MegaHouse: Toys that play big

COVID irrevocably changed many things in Japan. One of those things is the way we shop. Japan is now the fourth biggest e-commerce market in the world, and this is something you’re trying to tap into with the Megatrea shop, which is your official online shopping site. You work with Premium Bandai as well, and you offer exclusive products and collectibles to your fans worldwide. What strategies are you implementing to further tap into this growth domestically and abroad, and how are you differentiating the online shopping experience?

The figures are not only popular in Japan but in other markets as well, so we are already selling to US and Chinese fans. Depending on the popularity of the characters, they might be very well received by international buyers, so we think our e-commerce is a good channel to connect with those customers, and we’re therefore trying to increase the ratio of e-commerce sales.

Regarding toys, many of them are difficult to sell directly in international markets, so we don’t think e-commerce will be an important platform. The sales ratio is still quite small, much less than the 15% that I mentioned.

Something that is true for both figures and toys is that it is quite difficult for customers to understand the product features or specialty of the product just by looking at it online. It’s sometimes important for them to look at it in person and touch it for themselves to see the appeal of the characters fully. For that reason, we’re still undecided whether we should focus more on e-commerce. I think we need to strike a good balance between online and regular retail channels.

To follow up on that, Japan is suffering from a population crisis. The population is 125 million, but by 2100, it’s estimated to be 65 million. Around 13% of Japanese people are already over the age of 65. This naturally leads to a diminishing domestic base market and fewer workers. How much do you see internationalization as a solution to these problems?

On top of that decreasing population, there’s a diversification in what people prefer to see or love. In the past, people’s main source of information was terrestrial channels on TV, so everyone watched the same animation, and everyone loved the same characters, which made it easier for us to create a big hit. However, now it’s a multichannel world, so people can just see the channels they like. There are lots of diverse options, and preferences have changed, making it very difficult to create hit toys. For example, in the past, almost every year, there would be a new toy that would sell more than a million pieces in the Japanese market. However, over the last couple of years, we’ve never seen such a popular toy. This is truer for general toys rather than figures, but that’s the trend.

You may have seen a recent news report that the toy industry was around a JPY 1 trillion market as of last year, a huge milestone. The reason the toy market is growing is that we have invested more in long-term popular characters. For example, there are lots of characters that have been loved by everyone for over 50 years or so. In the past, these characters were only for kids, but nowadays, it’s not rare to see adults or even older people who love characters. We’ve been able to capture those adult fans, and I think there’s a big opportunity there.

MegaHouse has collaborated with various IP holders. These partnerships have enabled you to create high-quality figures, collectibles, and themed merchandise. Are there any new products you can tell us about, and which character products would you like to be involved with in the future?

Since it’s confidential, I cannot give you the details of future new products. However, nowadays, almost daily, new characters are born on the Internet or in some new manga magazines, etc. Some of those characters develop many fans and become viral sensations, and then suddenly, everyone likes them. We have to capture the trend before our competitors do because it takes more than one year to develop a new product, so it’s a matter of when we can capture those latest trends. I think there is worldwide heated competition at the moment, so we need to be really alert to be on top of that. Also, we’re not only looking at new Japanese characters, but we are also looking at other countries as well.

I believe you have invested in innovative green nanotech packaging, which is something very interesting in the Sustainable Development Goals (SDG) era. Could you briefly run through this initiative and tell us about how this is making the world more sustainable?

Many of the toys or figures include plastic, and so far, it’s been difficult for us to completely remove plastic from our main products. That’s why we decided to focus on the packaging first, not only the outer boxes but also the inside, where there are some covers or inner packaging. We want to use environmentally friendly materials as much as possible for that. We also support educational activities for children, who are the irreplaceable treasures of the future, by providing educational programmes that can be used in classes at elementary schools in Japan, and the universally designed Othello teaching materials we provide are made from biomass-derived plastic materials and are low-carbon compared to conventional fossil resources. The universally designed Othello educational materials are also made from biomass-based plastic materials and are low carbon compared to conventional fossil resources.

MegaHouse was founded in 1997 through the merger of several companies. You specialize in key segments, which are figures and collectibles, board games and toys, and licensed merchandise. Which segments and products have the most potential, and are there any new segments in the future that you’re considering breaking into?

As you mentioned, a number of companies have come together, so we have the capability of manufacturing and selling all our products. Figures were not something that we originally started with. Rather, that started as a new business domain in our company, but now more than half of our sales are coming from this segment. Having both the toy business and the figure business is quite rare in Japan; not many companies have both, so that’s one of the defining characteristics and strengths of our company. If we can combine the specialty of these two segments, I think we can create something new and interesting. In the toy section, there’s playfulness and a spirit of fun. In the figure section, we look at the details of the characters very precisely. If we can bring together those two characteristics, maybe we can create a big new business in the future.

