Hamee 3134
Hamee
Recent Updates
2022-03-29
2022-03-15
Get in touch
Summary
Hamee Corp.’s main business areas are Commerce and Platform. In the Commerce business, the company runs online retail stores handling smartphone accessories such as cases and also sells these products wholesale to major variety stores and electronics retailers.
Internet & Direct Marketing Retail
Key dates
2019-07-12
Coverage initiation
Executive summary
Business overview
Hamee Corp’s growth driver is its Platform business, in which it provides cloud-based (SaaS) systems to online store operators, while its earnings base is its Commerce business, in which it sells products such as smartphone cases. The company started as an online retailer of mobile phone straps and expanded its product mix to include smartphone accessories as smartphones became increasingly common. In recent years, it has deepened and diversified its business by turning its attention to external sales of Next Engine, a platform it developed and uses itself as an online store operator to sell products through multiple e-commerce stores.
In the Platform business (FY04/21 sales of JPY2.3bn, 18.7% of total sales, 27.6% of total operating profit), the company handles Next Engine, its cloud-based (SaaS) business management system for online store operators. Through this service, users (online store operators) can streamline their operations by automating routine e-commerce-related tasks (including order confirmation, inventory allocation, and shipping preparation). Users can also increase sales opportunities by opening multiple online stores even with a small number of staff, allowing them to focus their management resources on creative areas such as marketing activities. Due in part to the benefits of such convenience, Next Engine is one of the largest e-commerce backyard systems.
Sales from Next Engine, which are the bulk of Platform business sales, can be expressed as average revenue per user (ARPU) × number of companies under contract. ARPU comprises fixed charges (usage charges for main functions, JPY10,000 monthly) + pay-per-use charges (pay-per-use portion + charges for additional functions). The number of companies under contract can be expressed as existing user count x (100% - churn rate) + new user count. With expansion of the e‑commerce market, ARPU is trending upward (in FY04/21, average pay-per-use charges were JPY26,539, +7.0% YoY). In addition, Hamee is working to enhance client success by adjusting its staffing structure to support existing users and acquire new ones, and the number of companies under contract (4,739 at end-FY04/21, +18.6% YoY) is on the rise due to a lower churn rate and growth in new users.
In the Commerce business (FY04/21 sales of JPY9.7bn, 78.7% of total sales, 72.4% of total operating profit), the mainstay product is smartphone cases (with retail prices of about JPY3,000). Hamee’s designers plan and develop products that are then produced overseas at the company’s own plants or by contract manufacturers and purchased by Hamee for sale both inside and outside Japan. The key iFace brand, which accounts for more than 70% of domestic Commerce business sales stands out from the competition with distinctive designs, functionality, and strong brand recognition. The company’s retail (online sales) and wholesale (sales to variety stores and electronics mass retailers) channels each account for about 50% of segment sales. In the retail channel, the company sells some 6,000 products to consumers through its own websites, and via nine domestic e-commerce malls including Rakuten Ichiba, Yahoo! Shopping, and Amazon. Selling its products both online and in physical stores allows the company to better track consumer purchasing behavior.
Trends and outlook
In FY04/21, the company posted sales of JPY12.4bn (+9.2% YoY), operating profit of JPY2.2bn (+24.9% YoY), and net income attributable to owners of the parent of JPY1.6bn (+45.5% YoY). GPM was 61.2%, up from 56.8% in FY04/20. Sales grew in the Platform business, which has a higher marginal profit ratio, and there was an increase in the proportion of high-margin retail sales in the Commerce business. The company paid an annual dividend of JPY10 per share for FY04/21 (payout ratio of 10.2%).
For FY04/22, the company forecasts sales of JPY14.0bn (+13.2% YoY), operating profit of JPY2.3bn (+3.2% YoY), and net income attributable to owners of the parent of JPY1.6bn (+3.6% YoY). In the Platform business, the company projects sales of JPY2.8bn (+19.2% YoY) and operating profit of JPY1.1bn (+10.1% YoY). It will increase the number of companies under contract through continuing to focus on initiatives to drive client success, including the digitization of routine tasks, enhanced analog communication, and webinars to help clients improve operational proficiency. In addition, Hamee Consulting will actively utilize group resources to maximize synergy benefits, for instance by starting to offer contracted services for setting up Next Engine. In the Commerce business, the company expects sales of JPY10.6bn (+8.5% YoY) and operating profit of JPY2.6bn (+2.1% YoY). Domestic wholesale sales are expected to remain in line with the previous year levels, reflecting the continued impact of the pandemic. On the other hand, domestic retail sales are expected to increase on the back of continued growth in the e-commerce market in Japan.
