addition to President Seto, three executive officers assumed director positions, and Tsutomu Fujita (former vice chairman of Citigroup Global Markets Japan) and Masahiro Matsuoka (representative director of Frontier Management) became outside directors.
Investment/Finance Committee: In July 2019, the company set up the Investment/Finance Committee, an internal committee comprising all Board members except the representative director. The committee is tasked with reconfiguring the company’s rules related to investment/finance and M&A. The committee’s role is to deliberate M&A and alliances before they are proposed to the Executive Committee and the Board of Directors.
Investment/Finance Committee: This committee meets around once every two weeks, depending on the number of projects in motion. The committee comprises Takayuki Kamaya (executive officer and general manager of the Corporate Planning Department), who chairs the committee; the executive officer in charge of M&A; one other executive officer; and the general manager of the Finance Department. Meetings are also attended by one other person from the Corporate Planning Department, who is responsible for the administrative tasks associated with the committee. Rizap Group says the members of the Investment/Finance Committee are some of the company’s most stringent on M&A decisions.
The group’s management philosophy is “We prove that ‘people can change.’” Its business domain encompasses the self-improvement industry, which targets the top rank of Maslow’s five-tier hierarchy of needs: “self-actualization.”
Tier 1 (physiological needs): These refer to the main physical requirements for human survival, such as food, excretion, and sleep.
Tier 2 (safety needs): These are needs for safety and security.
Tier 3 (social needs): This refers to the need to be accepted by friends, family, and society. It refers to the desire to belong to or be loved by a group and is sometimes expressed as “belongingness and love needs” or the “desire to belong.”
Tier 4 (esteem needs): This indicates the need to be respected and recognized by others. It encompasses the desire for fame or social status.
Tier 5 (self-actualization): This is the desire to realize one’s full potential, based on a person’s worldview and view of life. Actions that propel a person toward self-actualization include seeking out one’s potential, self-development activities, and expressing creativity.
At the FY03/21 earnings results briefing, President Seto commented that the company aims to introduce products and services that are not mere commodities, but give customers a sense of value and make them self-confident. He defines the self-actualization industry as one that continually provides self-actualization solutions that support customers throughout their lives, rather than just selling goods. Globally, the self-actualization market is worth some JPY250tn.
Overview: Rizap Group is a holding company with 72 consolidated subsidiaries (six of which are listed), as of March 2021. Its core company is Rizap Co., Ltd. (“Rizap Co.”; operates Rizap personal training gyms, which aim to help people lose weight). Rizap Group has grown through acquisitions centered on the self-improvement industry. The company interprets the phrase “self-improvement industry” broadly; subsidiaries’ businesses are diverse, ranging from the sale of shapewear to the operation of stores selling CDs/DVDs, apparel, and variety goods to the publication of free newspapers.
Started with diet foods, launched the Body Making business in 2012: Takeshi Seto, the current president, established the company in April 2003 at the age of 24. The company started out by selling dietary supplements, but performance was lackluster. However, a soy milk-based cookie—an item previously given out for free—became a hit when the company modified the recipe and began selling it as a weight-loss food. This product helped boost revenue above JPY10.0bn in the company’s fourth year. Sales of soy milk cookies waned as competition grew more stringent. Later, the company experienced boom-and-bust cycles for other products, such as a facial massager sold in combination with periodically replenished consumables, and clay-based soap. In 2012, the company launched its current core business, the Rizap Body Making business (operation of Rizap personal training gyms). The catchphrase “Commit to the result®” and television commercials highlighting celebrities’ weight loss through Rizap have boosted the company’s name recognition, driving performance.
Expanded through acquisitions, made M&A mistakes, and restructured: The company listed its shares in May 2006. At JPY2.4bn in FY03/06, revenue had expanded to JPY169.6bn by FY03/21. Revenue growth from the Rizap Body Making business was a major reason for this growth. Aggressive acquisition also played a key role. As outlined above, the company vigorously acquired companies in the loosely defined “self-improvement industry” from FY03/16 to FY03/18, and business diversified. However, this rapid M&A led to slower improvement of subsidiaries’ performance, and in FY03/19 the company recorded impairment losses and losses on retirement of noncurrent assets, resulting in a JPY19.4bn loss attributable to owners of the parent. To improve management quickly, the company announced it would pare back its subsidiaries, shrinking, withdrawing from, or selling those that could not deliver satisfactory return on investment or improvement in profitability. The company also plans to reinforce governance and has declared a general freeze on M&A.
