Enigmo Inc (TSE: 3665), Japan’s #1 Social Fashion C2C E-Commerce Platform – H.E.R.O. Innovators Insights from CEO Shokei Suda | H.E.R.O. HeartWare | 29 October

“Even if one is not a professional buyer or stylist, there are many people with a fashion sense. A housewife who lives in Thailand sold a gorgeous swimsuit at BUYMA which became popular and was featured in a fashion magazine and became a hit item. Bottom-up realistic trends are born from ordinary individuals, not from top-down brands and magazines,” effused Shokei Suda, the founder and CEO of Enigmo Inc (TSE: 3665).

Enigmo Inc. operates Japan’s #1 social fashion C2C ecommerce platform (, an Etsy-like marketplace which offers a unique, safe and secure shopping experience through its escrow payment system and social shopping interface that matches over 5.5m registered members (buyers) (+23.6% yoy) as at end July 2018 (Jan 2014: 1.69m) with over 115,000 “personal shoppers” (“exhibitors”/ sellers) residing in 145 countries worldwide, and more than 2.6m items and over 10,000 registered brands, including luxury, rare, limited-edition fashion items and accessories at local prices. Enigmo is also expanding beyond ladies’ fashion into new categories in fashion for men (24.2% of members) and baby/kids, beauty, and interior home fashion. “Personal Shoppers” introduce the latest overseas fashion items through website, and once they receive the purchase order from “Members”, they purchase and ship the items directly to “Members”. This structure enables “Personal Shoppers” to introduce a broad range of trendy products and avoid taking inventory risk. “Personal shoppers” are certified by the company based on transaction performance etc. Competition amongst “personal shoppers” also help maintain prices at reasonable levels. Purchasers can use secure and secure payment systems that do not exchange money directly through BUYMA and can avoid fraud and troubles. In addition, the purchaser selects two compensation services, “Anshin Basic” (standard) and “Anshin plus” (charged option) against quality troubles and anxiety such as lost, damaged, and stained items purchased. In addition, it can also use the authentic guarantee system “BUYMA appraisal service” for free. Active members (defined as making purchases within the past year) exceeded 1m and ARPU is ~30,000 yen and total transaction value of products increased to 19.644bn yen (+17.8% yoy).

Enigmo’s revenue model charges a success-based transaction fee of 5% on the buyers and 5-7% on the sellers. pursues low-cost operation by (1) enforcing its up-to-date product line liaising with “Personal Shoppers” throughout the world without taking inventories, (2) “Personal Shoppers” relationship management for acquisition and education, (3) unique SEO strategy, (4) social media marketing activities collaborating with artists and fashion models and (5) publicity activities to trendy magazines and TV. In October 2015, Enigmo released an English version BUYMA. BUYMA smartphone app has over 3m downloads and over 36% of transactions are made through the app. On 31 July 2018, Enigmo introduced BUYMA TRAVEL (, a C2C travel business. Sony Corp has a strategic 24% stake since Mar 2006.

Enigmo’s zero inventory-risk and capex-light business model enables the generation of EBIT margin of 38.7% (vs Etsy’s 11.7%) and positive free cashflow (FCF) margin of 25.8% with ROE (=EBIT/ Equity) of 39.5% (vs Etsy’s 15.6%) and ROA of 31.7% (vs Etsy’s 6.7%) and a healthy balance sheet of zero debt and net cash of 5.08bn yen (US$45.25m, or 12% of market cap) as at its latest 2Q financial results at end July 2018 (financial year end January). On 14 Sep 2018, Enigmo announced its cumulative 2Q results (Feb-July 2018) in which sales increased 11.3% yoy to 2.29bn yen and operating profit rose 37.5% yoy to 938m yen, with operating margin improving from 27.7% to 40%, bringing its latest 12-month sales to 4.72bn yen and operating profit of 1.83bn yen, both at record-high, propelling a 375% increase in market value since its July 2012 to US$351m. Operating cashflow remains healthy at 1.23bn yen and Enigmo generates a positive free cashflow (FCF) of 1.22bn yen with a FCF margin of 25.8%. Due to its consistently strong cashflow generation ability, Enigmo has not raised any cash in new shares since its 2012 listing that raised US$3.85m. The direction of the medium-term strategy is to establish a BUYMA ecosystem to encounter and purchase an item on BUYMA, then resell items one no longer needs, providing a one-stop service from encounter to disposal; as well as to globalize BUYMA and its media curation and resale businesses. Management medium-term target aims for an operating income of 5bn yen, 3m active members and 100bn yen in total transaction value. While Enigmo is highly profitable and cashflow generative now, CEO Suda later shared that the entrepreneurial journey to start Enigmo in Feb 2004 has been full of struggles, including a nearly one-year delay in the launch of the BUYMA website in Feb 2005, experiencing sluggish sales after the launch and difficulties in explaining a new service to personal shoppers and buyers to use the platform..