Strengths and weaknesses
Shared Research sees Hamee’s strengths as follows: 1) a positive feedback loop between the Platform and Commerce businesses that contributes to mutual growth; 2) a business model in the Platform business where improved productivity at Next Engine users helps grow its own business; and 3) the ability to continue bringing lucrative, differentiated new products to market in the Commerce business.
Weaknesses include 1) in the Commerce business, the limited growth potential of the smartphone case market, as penetration rate for smartphones is close to peak; 2) high degree of dependence on iFace-related products; and 3) the inability to hire IT staff capable of aiding platform building efforts, resulting in opportunity loss (see “Strengths and weaknesses” section for details).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Annual gross merchandise value of Next Engine surpasses JPY1tn
On April 7, 2022, Hamee announced that the annual gross merchandise value of goods handled through Next Engine had surpassed JPY1tn.
The company announced that the annual gross merchandise value of goods handled through its Cloud-based (SaaS) E-commerce Attractions Next Engine in FY2021 exceeded JPY1tn. This was in part attributed to tailwinds provided by favorable market conditions, such as the expansion of the e-commerce market in Japan and the increase in importance of digitalization in enhancing competitiveness in e-commerce.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Results for Q3 FY04/22 (out March 14, 2022)
The company has applied the Accounting Standard for Revenue Recognition (ASBJ No. 29, March 31, 2020) since Q1, but the impact on reported results is insignificant.
Outline of cumulative Q3 FY04/22 results
Sales in cumulative Q3 FY04/22 were up YoY. Sales in the Platform business expanded thanks to growth in the number of companies under contract. Sales also improved in the Commerce business on an expansion in sales of smartphone cases alongside the release of the new iPhone models.
Operating profit was up YoY. Although operating profit improved YoY in the Platform business, it declined YoY in the Commerce business.
Platform business: Operating profit for Q3 FY04/22 came in at JPY850mn (+19.6% YoY), while the OPM was down 0.6pp to 41.5%. While there was an increase in system-related costs and personnel costs, this was offset by higher sales. OPM declined amid higher costs and a greater weighting of low-margin Hamee Consulting business.
System-related expenses (cost of sales) were up due to the switchover from rental to cloud-based servers. Costs will rise temporarily during the transitional period as the company uses both old and new systems, but are set to go down as switchover efforts peak in Q4 FY04/22. As a provider of cloud-based (SaaS) business management systems, the company sees the switchover as an upfront investment targeting greater operational stability and growth in the number of companies under contract going forward. The company needed to ensure the capacity of its in-house servers to handle peak order volume, and the shift to a cloud environment could also enable lower costs.
Personnel costs: Personnel costs increased due to more robust staffing in the development division.
Outsourcing costs: The company outsources new customer development for Next Engine to outside agencies, and incurred performance-based referral commission costs.
Goodwill amortization: The company recorded JPY45mn for the amortization of goodwill that it recorded when it acquired the shares of JS Consulting (now Hamee Consulting) in April 2018. Goodwill will be fully amortized in FY04/23.
Commerce business: Operating profit in Q3 FY04/22 was JPY1.8bn (-4.9% YoY). Higher sales led to a JPY388mn increase in gross profit, but SG&A expenses were up JPY479mn, resulting in the lower operating profit.
Advertising costs were up by JPY77mn as the company carried out sales promotion activities in connection with its entry into the cosmetics business.
Personnel costs were up JPY142mn, reflecting higher personnel costs in the Commerce business due to organizational changes, higher personnel costs at the Korean subsidiary and higher forex-related costs.
Commissions paid were up JPY171mn, as the company paid higher commissions to the Amazon online shopping site in line with expansion in sales of Pixio gaming monitors and e-commerce sales in the US.
Recurring profit and net income attributable to owners of the parent
Recurring profit and net income attributable to owners of the parent both improved YoY. The company booked extraordinary gains of JPY172mn on the sale of some equity-method subsidiary shares.
Quarterly results
Sales and profit declined YoY in Q1, but turned around in Q2 and Q3.
In Q1, sales were JPY2.6bn (-2.5% YoY) and operating profit was JPY327 (-21.2% YoY). While the Platform business recorded gains in both sales and profit thanks to an increase in companies under contract, sales and profit were down for the company as a whole as the Commerce business saw declines in both amid sluggish sales of smartphone accessories and products sourced from other companies.
In Q2, sales were JPY3.3bn (+13.4% YoY) and operating profit was JPY807 (+39.8% YoY). The Platform business recorded gains in both sales and operating profit thanks to an increase in companies under contract, as did the Commerce business, thanks to brisk sales of smartphone cases in Japan and music goods in the US.