Revenue and profit structure: Rizap-related businesses include the performance of Rizap Co., the group’s core subsidiary, and related products. (In FY03/20, revenue was JPY40.1bn, but the company does not disclose operating profit/loss.) Wonder Corporation operates CD/DVD stores (FY03/21 revenue of JPY56.0bn, pre-tax profit of JPY954mn). MRK Holdings (formerly Maruko) manufactures and sells shapewear (FY03/21 revenue of JPY18.3bn, pre-tax profit of JPY462mn). Other subsidiaries include IDEA International, which imports and sells variety goods; HAPiNS, which operates variety stores; Dream Vision, an online apparel retailer; Jeans Mate, which operates stores selling casual wear; and Marusho Hotta, which produces fiber materials.
The company has three business segments: Healthcare and Beauty, Lifestyle, and Investments.
From Q1 FY03/21, the company changed its reportable segments from Beauty and Healthcare, Lifestyle, and Platform segments to Healthcare and Beauty, Lifestyle, and Investments segments.
SD Entertainment and other businesses were moved from the former Beauty and Healthcare segment to the Investments segment.
The new Lifestyle segment is the old Lifestyle segment plus Wonder Corporation and others. Dream Vision and Marusho Hotta moved from the old Lifestyle segment to the Investments segment.
The Investments segment engages in management of the group’s investment business and businesses whose restructuring should be accelerated. It comprises the old Platform segment plus SD Entertainment, Dream Vision, Marusho Hotta, and others. Wonder Corporation moved from the old Platform segment to the Lifestyle segment.
|Business segments||Major subsidiaries||Business description||% of total revenue||Operating profit|
|Healthcare and Beauty||RIZAP-related||Operation of Rizap businesses, including Rizap personal training gyms and Rizap Golf; sale of shapewear, health, beauty, and cosmetics items, and other items||25.50%||Loss of JPY113mn|
|Lifestyle||Wonder Corporation||Retailing of entertainment-related products; operation of stores selling preowned items; planning, development, manufacture, and sale of interior and apparel items; sale of sporting goods||54.70%||Profit of JPY3.6bn|
|Investments||SD Entertainment||Management of investment business within the group and of businesses that require accelerated rehabilitation||19.70%||Loss of JPY528mn|
|Sankei Living Shimbun|
Companies in the Healthcare and Beauty segment operate Rizap personal training gyms, Rizap Golf gyms, and other Rizap-related businesses, as well as selling shapewear and health, beauty, and cosmetics items.
|Business description||Major subsidiaries||Details||Performance|
|RIZAP-related||Rizap Co., Ltd.||Operation of Rizap businesses, including Rizap personal training gyms and Rizap Golf; sale of shapewear, health, beauty, and cosmetics items, and other items||-|
|Rizap English||Provision of private “Rizap English” lessons|
|Other||Sale or provision of Rizap-related products and services|
|Shapewear||MRK Holdings||Women’s underwear and related businesses; business related to maternity and babies||Revenue: JPY18.3bn (-3.1% YoY), Operating profit: JPY612mn (-19.3% YoY)|
|Other||Kenko Corporation||Sale of cosmetics and beauty equipment; sale of health foods to control calories and general health foods||-|
Rizap-related businesses include the Rizap Body Making business, Rizap-related products and services, B&D, D&M, Gochisouyasobei, and Isshin Watch. Shared Research understands that Rizap Co., Ltd., and the sale of Rizap-related products contribute substantially to performance in the category of Rizap-related businesses.
|Rizap Co., Ltd.||Rizap Body Making business: Operation of Rizap personal training gyms (123 locations as of end-FY03/21), Rizap Golf gyms (24), EXPA studios for women (12)||Revenue: JPY20.9bn|
|Recurring profit: JPY430mn|
|Net income: JPY2.3bn|
|Rizap English||Provision of private “Rizap English” lessons (nine locations as of end-FY03/21)||Net income: JPY16mn|
|Other Rizap-related subsidiaries||Rizap-related products and services||-|
The company discloses revenue only for Rizap-related businesses.
The principal consolidated subsidiary in the Rizap Body Making business is Rizap Co., which operates Rizap personal training gyms (123 locations at end-FY03/21), Rizap Golf gyms (24 locations), and EXPA body toning studios for women (12 locations).
At Rizap personal training gyms, dedicated trainers tailor training programs to individual customers. They offer daily nutritional guidance focused on restricting sugar intake and provide verbal instruction as they help customers sculpt their ideal physique. This core business launched in 2012. A television commercial featuring the phrase “Commit to the result®” and showing a celebrity losing weight through Rizap-based instruction boosted awareness of the business. As of end-March 2021, cumulative members totaled 163,000.
The company explains that many weight-loss methods and training approaches exist, and some are widely known. Even so, many people do not persevere with their weight-loss efforts or rebound after seeing some initial success. Rizap notes that the source of the problem lies in behavioral psychology: people thinking they cannot continue or are unable to get past a certain hurdle. Customers go to the gyms to achieve their ideal physique, and not necessarily to learn a particular training method. According to the company, the role of Rizap trainers is to stay close to their customers, providing support through daily nutritional guidance, encouragement, and praise for any progress being made. In this way, trainers strengthen customers’ ability to overcome the mental hurdles they face to develop their ideal physique.