While the world and the investment community remain extremely enamored by Chinese tech companies due to the large domestic market potential, many of which are actually still loss-making and cash-burning with negative free cashflow. The exclusive selected group of highly profitable Japanese and non-China Asian HERO innovators such as Enigmo have been overlooked quiet outperformers and these exponential innovators represent one of the biggest mispricing opportunities over a multi-year period. Interestingly, nearly all of the recent US-listed and HK-listed Chinese internet companies are loss-making or/and have negative free cashflow, including Meituan Dianping, Xiaomi, Pinduoduo, Meitu, iQiyi, Bilibili, Huya, Qudian, Qutoutiao, Ping An Good Doctor, ZhongAn, Yixin Group, Best Inc, Jianpu Technology, Secoo Holding, Uxin, NIO, Baozun, Tuniu, 111 Inc,, Yintech, Acorn International, JMU Limited, Tarena, Sunland Online Education, China Online Education, ATA Inc, China Finance Online, Airmedia, Aurora Mobile, 21Vianet, Leju, Gridsum, NQ Mobile, ChinaCache, Xunlei, Vipshop,, etc. The lessons from the horror stories of listed Chinese internet firms from Renren (China’s Facebook), Jumei, LightInTheBox, The9 to Longtop Financial Technologies have been continuously forgotten. There are still pockets of opportunities and there is a selected small group of profitable Chinese internet companies that are in our broader watchlist (as opposed to our focused list) such as China Literature (SEHK: 772), (NYSE: WUBA), Momo (NASDAQ: MOMO), Cango (NYSE: CANG) and AutoHome (NYSE: ATHM), and a rare few listed SMID-cap Chinese internet innovators in our focused list, as we stay vigilant on their governance and accounting irregularities risks.

Enigmo CEO Suda shared that their mission of delivering a unique social shopping experience and ethos of ‘Style looks better when it’s Personal’ to their members has also created employment opportunities for the 115,000 personal shoppers to realize their dream: “Personal shoppers of over 115,000 people in 145 countries worldwide will find and introduce fashionable items, international limited models, items unavailable in Japan. To buyers who are interested, just say the preferences of size, color, styling, and personal shoppers propose the perfect product and send it out. Imperfections and troubles are resolved by the personal shopper and the management staff of BUYMA. Since the real thing surely arrives, high-priced brand items can also be purchased with confidence. The personal shopper’s communication is pure and bustling, unlike a store clerk who is weighed down by the store’s inventory and sales. The buyer can see the products picked up from all over the world, meet personal shoppers with a fashionable sense, and enjoy the unprecedented shopping experience and ethos of ‘Style looks better when it’s Personal.'”