In Q3, sales were JPY4.0bn (+17.4% YoY) and operating profit was JPY739 (+11.8% YoY). The Platform business recorded gains in both sales and operating profit thanks to an increase in companies under contract, as did the Commerce business, thanks to brisk sales of music goods in the US.
Progress versus full-year company forecast
Progress versus the full-year forecast in Q3 was 71.3% for sales (versus 73.2% of full-year FY04/21 results in Q3 FY04/21), 83.3% for operating profit (75.9%), 85.8% for recurring profit (74.9%), and 89.9% for net income attributable to owners of the parent (73.6%).
The progress rate in the Platform business was 74.6% of sales (73.2% in Q3 FY04/21) and 80.9% of operating profit (74.5%). With sales of both Next Engine and Hamee Consulting coming in above forecasts, and SG&A expenses lower than initially forecast, the company expects to achieve both its full-year sales and operating profit targets.
The progress rate in the Commerce business was 71.4% of sales (72.9% in Q3 FY04/21) and 69.9% of operating profit (75.1%). The launch of Pixio gaming monitors, which was factored into the forecast, was delayed due to semiconductor shortages, while sales of iFace smartphone cases came in below forecast in Q1 and Q3. Both sales and operating profit were below company projections. However, the mid-March 2022 launch of the iPhone SE (third generation) was not included in the forecast; if this gives a boost to iFace performance, full-year sales may approach the forecast.
Results by segment
Platform business
Sales and operating profit in the Platform business improved on a YoY basis. Next Engine sales were up on an increase in companies under contract, and Hamee Consulting sales improved on an expansion in consulting contracts.
In terms of costs, the company has been pushing forward with investments in cloud infrastructure, and although server costs increased, operating profit was up on the back of higher sales.
Next Engine
Both sales and profit increased YoY due to growth in the number of companies under contract.
Next Engine sales are calculated as average revenue per user (ARPU) × number of companies under contract. ARPU comprises fixed charges (usage charges for main functions, JPY10,000 monthly) + pay-per-use charges (pay per use + charges for additional functions). The number of companies under contract can be expressed as existing user count x (100% - churn rate) + new user count.
ARPU fell 5.1% YoY to JPY36,525 in Q1 FY04/22, increased 0.7% YoY to JPY35,141 in Q2, and increased 0.3% YoY to JPY37,077 in Q3.
Expansion of the e-commerce market: ARPU pay-per-use charges vary according to the number of orders processed, but are following an upward track in line with expansion in the e-commerce market. ARPU was down YoY Q1 FY04/22, reflecting the temporary upsurge in orders processed in Q1 FY04/21 stemming from pandemic-driven growth in the e-commerce market, but was higher than Q1 FY04/20. Q2 and Q3 ARPU was up YoY due to ongoing expansion in the e-commerce market.
On top of external factors like growth in the e-commerce market, the company’s measures to upsell, such as its promotion of an app to automatically deliver product recommendations, are also contributing to the rise in ARPU. The app automatically attaches to customer emails recommendations of products selected by the Next Engine AI as being likely to interest the consumer. It was trialed for free in December 2018, but the company began charging for it in June 2021. Roughly half of the companies who trialed the free app continue to use it after it became fee-based.
The number of companies under contract rose to 5,236 (an increase of 723 companies YoY and 144 more than end-April 2021).
Net increase: In cumulative Q3 FY04/22, companies under contract increased by 497 YoY (compared to a 516 net increase in cumulative Q3 FY04/21). Although the net increase was lower than the pandemic-driven increase in the previous year, it approached initial forecast levels. In Q2 FY04/21, Hamee began outsourcing call center operations previously conducted in-house and transferred about 20 employees who had previously been handling call center operations to the newly established contract rate improvement division and churn rate improvement division. It now has a personnel structure that enables the strengthening of customer success initiatives, such as support for existing customers and the attracting of new customers, which has led to the increase in companies under contract.
Churn rate: In cumulative Q3 FY04/22, the average monthly churn rate was 0.91%, compared to 0.85% in cumulative Q3 FY04/21. The churn rate was 0.81% in Q1, 0.95% in Q2, and 0.96% in Q3. The company aims to keep the annual churn rate below 10%, or below 0.83% on a monthly basis, but notes that any rate below 1.0% is within expectations. The main reason customers cancel, which has been unchanged for the past several years, is their contraction or withdrawal from the e-commerce business.
The transition from brick-and-mortar stores to online retail continues to pick up speed, driving expansion in Japan’s e-commerce market from JPY7.2tn in 2016 to JPY12.2tn in 2021 (a five-year CAGR of 11.2%). During the same period, the gross merchandise value (GMV) of Next Engine users—the amount of orders processed through the Next Engine platform—grew 24.6% every year on average, surpassing growth in the e-commerce market. The higher user GMV growth rate is down to the company’s efforts to develop various apps and services to improve the convenience of Next Engine and support the growth of Next Engine users. In January 2022, the company launched NEHUB, a service that proposes apps and services available on the Next Engine platform that are most suited to users. It is working to address user issues and further improve convenience to support growth in user sales.