President Seto talks of a personal experience from high school. He had a girlfriend who was trying to lose weight, so he went running with her and phoned her to offer words of encouragement. Three months later, she had changed so much as to be almost unrecognizable. At the time, he had no knowledge of weight loss or training, but through the process he learned that working together and providing encouragement was the key to helping people reach their goals rather than offering a specific technique or method. Based on President Seto’s experience, Rizap developed a personal training approach that differs from sports gyms’ conventional offerings and turned this approach into a business.
Rizap’s trainers apply behavioral research and analysis based on the company’s accumulated training experience to create and provide training programs optimized for individual customers. Dedicated trainers provide one-on-one instruction. The company says its recruiting process is rigorous, and it hires only 3.2% of applicants. Successful candidates undergo more than 200 hours of training at one of two in-house academies in Japan. During this concentrated training, the new employees learn about training, nutrition, and customer relations.
・Sugars: Sugars are an essential source of the energy that sustains human life and physical activity. They are a subset of carbohydrates, which are one of the three macronutrients (proteins, carbohydrates, and fats). Carbohydrates divide into sugars, which can be digested, and dietary fiber, which cannot.
・Sugar restriction: Sugar restriction refers to the dietary approach of minimizing the amount of sugars taken in. Sugar restriction is one dietary approach used for treating diabetes. This regimen is also highly effective for weight loss. Restricting sugar constrains the accumulation of body fat, and the resulting breaking down of fat in the body can lead to weight loss. Compared with proteins and fats, ingesting sugars causes blood glucose levels to spike more rapidly. To suppress such spikes, the body secretes large amounts of insulin (a hormone), which signals fat cells to take in glucose from the blood. Suppressing the secretion of insulin constrains the accumulation of body fat. Also, when fewer sugars (the energy that moves the body) are ingested, the body adjusts to the internal energy deficit by breaking down accumulated neutral fat and body fat, producing ketone bodies as an alternative source of energy. This mechanism leads to the breakdown of neutral fat and body fat, enabling weight loss.
・Specific methods of restricting sugars: Rather than eliminating sugars, sugar restriction involves limiting the amount of sugars that are ingested. People are advised to eat less rice, bread, and noodles, and more of other dishes.
・Benefits of sugar restriction: As sugar restriction does not involve reducing the number of calories taken in, dieters need not feel hungry. Also, protein intake is not limited, so dieters need not lose muscle (which is made of protein).
・Disadvantages of sugar restriction: A person’s physical condition may be affected once the sugars in a person’s body are essentially depleted. Symptoms include headaches and nausea, dizziness, anxiety, fatigue and enervation, and drowsiness. Also, reducing carbohydrate intake can cause a shortage of dietary fiber, leading to constipation. In 2006, articles in two leading medical journals, The Lancet and the New England Journal of Medicine, reported cases in which following a strict sugar restriction diet caused waste products to accumulate in the body and led to serious levels of oxidation of the body.
When joining a Rizap personal training gym, customers choose a one-on-one training program, a pair training program, or a specialized program.
One-on-one training program (50 minutes/session x 16 sessions over two months): This program costs JPY348,000 (before tax), including an enrollment fee of JPY50,000 (before tax). With one-on-one training for two 50-minute sessions each week, customers aim to develop their ideal physique in as little as two months. The program fee includes three counseling sessions, nutritional guidance, and clothing to wear while training.
|Sessions||Cost (JPY)||Cost per session (JPY)||Period (months)|
|Sessions||Cost (JPY)||Cost per session (JPY)||Period (months)|
Pair training program (50 minutes/session x 16 sessions over two months): This program costs JPY448,000 (before tax), including an enrollment fee of JPY50,000 (before tax). Two trainees work with a trainer for two 50-minute sessions each week for a minimum of two months. As with the one-on-one training program, this program includes three periodic counseling sessions, nutritional guidance, and free renting of sportswear for training.
|Sessions||Cost (JPY)||Cost per session (JPY)||Period (months)|
|Sessions||Cost (JPY)||Cost per session (JPY)||Period (months)|
Launched in July 2020, the Rizap Senior Program aims to improve the physical fitness and muscle strength of and extend the healthy life expectancy of people aged 60 and older.
The objective of the training programs provided by the Rizap Body Making business is to attain the ideal physique. The Senior Program on the other hand focuses on the role of muscles in extending the healthy lifespans of older people so that they maintain their independence and do not end up bedridden; its objective is to ensure that seniors remain mobile and physically active. The program uses metrics such as muscle ratio, body weight, body fat ratio, and physical-strength age. Rather than simply gain muscle, the program seeks to improve muscular strength, flexibility, balance, and agility to extend healthy lifespans.