“Regardless of the place of birth or career, BUYMA realizes the dreams of 115,000 people and creates employment. Editors who are active in the front line to BUYMA which trend information of each country will upload attention to recommended products as well. Professionals created a media called STYLE HAUS and broadcast real trends of BUYMA. Items that are quietly sold in a corner of the world without capital strength, so that good products gather support and become hit products. BUYMA can now be sold anywhere in the world. Both the language barrier and the national borders are crossed, and the sellers and buyers who have fashion sense connect with each other. We receive “Thank you” notes from members to personal shoppers for liking, for selecting and delivering the product. We will share that feeling, nurture trust and expand happy shopping experiences. The world in which really good products and experiences are exchanged gradually becomes peaceful. Even when the relationship between countries can be difficult, the connection of BUYMA is fun and certain. With only one mind, there is no distinction and really good products and experiences can be sold. You can buy the most delightful thing from all over the world at just right price. Drawing personal fashion sense and hospitality, BUYMA connecting goods and feelings is a flow that changes the world, and it becomes a new mainstream.”

Enigmo analyzes promising products from the huge amount of transaction data it possesses, domestic consumption trends, etc. and gives advice to the seller. In particular, the targeting function that delivers diverse items using AI to the optimal users has become a factor that increases the value and trust of BUYMA. There is a request function that allows purchasers to request items they want. There is also a feature in the mechanism of attracting customers with its web media “POST” AND “STYLE HAUS” in which fashion writers convey the appeal of the BUYMA product lineup, resulting in orders via the web media and membership registration to rapidly expand. On 17 Oct 2018, Enigmo announced a settlement collaboration with Amazon Pay. On 25 July 2018, Enigmo offered a new trade-in service “Soku Wari” which automatically calculates the trade-in value of the product based on the product data that the user has purchased in the past and can immediately discount the trade-in amount at the time of purchasing the item. On 6 Dec 2017, Enigmo introduced Virtusize, an online fitting service to allow shoppers to make purchases with peace of mind without the added worry of sizes. In April 2017, Enigmo launched the “SHUCCHO KAITORI” service in collaboration with Ginzaya Co to allow premium users to sell their unwanted areas. Enigmo also launched its second-hand purchase/resale service “ALL-IN” in 2015. CEO Suda explained, “When used by a BUYMA member, she comes to pick up the item at the registered address, so the price is reduced in cash. There is no need for troublesome work such as packing, and the number of users is growing. We have a considerable advantage in the procurement of products as we know when and what we bought, how many years from purchase. If you use ALL-IN as a customer, it is very rewarding because you can get about 5 to 10% discount to purchase price. Luxury brand goods in Japan are very popular as they have a high quality as compared to used goods in the other Asian region. I think that we can do business to export ‘Used in Japan.’”

When asked about their data analytics capabilities, CEO Suda commented, “We will further advance our new marketing mix using AI and big data analytics. Sending personalized coupons to those who came to BUYMA, sending coupons at an appropriate timing, sending points and coupons that match the user’s hobbies and preferences. BUYMA has an e-mail function called ‘Post’ that personal shoppers can make themselves to send various information to their fans. Also we are planning to renew the request function. Everyone may not know about the request function, but it is a communication function that existed since the beginning of BUYMA. For example, communication in requests between the members and personal shoppers such as ‘This product is empty?’, ‘Would you like to use something on the wedding party’, ‘Is it not interesting to present something like this on Mother’s Day?’. It strengthens the place where I can buy what I want while communicating.”

On the high profitability, scalability, competitive edge and network effect of BUYMA, CEO Suda said, “The personal shopper is a specialist who supports shopping so that you can enjoy shopping even more by catching the latest trend information with your sense and sensitivity and introducing styling and items according to customer’s taste. BUYMA creates new value for shopping services by hospitality-filled services of individual shoppers active all over the world. If the typical auction site is a flea market that sells unnecessary items, BUYMA is a focused specialty fashion shop with the items selected by personal shoppers with fashion sense. If you become a top personal shopper, you can get more than 200 million yen in sales each year, and some housewives earn more than your husband.”