Hamee Consulting
Higher sales fed into a positive bottom line. Sales and profit were up YoY due to progress in acquiring e-commerce consulting contracts and large-scale orders in the e-commerce site production and development business, guided by a new department specializing in this area.
Since revising its organizational structure for consultants in Q1 FY04/21, retention rates have improved, giving the company a stronger framework for acquiring new clients and supporting existing ones, while curbing recruiting costs and contributing to a turnaround in earnings.
E-commerce consulting: The company made progress in winning consulting contracts from large customers. A consultant in charge consults with e-commerce site operators to develop strategies, enhance customer appeal, and boost the repeat rate and average customer spend. This is a business capable of generating recurring profit. E-commerce consulting accounts for 70%–80% of segment sales.
Online store opening and site construction consulting: The company won a large order in Q3 FY04/22. It undertakes comprehensive tasks for customers, ranging from selecting the mall to open a new online store to site management and page design, as well as actual site production.
Next Engine set-up operations: The company established a new specialized department in November 2021, with Hamee Consulting handling initial Next Engine set-up operations, which used to be outsourced. The company expects that a certain percentage of new Next Engine customers that Hamee Consulting has worked with as part of the set-up service will become Hamee Consulting customers in the future, and targets the expansion of synergies within the group.
Quarterly results for the Platform business
Q1 sales were JPY657mn (+19.5% YoY) and operating profit was JPY273mn (+18.3% YoY). In addition to the increase in companies under contract for Next Engine, Hamee Consulting won contracts with large-scale clients, leading to higher sales and profit.
Q2 sales were JPY666mn (+23.9% YoY) and operating profit was JPY272mn (+22.6% YoY). Q2 typically tends to be the lowest GMV quarter for Next Engine customers due to sluggish demand for e-commerce sales, but performance for this particular quarter was robust, with sales remaining on a par with Q1.
Q3 sales were JPY728mn (+20.8% YoY) and operating profit was JPY305mn (+17.9% YoY). Sales reached a record high in December during the year-end sales rush. Expenses were also up due to investment in cloud-based server infrastructure, but this was offset by the robust sales, yielding higher profit.
Commerce business
Sales were up YoY but profits were down due to higher advertising costs associated with entry into the cosmetics business and an increase in commissions paid.
The company received the Rakuten Shop of the Year 2021 grand prize for the smartphone, tablet, and accessory genre for the third year in a row.
Domestic and overseas performance
Backed by firm sales of the new iPhone models, sales of iFace smartphone cases in Japan improved YoY. Overseas, Otamatone music goods sales were up YoY.
Sales in the domestic business increased. The launch of a new iPhone in Q2 boosted sales of the company's iFace smartphone cases, making up for sluggish growth in Q1 and Q3. Sales of products sourced from other companies, such as computer toys with popular children's characters, were down amid constraints on procurement volumes stemming from semiconductor shortages.
Sales in the US, which account for 80% of overseas sales, increased for the Otamatone music toy (generating 60% of US sales), as well as for slow-rising Squeeze toys (generating 20% of US sales). The company bolstered its e-commerce sales and product planning organization, including increased staffing. E-commerce sales grew on the back of the company's search engine optimization (SEO) measures and online advertising. It has also made inroads in product development that meets local demand. As a result, slow-rising toys and iFace cases with character designs familiar to US consumers recorded higher sales. iFace products account for only about 10% of total sales in the US, but the company plans to develop this as its mainstay brand within the US business.
Trends by sales channel
By sales channel, retail sales were robust compared to competitors thanks to the strength of the iFace brand. Wholesale sales improved in line with the company's progress in cultivating new carriers and carriers' efforts to promote sales of older models.
E-commerce (retail): The company's e-commerce site posted sales of JPY4.3bn (+6.8% YoY). Sales of iFace cases and other products were brisk during the new iPhone sales period in Q2.
Physical stores (wholesale): Wholesale sales were JPY3.2bn (+10.7% YoY). In Japan, the company reinforced its sales approach to smartphone carrier shops and expanded sales channels, resulting in higher sales.
New product trends
Pixio gaming monitors: In May 2021, Hamee entered an agreement with Pixio USA to serve as the exclusive Japan distributor of the Pixio gaming monitor brand. Since the outbreak of COVID-19, the gaming monitor market has been growing as people spend more time at home. Monitor supply was delayed due to shortages in semiconductors, but began to pick up in Q3, fueling sales of JPY155mn in that quarter. At present, the monitors are only sold on Amazon’s Japanese website, but the company plans to sell them through multiple e-commerce sites, including its own site, and targets annual sales of around JPY665mn.