Rizap medical trainers serve as personal trainers for customers, providing one-on-one training sessions and daily dietary management support. Medical trainers for the Senior Program are selected from those who have undergone 192 hours of training, have knowledge of diet, exercise and nutrition, and have completed specialized training in illnesses and injuries that are common in seniors. Each customer has a customized training menu and receives detailed advice on choosing foods and cooking methods depending on body shape under the guidance of a dietitian.
Fees are similar to the Shape-up Program, comprising a JPY50,000 (plus tax) enrollment fee and training fees outlined below.
|Sessions||Cost before tax||Period (months)|
The Medical Body Making Program aims to improve health-related indicators (weight, body fat, blood pressure, triglycerides, and blood sugar) based on blood test results. In cooperation with more than 190 medical institutions across Japan, trainees undergo blood tests and medical checks under the supervision and support of a physician. The program supports training under the guidance of the physician.
The trainee uses a blood collection kit to submit a sample for the blood test. Based on the results, the company creates a custom program to improve health-related indicators under the physician’s supervision and with the cooperation of the medical institution. Under the program, the trainee undergoes one-on-one training with a dedicated Rizap trainer twice a month, uses a special app to consult with a nutritionist and receive dietary advice once a week, checks their daily health and sleep quality using a smartwatch that can measure some health-related indicators, and can receive advice from a physician based on individual training status.
For an enrollment fee of JPY50,000 (before tax) and monthly fee of JPY29,800 (before tax) (conditional on maintaining membership for 12 months), the trainee receives one-on-one training twice a month, but can use a private studio at the Rizap facility as needed.
The company does not disclose performance for the Rizap Body Making business, but Shared Research thinks Rizap Co. (which handles most of this business) serves as a good proxy.
In its annual securities report, the company discloses Rizap Co.’s results in the principal categories of revenue, recurring profit, and net income. It does not provide CoGS, gross profit, SG&A expenses, or operating profit.
In the public notice of financial results for FY03/17 and FY03/18, the company released the following breakdown of gross profit, SG&A expenses, and operating profit for Rizap Co. Shared Research understands the company did not disclose this information for FY03/19. However, at its earnings announcement for FY03/19, the company did note that operating profit for the Rizap Body Making business was 3.5x the FY03/17 level.
|Cost of revenue||-||-||6,424||9,876||-||-||-|
|Gross profit margin||-||-||66.8%||61.3%||-||-||-|
|Operating profit margin||-||-||16.5%||9.1%||-||-||-|
|Total net assets||412||2,858||5,625||6,462||1,096||-3,103||-815|
Revenue from the Rizap Body Making business equates to member count times revenue per member. Major variables are the number of members and the retention rate. The company influences revenue per member by introducing new programs and selling supplements.
Members: As of March 2021, cumulative members totaled 163,000 (up 16,000 YoY), of which between 15,000 and 17,000 were active members. The retention rate as of FY03/19, calculated as the percentage of members who joined in April 2018 and were still active six months later, was 45.6% (44.6% in FY03/18). The company says six months is the average duration for active members. Rizap works to increase the number of members by running television commercials featuring celebrities. Membership is also affected by the company’s reputation for performance.
Source: Shared Research based on company dataRevenue per member: The one-on-one training program is priced at JPY348,000 for 16 sessions over two months (including an enrollment fee). To help prevent a rebound following short-term weight loss, the company recommends a three-month, 24-session package priced at JPY482,000 (including an enrollment fee). After completing the one-on-one training program, customers have the option of leaving or doing another one-on-one training program comprising 16 sessions over two months and priced at JPY298,000 (no enrollment fee). Alternatively, they can shift to the Medical Body Making Program, which is priced at JPY29,800 per month and includes two sessions. The average membership duration is six months. During this period, the company provides core programs and sells supplements and protein products, generating revenue per member of JPY600,000–800,000 (for instance: JPY348,000 for the Shape-up Program plus the Medical Body Making Program plus supplements).
|End Mar 2013||End Mar 2014||End Mar 2015||End Mar 2016||End Mar 2017||End Mar 2018||End Mar 2019||End Mar 2020||End Mar. 2021|
|Cumulative total members ('000)||-||13||33||58||79||106||130||147||163|
|Net increase YoY ('000)||-||-||20||25||21||27||24||17||16|
|Member retention rate (six-month mark)||-||-||-||31.2%||38.1%||44.6%||45.6%||-||-|
|End Mar 2015||End Mar 2016||End Mar 2017||End Mar 2018||End Mar 2019||End Mar 2020||End Mar. 2021|
|Total (quarter-end; facilities)||42||83||130||149||189||198||181|
|Rizap Body Making||40||76||115||120||129||129||123|