“Because BUYMA does not have a store and does not involve intermediaries, products can be offered at a reasonable price. Also, since the principle of competition among personal shoppers works, we are able to realize reasonable price. Everyone involved gets win-win with each other and the business model will rise in sales. Personal shoppers are happy if they make money, buyers are happy if they can buy it reasonably at the local prices. As fashion goods are expanding worldwide with small lot varieties of various kinds every season, it is very difficult to cover all of them with a single company. We can cover it by using social power. Also, until now, there was no choice other than to give up out of stock, out of size, hard-to-find items. With BUYMA, we can virtually integrate stocks scattered throughout the world by procuring personal shoppers scattered around the world in 145 countries locally, greatly increasing the opportunities for consumers to obtain them. In collaboration with personal shoppers all over the world, we have an assortment strategy that reflects Japanese trends, a personal shopper relation that acquires and educates personal shoppers, an SEO system with specialists who display high rankings in search engines, collaboration with entertainers and models. By enabling social media marketing, thorough PR system for magazines and TVs, low-cost operations that make full use of social, marketing, and technology, it is possible to efficiently expand the scale of transactions, realizing high profitability. Because it is C2C, there is no correlation between fixed costs and sales, and if the amount of transaction increases, the profit margin will rise. That is why sales must not be raised unless they are able to sell goods, and marketing skills have improved so that personal shoppers can also create relationships that will make such products available.”

“There are no other sites with a large number of fashion brands and individual members in the world are supporting it, which is also a strength of BUYMA that other companies cannot imitate quite easily. Creating a network of over 115,000 local sellers in 145 countries around the world is not a thing that you can imitate overnight. Since the externalities of the network will work after the marketplace is created, sellers wanting to put out as much as possible to more buyers, and buyers want to buy more where there are more quality items. While taking advantage of this strength, we are planning to put more emphasis on overseas expansion from now on. I would like to gradually expand into the field of beauty, lifestyle-related and interior goods.”

Intrigued by the innovative business model and capabilities and yet remaining skeptical, we asked about the quality of products given the problems of counterfeit goods harming other marketplaces from Etsy to Pinduoduo, and CEO Suda shared, “BUYMA is not a site that you can easily sell if you put out goods. The quality of goods is high, and it cannot be sold unless it is properly selected. Looking at such a characteristic, it can be said that it is closer to B2C where the personal shopper is a semi-pro rather than pure C2C. Both C2C and B2C sites tend to have problems in counterfeit goods, but there are no cases of fake product at BUYMA. Firstly, when the buyer click purchase, the price is temporarily kept by the company in an escrow system, and payment is confirmed to the seller after the product arrival is confirmed, and there are no money or product troubles. Importantly, I have built a mechanism that leads to more sales as I trade deeply. In the normal auction site, user evaluation also has only ‘good’ or ‘bad’, but BUYMA further breaks it down and evaluates some points that users are concerned about, such as ‘beauty of packaging’, ‘quick response’, etc. If it is low, the overall evaluation falls and it will not sell; if it is high, it will sell. Evaluation is made visible, so you can improve it yourself, so that the service level of BUYMA will rise steadily. The last decision is made by the buyer. Evaluation from buyers is the most important, and personal shoppers with high evaluation are put it in a prominent position on the site as soon as a premium personal shopper, so that they can be active in a more easy-to-sell environment. The personal shopper is trained by Japanese consumers who are very discerning in quality, so the level of fine care such as inspection and customer correspondence is very high. In addition, we have a compensation system for counterfeit goods, damaged or lost products, etc. Since Nov 2014, we have a ‘Return Guarantee System’ not only due to a difference in size of the delivered item but even if the product is different from the image on the site. We also provide services, customer support in case of trouble. We maintain such Japanese quality. We provide services in English as well. Our company’s policy is ‘to enable good people and good service providers make earnings’. Good user-rated items are sold, regardless of advertising costs. As we become an evaluation society inspired by social capitalism, I believe that the policy of BUYMA is consistent with the times. We are implementing the ‘BUYMA AWARD’ which chooses the best personal shopper. Based on a questionnaire from buyers, we evaluate not only sales but also added value.”