ByUR cosmetics brand: Drawing on the strength of the iFace brand, the company is expanding its product line beyond smartphone-related products to include a range of lifestyle products. In January 2022, the company launched the ByUR brand of cosmetics, a spinoff from the iFace brand. The cosmetics are sold through the company's official online store and some brick-and-mortar stores. The company also plans to expand sales channels and the product lineup. Cosmetics is an area that enjoys strong affinity with the iFace brand, developed mainly for women in their late teens and early 20s. The company is exploring selling cosmetics through the same online stores as iFace going forward.
Quarterly results in the Commerce business
Q1 sales were JPY1.9bn (-8.9% YoY) and operating profit was JPY359mn (-29.2% YoY). While sales of products in the iFace series were on a par with Q1 FY04/21, overall sales were down due to a decrease in consolidation adjustments and lower sales of smartphone accessories. Operating profit was down as lower sales in Japan caused a decrease in gross profit and personnel costs rose.
Q2 sales were JPY2.6bn (+10.5% YoY) and operating profit of JPY819mn (+14.4% YoY). Sales and profit expanded due to the company's success in capturing demand during the new iPhone sales period. OPM rose to a record high of 31.7% thanks to the increase in gross profit on higher sales, and operating profit reached its highest level in the company's history for a single quarter.
Q3 sales were JPY3.0bn (+14.1% YoY) and operating profit was JPY604mn (-7.2% YoY). In addition to the carryover of momentum from the new iPhone sales season in Q2, products in the iFace series turned in solid performance during the year-end sales season as carrier stores focused on sales of older model cases. Wholesale sales remained robust, and even as a resurgence of COVID-19 cases restricted footfall, sales were on a par with Q3 FY04/21.
Other (new businesses)
Losses narrowed thanks to higher sales, driven by the Hometown Tax donation support service.
Hometown Tax donation support service: In Q3 FY04/22, tax donations were up 35.5% YoY and sales rose 41.8%. Leveraging the features of the Next Engine platform, the company handles Hometown Tax donation operations on behalf of local governments, booking a given percentage of the donated amount as sales. Peak demand for the Hometown Tax donation support service is in December, and the company thus books 80% of sales in Q3 (November–January). From the beginning of FY04/22, the company expanded its web design team and strengthened e-commerce marketing measures, including online advertising and distributing email newsletters. The company also worked to boost amounts donated to existing local government clients, such as by developing new rewards, as well as cultivate new municipal clients.
Hamic POCKET (Android OS, JPY15,000 for the device, JPY1,000 basic monthly charge): The company will work on hardware and software upgrades for this product, a mobile device with a monitoring function for elementary school students launched in February 2021.
RUKAMO is an e-commerce site launched in March 2020 to help companies dispose of slow-moving inventory. Under the theme of sustainability, the company is also working with recycling companies to reduce waste. When a product is sold, the company earns 10% of the selling price as a commission. The company in FY04/22 is still in the process of developing a mechanism to increase distribution volume and distribute stagnant inventory, so commercialization is expected to take some time.
Company forecast for FY04/22
Note: Figures may differ from company materials due to differences in rounding methods.
Hamee forecasts full-year FY04/22 sales of JPY14.0bn (+13.2% YoY), operating profit of JPY2.3bn (+3.2% YoY), and net income of JPY1.6bn (+3.6% YoY). It projects a full-year dividend of JPY20.5 per share (payout ratio of 20.1%).
Platform business
The company targets Platform business sales of JPY2.8bn (+19.2% YoY) and operating profit of JPY1.1bn (+10.1% YoY). At Next Engine, the company plans to increase the number of companies under contract by continuing to enhance client success activities, including promoting the digitization of routine tasks, deepening analog communication, and conducting webinars to help users improve operational proficiency. Hamee Consulting aims to maximize synergies by actively using group resources, for example to launch Next Engine configuration services. In anticipation of future growth, the company will continue to increase investment in servers, mainly to support cloud computing. Personnel expenses are also likely to increase due to hiring of development staff and new graduates. Such spending will slow operating profit growth.
Next Engine
Hamee forecasts Next Engine sales of JPY2.3bn (+17.6% YoY) and operating profit of JPY1.0bn (+8.1% YoY) in FY04/22. The pandemic has triggered acceleration of the digital shift, which should serve as a tailwind to the Next Engine business.