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For example, it’s the 50th anniversary of the Rubik’s Cube, and we’ve been selling some special versions of it throughout the year. One example is a version we created in collaboration with Sanrio. Another example is the unique Rubik's Cube project. The world's smallest Rubik's Cube is approximately 5 mm wide on each side and weighs just 0.3 grams. It is the ultimate piece of jewellery that, thanks to Japan's cutting-edge microfabrication technology, can actually be turned and played with in the same way as a regular Rubik's Cube.

Those are some interesting examples of your products and collaborations. Could you tell us about the process that drives the products you choose to make?

Actually, we don’t do a lot of extensive market research. More importantly, the person who had the idea has real motivation and passion to develop it, so we look at the energy or the level of inspiration that the person has. That matches our corporate vision, which is to create products and services by thoroughly considering what we like and what our users like, and thus, we value the developers’ love towards a certain toy or the passion to develop a new toy while capturing what the customers love. To do so, we always want to know what the latest trend is and what people love. Products that visualize that inspiration will become fun toys and will capture a lot of fans.

Although market research or test marketing is also important, I think it should always start with great passion and great love towards a particular figure or a toy that we want to develop.

I just want to talk a bit about partnerships. You have over 50 local distribution partners all across the world. What are the parameters you set to decide whether a potential company overseas is suitable as a distribution partner, and what type of other partnerships, collaborations, or business alliances is MegaHouse interested in?

About 99% of our sales overseas come from the figure business. You mentioned our e-commerce sites, and one of them is Premium Bandai. We have revenue of JPY 2.1 billion from that, but it is almost exclusively for the domestic market. Overseas, we mostly rely on distributors in each country or region, and we sell our products through them. About 30% of the business comes from overseas. After Japan, the second biggest market is China, the US is third, and then Taiwan.

The newer markets are India and Saudi Arabia, and we’re currently trying to work with new partners in those markets.

Since most of the sales are for figures at the moment, we want to work with distributors who have strong experience dealing with figures or collectible toys.

Some companies we have talked with said they are moving their production away from China and moving towards Vietnam or India, for example. From our understanding, MegaHouse outsources the production of goods to China. Are you looking to expand your outsourcing of production beyond China, and if so, where?

Moving to another area is an option that we could always consider. However, at the moment, we think it would be better to build further the relationships we have with the existing manufacturer so their business can scale further or they could go into international businesses in the future. In that way, we can maintain the quality of our manufacturing and expand the capacity of manufacturers.

Thanks to the fans, we have been receiving high ratings, and people see us as a high-quality manufacturer of figures. I think that’s only possible because of the high production technology in our partner’s factory. I think this partner already understands the Japanese way of monozukuri very well, and they understand the concept of character merchandising as well, so it’s better for us to continue with the partnership rather than go to another country. However, the pace of expansion or growth may be different between our company and that factory, so if we hit the limit of manufacturing capacity, for example, we would need to find some other partner. If something like that happens, I would like to search for new partners.

Your company is celebrating its 62nd anniversary. Let’s imagine that we come back three years from now and we have this interview again with you for your 65th anniversary. What would you tell us? What dreams and goals do you have for this company? Also, what message would you like to convey to our readers?

I think there are several directions that MegaHouse could go in during the next three years. One is international expansion. I think there’s a big opportunity there, and I think this will be the key in the future.

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In order to expand our international business, products are very important, obviously. However, from very recent examples, I can tell you that the format figure category could be the way to grow in the future. Examples of this are “Lookup” and “MEGA CAT PROJECT ”. For these, it’s important to not only create a very precise figure but also to reflect the entire world or concept. We initially started the MEGA CAT PROJECT series as a combination with Naruto, but now it has expanded to One Piece and others. Lookup means “look up,” and the figure is so named because it sort of looks up at you. We have developed many Lookup characters, and we have over 100 versions now.

We had been selling this in Japan, but we started doing some popup shops in the US. We called them Mega Kawaii shops, and we actually sold 1.5x our expected sales target. These are mostly bought by women in Japan, but in the US, we found around 50% of the sales were coming from men. Since this kawaii (“cute”) concept was accepted not only by women but also by men, I think there’s a good opportunity in the overseas markets, so I hope to see much bigger sales in the next three years and I expect this category to grow further. It’s a unique category, and it differs from other figure makers, so it would be a good differentiator as well.