One of the biggest risks that had held us back from commenting about Enigmo previously had been its foray into Korea with BUYMA KOREA and its earlier investment in 2015 in acquiring Rocket Internet’s (XTRA: RKET) internet media business for ladies. We like how CEO Suda had finally taken the painful step in announcing in Sep 2017 the dissolvement of its loss-making South Korea subsidiary BUYMA KOREA, which was liquidated in Jan 2018, realizing an extraordinary loss of 18m yen. Enigmo also recorded an extraordinary loss of 435m yen in writing off the entire goodwill in its balance sheet as impairment loss from its loss-making curation media business 4meee! (targeting females in their 20s) and 4yuuu! (targeting housewives and mothers) acquired from Rocket Internet in Feb 2015 for 600m yen. Enigmo’s balance sheet remains healthy with zero debt and 5.08bn yen (US$45.25m or 12% of its market value) in cash as at end July 2018.

When asked about how his growing up years have shaped his entrepreneurial journey and how he came to start Enigmo, CEO Suda shared reflectively the inspiring story: “I was born in 1974 in Mito city, Ibaraki prefecture. When I was a student, I wanted to become either a university professor or an entrepreneur in a profession giving a big impact to the world. When I was in high school, I won first place nationwide in a model mathematics competition. Mathematics has been a good subject since childhood. In the second grade of elementary school, I broke my kidneys by overdose of salt due to overeating of my favorite fish and had been forced to stay hospitalized for about 2 months. Meanwhile, I solved math problems to kill time everyday. When I returned to school, my mathematics ability was able to be tremendously enabled. I am called ‘mathematics doctor’ by my teacher, and I am happy that I increasingly like arithmetic. Indeed, it is a good thing that mathematics likes you. Since then, mathematics has become a part of my identity. On Saturdays and Sundays I studied spontaneously about 14 hours. Mathematics felt unsatisfactory in the classroom environment of the school, and I bought a reference book and solved mathematics problems at the college entrance examination level. I also applied for the mathematical Olympics but I could not compete because the qualifying session was held while I was suspended because of a drinking incident at the gymnasium. While I am good at mathematics and physics,  am not good at languages. At first I was considering going to the Faculty of Science in Kyoto University. Because Kyoto University was number one among universities without Japanese language in the entrance examination subjects. However, as there were many friends who went to Tokyo, I ultimately decided to go to a university in Tokyo and proceeded to Keio University. I was able to enter the laboratory of Professor Masao who was interested in computer science and the course was said to be difficult to enter. Luckily, the reputation of difficulty is overstated. My teacher is a senior in the same laboratory as Mr. Jun who is said to be the father of the Internet in Japan and is also a founder of Sony Computer Science Laboratory (Sony CSL). I studied under the teacher and I worked part-time at Sony CSL. Because of my teacher, I gradually strengthened my interest in entrepreneurship and wanted to establish a business with computer science as its core. After continuing my research at the graduate school of science and engineering, I joined Hakuhodo in 2000 to learn marketing where I worked as a marketing planner for 4 years. I think that the rail for launching Enigmo was in my high school days.”

“When I worked at Hakuhodo, I shared business plans with a colleague and one of the founding members where we warm each other. If you buy a surfboard for 30,000 yen in the US, it will cost 100,000 yen in Japan and you ask a friend living overseas to buy surfboard or sneakers or bags or goods from the New York Museum of Modern Art and send them back. There are a lot of Japanese overseas, so it is interesting to do it by networking with those people who wants shopping. It would be a tool to get things not readily available in Japan. This is the origin of BUYMA. Wherever you are in the world, you can live with fashion sense. If you meet a person who fits in fashion sense with yourself, you will discover something that person likes on your behalf. If people from all over the world talk about what they think is good, you can find something that you will never encounter on your own. Even though each individual’s power is small, it can be a great force if the individual power gathers, and you can even kill existing customs and big system. The individual becomes the leading role though the progress of the internet society. At that time, we were excited about whether this idea would change the form of existing logistics and shopping. A unique business model that mediates overseas residents and domestic consumers wanting to buy. We established Enigmo in Feb 2004.”