The company is targeting ARPU of about the same level as in FY04/21 (JPY36,539). ARPU grew 5.0% YoY in FY04/21 due to the greater speed of the digital shift in light of the pandemic, but Hamee is not expecting any similar gain in FY04/22. ARPU tends to be linked to sales trends in the e-commerce market, but the company aims at least to maintain the ARPU level by making the Automated Recommendation Email Delivery app a paid service and developing and expanding additional functions.
Companies under contract: At Next Engine, Hamee aims to have some 5,500 companies under contract (+761 companies, +16.1% YoY) by end-FY04/22. There were net increases of 375 in FY04/20 and 742 in FY04/21 (of which 226 were acquired in Q4 alone), so the company believes its FY04/22 target is achievable. It will focus on increasing the number of companies under contract by allocating personnel to keep the churn rate under control and improve the contract rate (rate of conversion of free users to paid users). The company will also continue working to lower the churn rate by enhancing initiatives to drive client success, such as conducting webinars to help users improve operational efficiency. In addition, it will strengthen its efforts to capture e commerce operators, especially those with multiple online stores. Beyond typical response methods, it will enhance its individualized response using a chat function and other methods to improve user convenience.
Hamee Consulting
For FY04/22, the company forecasts Hamee Consulting sales of JPY433mn (+28.1% YoY) and operating profit of JPY17mn (versus operating loss of JPY6mn in FY04/21). Sales from recurring-revenue clients, to which the company provides ongoing consulting support, account for 70% of total sales, and such sales are stable. In addition, recruiting costs are declining due to increased retention rates, no significant increase in other costs is expected, and the burden of goodwill amortization will disappear, helping the business to move into the black.
The company plans to conduct advertising and promotion to acquire new clients and has launched fee-based Next Engine configuration services, which it hopes will lead to the capture of new consulting clients. It also hopes to increase the average client spend by enhancing its service menu.
Commerce business
Hamee forecasts Commerce business sales of JPY10.6bn (+8.5% YoY) and operating profit of JPY2.6bn (+2.1% YoY). It expects increased sales of iFace-related products and the launch of gaming monitors in FY04/22 to contribute about JPY665mn, pushing segment sales higher YoY. The company expects operating profit to grow as well, but not by as much as sales due to planned investment (JPY224mn in Japan and JPY11mn in South Korea) centered on advertising and promotion for the new cosmetics business.
Sales outlook for iFace-related products
During FY04/22, the iPhone 13 is likely to be released in September 2021, and Hamee plans to roll out a new series of smartphone cases under the iFace brand to coincide with that. The company will also continue efforts to improve customer satisfaction, while securing means to maintain contact with customers, for example by releasing an iFace app and distributing exclusive content. By sales channel, it expects wholesale sales to be flat YoY, since there is little expectation of recovery in sales at brick-and-mortar stores as the impact of the COVID-19 pandemic continues. On the other hand, it sees ongoing growth in retail sales, since it assumes that more time spent at home will lead to greater consumption and that the digital shift will continue. Overseas, the company projects retail sales (accounting for some 80% of overseas sales) will expand through the use of Amazon, especially in the US.
Expansion of product line under iFace brand
The company plans to expand its product line beyond smartphone cases to include a range of lifestyle products using the strength of the iFace brand. Smartphone cases and other products using the iFace brand have remained popular especially among women in their late teens and early twenties, due to their distinctive design, functionality, and high brand recognition. The company will initially target its main iFace customer base with iFace branded cosmetics (scheduled to launch in November 2021) and gradually increase the product line thereafter.
Sale of gaming monitors
In May 2021, Hamee entered an agreement with Pixio USA Inc. to serve as the exclusive distributor of the gaming monitor brand Pixio in the Japan market. This business opportunity arose because the Hamee group’s overseas base, Hamee Global Inc. (Seoul, South Korea) already had dealings with Pixio USA. Since the COVID-19 outbreak began, the gaming monitor market has been expanding as people spend more time at home. The company expects to achieve about JPY665mn in annual sales through its e-commerce sites.
Other (new businesses)
Hamee forecasts sales from other businesses of JPY700mn (+12.8% YoY) and operating loss of JPY250mn (versus operating loss of JPY273mn in FY04/21). Making use of data from the Platform and Commerce businesses, the company plans to provide its distinctive added value (in products and services) to increase corporate value.
Hometown Tax
The company targets a 52% YoY increase in Hometown Tax donation support service sales. It aims to increase the amount of donations by increasing the number of web designers making improvements to the portal sites of existing clients (municipalities). It will also seek to capture new municipalities by increasing sales staff.
Hamic POCKET
Hamee launched Hamic POCKET (Android OS, JPY15,000 for device itself, with JPY1,000 basic monthly charge) in February 2021. It is a mobile device with a monitoring capability targeting elementary school students. The business uses a recurring-revenue model (based on the JPY1,000 basic monthly charge) rather than a one-time sales model. By maintaining contact with the customer even after sale of the device itself, the company can propose subsequent products—when the customer decides to discontinue Hamic POCKET service—or even subscription services such as smartphone insurance. It believes demand for smartphones for elementary school students will continue to grow and therefore aims to create products that meet the needs of both parents and children. Currently, it only sells Hamic POCKET on its own e-commerce sites, but once it achieves product/market fit, it plans to develop Hamic POCKET into a new mainstay product for the Other segment by advertising and expanding to other sales channels. However, during FY04/22, it expects early-stage investment to result in operating loss of JPY382mn.
RUKAMO
RUKAMO is an e-commerce site launched in March 2020 to help companies dispose of slow-moving inventory. In FY04/22, the company aims to increase sales by increasing distribution volume and developing new mechanisms for distributing slow-moving inventory.
Company forecasts versus results
Business
Business model
Hamee operates the Platform business, which provides cloud-based (SaaS) business management services to online store operators, and the Commerce business, which focuses on online retail sales of smartphone accessories and wholesale sales to variety stores and electronics mass retailers. In FY04/21, Platform business sales were JPY2.3bn (18.7% of total sales), Commerce business sales were JPY9.7bn (78.7% of total sales), and Other (new businesses including Hometown Tax donation support service and Hamic POCKET) sales were JPY330mn (2.7% of total sales). By segment, OPM was 41.4% for the Platform business and 25.7% for the Commerce business, ensuring relatively high profitability. However, the Other segment recorded operating loss of JPY273mn, partly due to early-stage investment in new businesses, and adjustment for companywide expenses came to JPY1.0bn, resulting in overall operating profit of JPY2.2bn and OPM of 17.6%.
Performance by business segment
Platform
Provides Next Engine service to online store operators
In the Platform business, the main service is Next Engine, a cloud-based (SaaS) system that automates routine tasks for online store operators, but the company also provides consulting services for online store operators. By adopting Next Engine, online store operators can conduct routine e-commerce-related tasks automatically (including sending order confirmation emails, confirming payment, allocating inventory, preparing delivery slips, arranging shipment, and sending shipping confirmation emails and follow-up emails). Next Engine provides the ability to centrally manage inventory status and other data, so even if an operator opens stores at multiple e-commerce malls and is trying to increase sales opportunities, there is limited additional workload involved.
With Next Engine, companies operating multiple online stores can register products once and have the product data reflected across all their stores; registered data on individual products such as product names, prices, and other attributes can be edited either collectively or selectively (by marketplace or by product), and discount sales can be organized or canceled easily. The Next Engine service is highly rated by users because it incorporates know-how and user experience features that were nurtured in the process of operating Hamee’s own Commerce business. Among the companies that won Rakuten Shop of the Year 2020 awards (announced in January 2021), 25 were Next Engine users and the number of awards they won in multiple categories totaled 172.
Next Engine users
Next Engine has 4,739 client companies (as of end-April 2021, +18.6% YoY), and the company says this is the largest number for any backyard system in the e-commerce industry. When Hamee began selling Next Engine externally in 2008, it was common for the initial investment in e-commerce to run to several million yen, with monthly operating costs of several hundred thousand yen. Against this backdrop, the company created a real bargain by offering its cloud-based (SaaS) business management system to online store operators for monthly fees of just JPY30–40,000. Thanks in part to a first-mover advantage, the number of companies under contract rose steadily after the service was launched, and good brand recognition supports its business foundation even now.
Clients include apparel-related companies (35.6% of users as of end-April 2021), companies selling general merchandise, furniture, and home interior goods (27.2%), companies selling foods and alcoholic and other beverages (6.8%), and companies selling cosmetics and pharmaceuticals (7.8%). These clients typically operate multiple online stores, handle a large number of products, and have complicated product management. Next Engine is characterized by its ability to automate routine tasks (including order confirmation, inventory allocation, and shipping preparation) when client companies sell through multiple online stores, and it appears that those clients rate the service highly.
Fee model for Next Engine
Next Engine’s fee model has a two-tier structure. The first tier is a basic monthly fee of JPY10,000 per company. This is a fixed price regardless of the number of stores the user operates or the number of online marketplaces such stores are operated in. Although other companies offer centralized management systems for online store operators, many charge a basic monthly fee based on store count. In Japan and South Korea, where store operators often need to expand their sales opportunities by opening stores in multiple online marketplaces, Next Engine–harnessing Hamee’s expertise in this area–is a useful tool. In contrast, in the US, where Amazon is dominant, there is no incentive to open stores in multiple online malls so the company is less likely to be able to exploit its strengths in its fee model.