“There were twists and turns in the delay of the launch of the site and we finally released the BUYMA shopping community site to sell the latest overseas branded goods in Feb 2005. Our first transaction was Abercrombie & Fitch’s perfume, which had not advanced to Japan. However, at the time of launching the site, the troubles continued, and sales did not grow. I had a sore stomach feeling. Our friends and acquaintances supported us through the days of suffering to prove that this idea is correct. However, there was an unexpected turning point. About three months after opening, I succeeded in procuring 140 million yen from VC including JAFCO. We continued the first few years on deficit. The turning point for profitability was specialization to the ladies’ fashion market in 2006. Originally BUYMA did not limit the genre of handled items like Yahoo! Auctions and eBay. However, unless the exhibition contents and the needs of the purchaser match well, it will not lead to a close. I felt a response with the reach to the female group of 20s to 30s who are sensitive to overseas fashion trends. In March 2006, we received a contribution from Sony Communication Network, Netage Capital Partners, Orix Capital with the aim of raising funds and strengthening traffic. After that, the BUYMA business recorded its first month of surplus in 2008 after three and a half years and began to take on track with the support of high fashion sensitivity women and the spread of favorable social media. In July 2012, Enigmo was listed on the TSE Mothers market. Of course, IPO is just a passing point for Enigmo, and with the increase in fund raising power, we will try to increase the power of the buyer at BUYMA. Domestic female users of the fashion ecommerce sites are estimated to be around 13 million, and we target 10 million of them. We now have over 5.5 million registered members, out of which are 1 million active members who have a purchase history within the past year, up from 10,000 personal shoppers and 320,000 members 10 years ago in July 2008.”

When asked about his plans to globalize BUYMA, CEO Suda said, “I am 44 years old this year. Even since I entered my 40’s, I released “English version BUYMA” and put my back to full-scale worldwide expansion. For that purpose, I have steadily prepared to study English and study abroad at Harvard University. Our Global BUYMA was unified into the English version. The best performance in sales achieved is Hong Kong, the next is America, followed by South Korea, Taiwan, and Singapore. In Hong Kong, the purchase rate of people visiting the site has risen to a level comparable to that of Japan, and the appeal of service is accepted. Personal shoppers respond in English in response to inquiries. Currently there are 115,000 people in 146 countries, but more than 70% are available to respond in English. Looking at the whole, the percentage of purchasers of global buyers is still not high, but it will grow in the future.”

We noted that Enigmo began offering a new “BUYMA TRAVEL” service from 31 July 2018. BUYMA TRAVEL connects overseas travelers and its 115,000 “personal shoppers” residing in 145 countries around the world. Personal shoppers can exhibit “reservation service”, “local guide service”, “preparation of sightseeing plan” by making full use of their own preferences and knowledge. Users can experience services that cannot be experienced on tours while receiving support by personal shoppers. CEO Suda elaborated on BUYMA TRAVEL: “”I decided to climb the next mountain in ‘travel’. It may seem that from ‘fashion’ to ‘travel’ is sudden, but in reality these two are good companions. Looking at BUYMA’s users, photos of travel are posted as well as clothes photos. Even fashion magazines feature a very high popularity of travel specials. This may also be a recent trend, but I feel that the value is shifting to ‘Koto (experience)’ rather than investing in ‘goods’. ‘Mono’ or goods can be obtained quickly and cheaply with Amazon, and the culture of sharing has become common. It is also possible to exchange useful information such as travel from the service of trading luxury brand goods. This is my own real original experience, but I think that traveling is the best when you have local people guiding you in the local area. In 2006 I went to the interview of personal shoppers in Italy. That person took me to a restaurant behind the alley who is not on the guide book, and the salami and ham I ate there was really delicious. Even when I went to Silicon Valley, thanks to the introduction of people familiar with the site, I was able to visit my venture company, incubation center and venture capitalist’s home. The quality of experience will change depending on who you show us. I would like to offer personal tours that match personal tastes. We will continue to focus on the sunny part of life as ‘BUYMA to change the world’ and ‘BUYMA TRAVEL to change the experience of the world’. This not only means you can buy things from all over the world, but that you can also buy experiences from all over the world.” With the market trend changing from “things” to “experiences“, there is compatibility between “fashion” and “travel” and for BUYMA TRAVEL to become the second pillar to the business model and platform.