The second tier is a pay-per-use charge. In Hamee’s case, this charge is linked to the number of orders processed per month, starting at JPY25/order for 401–1,000 orders, JPY20/order for 1,001–3,000 orders, JPY15/order for 3,001–5,000 orders, JPY10/order for 5,001–7,000 orders, and JPY5/order for over 7,000 orders (free for users with 400 or fewer orders per month). Since additional costs scale downward relative to the increase in order volume, this fee model incentivizes users to win more orders. The benefit of using Next Engine grows in tandem with the increase in the number of orders, which means volume growth also reduces the risk of users canceling the service.
A cost estimate of performing routine tasks using human labor is shown below, illustrating the substantial time and cost savings derived from using Next Engine. Assuming 1,500 orders are processed per month for 100 product items over six stores, the monthly labor cost of routine tasks such as sending emails, registering products, and sending delivery statements based on an hourly wage of JPY900 comes to JPY225,000 and labor input to 15,000 minutes (250 hours). By using Next Engine, the cost is reduced to monthly usage fees of JPY35,000 (JPY10,000 basic fee + JPY25,000 pay-per-use charge) and labor input to 1,500 minutes (15 minutes per item for product registration x 100, or JPY22,500 at JPY900 per hour).
Developing apps to expand functions
Next Engine’s main functionality includes standard functions that contribute to the convenience of operations at online store operators, but the company has additional applications (apps) to meet special needs, allowing client companies to add functions to suit their individual characteristics. Such apps that serve specific needs (expanded functions) include an app for automated distribution of emails with product recommendations and apps for CRM, transaction lending, and data utilization. In addition, to improve client convenience, the company is developing apps that link with other companies’ services (including accounting software and distribution/warehousing software).
Scope for expansion of Next Engine
According to Rakuten (TSE1: 4755), the number of stores in its online marketplace Rakuten Ichiba exceeded 53,000 as of June 2021. Assuming two stores per company, 26,500 companies have stores in Rakuten Ichiba alone. If Hamee were to attain its target of 5,500 clients, all of which have stores in Rakuten Ichiba, the usage rate would only be about 20%. Thus, Shared Research sees considerable scope for expanding sales of Next Engine.
The main marketing method of the Platform business is to participate in events and seminars targeting online store operators, informing them about its services centered on Next Engine, and making specific proposals to companies that take an interest. To win contracts, the company offers consultations to prospective client companies. The process for entering a contract starts with the prospective client registering at the official Next Engine website, signing up for a one-month free trial, and completing the configuration process. After a month has elapsed, the client switches to a paid contract if desired. The ratio of clients switching from free to paid contracts is between 30% and 50%. Although the company does use online advertising to attract clients, it controls the frequency and scale of advertising to avoid any decline in service level that might occur with a sudden increase in inquiries and free contracts.
Strengthening consulting service
In April 2018, Hamee acquired JS Consulting (now Hamee Consulting), which specializes in consulting for online store operators and has a strong track record in providing an integrated sales support service spanning proposal and execution of analyses and strategies to verification of actions taken. Its operations include analyses of clients’ own e-commerce sites and online marketplaces (such as Rakuten Ichiba, Yahoo! Shopping, and Amazon), consulting, and contracted production of e-commerce sites. JS Consulting also has experience automating some of its in-house site analysis and report preparation functions. Sales from recurring-revenue clients to which the company provides ongoing consulting support account for 70% of total sales, and such sales are stable. However, due in part to the high turnover rate of consultants, operating profit only improved to the breakeven level in FY04/21.
Leveraging the subsidiary’s expertise, Hamee plans to utilize its own data to automate consulting work, and provide consulting services best suited to the stage of growth of the online store operators that use Next Engine. By offering clients the best partnership arrangement in this way, Hamee seeks to become a dominant player in the business. Starting in FY04/21, it aims to maximize synergies by actively using group resources, for example to launch Next Engine configuration services.
Commerce
Commerce: Mainstay products are iFace smartphone cases
The Commerce business is the company’s founding business. Hamee was established by President and CEO Atsushi Higuchi in 1998 as a company that designs and sells (online retail and wholesale) mobile phone accessories. The mainstay product at the time was mobile phone straps, but the current mainstay is smartphone cases. The company also sells peripherals such as protective films, finger rings, chargers, and batteries.
Hamee’s smartphone cases, which retail for around JPY3,000 each, stand out for their sophisticated design and performance (known for excellent shock resistance), brands, and characters featured. According to the company, its core brand iFace is well known among women in their late teens and early twenties. In terms of smartphone cases, there are many competing products, so the company uses online advertising and other measures to maintain and enhance brand recognition