The successful turnaround and quadrupling in the share price of Etsy (NASDAQ: ETSY) has brought about a comparison in business model quality and growth potential with Enigmo. Etsy is one of the few C2C marketplaces that has been able to withstood Amazon’s competitive threat and price-convenience value proposition by focusing on unique, quirky “handmade” craft products “for special occasions purchases” sold by “artisans” ranging from hobbyists looking to supplement their income to professional artists. Etsy’s marketplace serves 35.8m active buyers and 2m active sellers with 50 million handmade items listed on the website. Over 75% of Etsy’s sellers run one-person businesses, about 87% are women and 97% work from home. Etsy generates revenue from the 5% sellers’ fee, a listing fee of 20 cents per item and “seller services” that include promoted listings, payment processing and purchases of shipping labels through the platform.

Etsy has encountered various problems that include:
(1) tackling the view that artisanal goods is a small addressable retail market with limited growth potential;
(2) battling counterfeit goods and mass-produced goods sold under the guise of handmade on the website and risks becoming a “strip mall hawking the same mass-produced goods”;
(3) dealing with sellers threatening to leave for other sites after raising the seller’s base take rate in July 2018 from 3.5% to 5%;
(4) building more repeat buyers since Etsy is not a place where people shop every day (Etsy shared that 60% of customers buy just once a year);
(5) managing the longer-term economics that most of Etsy’s sellers are struggling to generate decent income;
(6) founder Robert Kalin was forced out and sold out after multiple round of venture capital funding and current Etsy management owns just 1.52% of the company;
(7) facing renewed competitive threat from Amazon which launched Amazon Storefronts in Sep 2018 after its earlier Amazon Handmade launched in Oct 2015 with 80,000 artisan-made products from 5,000 sellers in 60 countries did not take off. Amazon Storefronts offers customers access to “over 1 million products” from 20,000 “small and medium-sized” US businesses. Storefronts features “Curated Collections” including seasonal-themed sections like back-to-school and Halloween and very generic sections like home, kitchen, jewelry, pet supplies, and electronics. There’s also a “Meet the Business Owners” section which features shops owned by “artisans,” families, women, and “innovator makers.”

Noteworthy is that shortly after the IPO in 2015, a group of investors filed a class action lawsuit against Etsy claiming fraud. The suit claimed that Etsy’s CEO and officers failed to disclose numerous problems with the site which could affect the stock price, among them that “more than 5% of all merchandise for sale on Etsy’s website may be either counterfeit or constitute trademark or copyright infringement” and that “brands are increasingly pursuing sellers on Etsy for trademark or copyright infringement, jeopardizing listing fees and commissions.” The suit also claimed that Etsy management knew of the rampant trademark and copyright infringement but did little to stop it, and in fact worked to hide this information from potential investors.

Enigmo’s business model generates revenue from fees charged on both sellers (5-7%) and buyers (5%) and from the “Anshin plus” option that buyers pay to insure against quality troubles and anxiety. Enigmo’s EBIT margin of 38.7% is more than triple that of Etsy’s 11.7% and both ROE of 39.5% and ROA of 31.7% are also far higher than Etsy’s 15.6% and 6.7% respectively. By focusing on the much larger addressable specialty market of curated fashion, including luxury items, and having cultivated a base of 115,000 personal shoppers residing in 145 countries and an active membership who are very discerning in their purchase, the longer-term economics of Enigmo is arguably stronger, more recurring, less seasonal, and more scalable than Etsy. While Enigmo still has more work to do in converting more of its 5m registered members to active buyers which stands at over 1m, Enigmo looks to have hit its tipping point in exponential growth ahead.

Having gone through the start-up struggles, CEO Suda shared this piece of advice with fellow kindred spirits: “Whenever you always do new things, you will definitely come up against the opposite opinion. I think that it is very important to do something new, because otherwise nothing can be done. If you really care about it, do not be afraid of criticism for what you think is right. It is important to keep passion and have calm eyes. To challenge something new, passion to prepare for some risk is essential. However, passion alone is not enough, it is also necessary to have a calm look at the situation in which you are placed. By doing so, you aim for a goal while struggling and you come to be able to do it.”

CEO Suda continues to look ahead and aims for Enigmo to be a company where employees can work 100% with full effort and find it reward: “I would want from Enigmo employees to be ahead of the world. I think that Enigmo’s significance of existence will be born not by going after another company or managing it a little, so I would like you to constantly tweak or go half a step ahead. All the current Enigmo employees are very smart and are essential without any waste. I think that Enigmo is a firm that is qualitatively strong.What I cherish as an entrepreneur is to always aim to be a company where employees can work 100% with full effort and find it rewarding. Through BUYMA, a user (purchaser) gains a means to purchase everything from the world while staying in Japan. In this way, I would like to be a company where individuals, including employees, personal shoppers and users, there is power to the people. The reason for this was that I had a feeling of incongruity and anger in the fact that there are still many unfair structures existing in the world. A friend who works for the subcontractor of a major company has been undergoing a process that do not treat them as human beings. He is capable and characterful, but he happens to be unable to enter the major organization, so he cannot play an active part despite his motivation. Regardless of which organization you belong to and where you live, you can be acknowledged for your personal potential by making full use of your abilities and believing in it. Personal anger is negative, but anger towards big things and problems is a great driving force in moving things forward. I call this a ‘healthy anger’.”

CEO Suda also prizes transparency and disclosure to convey frank thoughts in forging Enigmo’s culture: “In order to raise the accuracy of matching, I also want to choose a company and convey a frank thought and show my ‘naked self’. And the company side needs disclosure as much as possible. We dare you to visit us as usual and we try to provide as much information as possible, including the negative aspects.” Enigmo also has a seven-part management philosophy called “Enigmo 7”: ‘Be a trainee!’, ‘Aesthetics for work!’, ‘Grasp the essence!’, ‘Open!’, ‘Following real!’, ‘Obsessed with results!’, ‘Limit exclusion!’

CEO Suda shared his thoughts on the Enigmo values and how 2018 is the tipping point year towards their next stage: “Article 1 is ‘Be it a trainee!’ This has been my common values with my colleagues at Hakuhodo when we co-founded Enigmo. Even during my school days, even after becoming a person working in the society, I secretly sneaked into the habit of a newcomer. I jumped into the canal with my suit. Even after entrepreneurship, I do not seem to have changed my essential character, like doing a 250 kilometer marathon in the Sahara desert or the Amazon jungle, triathlon in the Antarctica. I think that it is necessary for a venture that keeps challenging difficult and new things. Enigmo is still in a phase where everything can be changed flexibly. There is a climate of openness to accept if the change is essential. I want Enigmo employees to be a person who can change something. I think it is important to link the characteristics of the company with the characteristics of the service. Enigmo is a ‘social company’ that connects individuals in various ways and brings value. Various teams are connected flatly, such as composing a nimble small team for each project and building up a business. BUYMA is a C2C marketplace where individuals around the world select and sell items. If the personal shopper (seller) does not do it in a rewarding way, the customer (buyer) is not pleased, and the essence of Enigmo is that it works for someone. With social services, it is easy to create rules within the service. Because it is a service that delivers diverse products to people with diverse values, it is a social company that captures and listens to the opinions of everyone. Although I have grown almost steadily since I started Enigmo, I believe this year 2018 is the year of preparing for various stages towards the next stage. This year will be the one year that marks a turning point when I looked back.”

Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.

It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | | WhatsApp +65 9695 1860


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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