Logizard (TSE: 4391), Japan’s #1 Logistics & Warehouse Management SaaS Innovator Powering E-Commerce Growth – H.E.R.O. Innovators Insights from CEO Shigenori Kanazawa | H.E.R.O. HeartWare | 10 December

“There is incredible innovation happening in Japan today,” exclaimed John Somorjai, EVP of Corporate Development and Salesforce Venture at (NYSE: CRM) as the CRM cloud giant announced on 4 Dec 2018 the launch of a US$100 million fund to invest in the nation’s SaaS (Software-as-a-Service) innovators.

Somorjai added that having investing in over 280 SaaS companies in 18 countries since 2009, “Our highest returns to date have been from the U.S. and Japan markets, so it makes sense for our next fund to be in Japan.” Google also announced this week an investment in Japan in Abeja, an AI company whose core offering is a “platform as a service” that uses machine learning to help more than 150 companies develop business analysis and insight from their data piles, including a specialist product for retail stores which hones in on customer and retail data used by some 100 corporate customers.

Long overlooked by American companies when it comes to investing, in a practice known as “Japan passing”, farsighted investors are now seeing strong growth of Japan’s tech industry as Japan’s public cloud services market, the fourth biggest in the world as of this year, is projected to more than double from the 2017 level to $13 billion in 2022, according to IDC forecasts. The recurring and predictability nature of the revenue model in growing monthly paying subscribers have made SaaS companies a bedrock of investment resilience in a volatile market environment with growing regulatory and trade-war risks rattling across industries.

When Microsoft overtook Apple to become the world’s most valuable company, the milestone carried a deeper significance about the future, as highlighted in this week’s Barron’s cover story How Subscriptions Are Remaking America – that the market is recognizing the compounding value of subscriptions over traditional sales. While Apple investors fret over the latest iPhone sales and worry every year about the next device, the market has rewarded Microsoft for locking in a regular stream of revenue tied to the cloud and its Office 365 franchise. When Adobe killed and stopped selling in May 2013 boxed versions of its Photoshop and other design software, which cost as much as $2,500, and transitioned to the $10 to $50 monthly subscription service, the lower upfront cost attracted new customers and the stock jumped 790% since Adobe outlined its subscription strategy in 2011, with 90% of its revenue now recurring, up from 5% before the transformation.

And unlike many of the SaaS companies in the US or China that are still loss-making and cash-burning, a selected group of Japan’s listed exponential innovators have quietly built highly profitable business models generating positive free cashflow (FCF). Following last week’s research brief on Grace Technology (TSE: 6541) (ROE 37.9%, EBIT Margin 30.8%, FCF Margin 22%), the leading e-manual database management SaaS innovator for Fanuc, Toyota, Bosch, Applied Material etc, we will be highlighting another profitable SaaS innovator Logizard (TSE: 4391) (ROE 32.6%, FCF Margin 17%) who is Japan’s #1 logistics & WMS (warehouse management system) SaaS company powering e-commerce growth. In the coming weeks, we might also feature other listed SaaS innovators with recurring subscription revenue model run by outstanding entrepreneurs, including:

  • Japan’s leading AI chatbot and big data analytics visualization tool company (ROE 21.7%, EBIT Margin 42.9%, FCF Margin 35.5%);
  • Japan’s leading machine-learning-as-a-service company for gaming companies such as Bandai Namco who use their unique proprietary Deep Mind-like AI technology to develop various intellectual games and is expanding into financial market forecast/trading models for financial institutions (ROE 23.5%, EBIT Margin 30.7%, FCF Margin 29.9%);
  • Japan’s #1 Slack-like collaboration SaaS company in medical-nursing care to facilitate information sharing (ROE 34.0%, EBIT Margin 26.5%, FCF Margin 23.6%);
  • Japan’s #1 SaaS company in management and operation support tools for the REITs and property companies and expanding into new data science software service using AI technology to provide calculation of optimum rent, prediction of evacuation probability, vacancy period, renovation construction investment effect, commercial facility sales forecasting service, etc (ROE 15.9%, EBIT Margin 19%, FCF Margin 26.5%);
  • Japan’s global high-speed data processing software company helping to speed-up medical equipment processing ever greater imaging data and is the critical business partner powering the success of chip designer Nvidia who listed on its website that the company’s software “is perhaps the only computational..engine that’s optimized for massive parallelization with accelerated NVIDIA GPU technology [which] gives..incredible speed and the ability to process truly enormous datasets”, as well as is the business partner to Toyota Group in helping autonomous smart cars to process vast data while suppressing power consumption, and expanding into quantum computing (ROE 37.2%, EBIT Margin 20.4%, FCF Margin 10.5%), etc.
The success of Richard White’s logistics SaaS company Wisetech (ASX: WTC), which has soared 368% since its Apr 2016 listing to a market value of US$4.3bn, has prompted investors to hunt for alternative as skeptics are still uncomfortable with its aggressive M&As which accumulated a disturbingly high amount of goodwill and intangible asset as a percentage of total asset at 67%. Logizard, which is highlighted this week, is probably the only other rare logistics SaaS company that is listed, and is also a potential takeover candidate by not only Wisetech but also possibly by its strategic shareholder Daifuku (TSE: 6383), the global #1 leader in automated material handling equipment and automated warehouses for clients such as Amazon. who owns a 9% stake in Logizard since 2012 via its industrial computer & electronic equipment subsidiary Contec (TSE: 6639). Wisetech also trades at EV/Sales 26.4x vs Logizard’s 5.3x.

As highlighted by Zuora’s (NYSE: ZUO) founder Tien Tzuo in his insightful new book Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It, the companies running on recurring-revenue subscription models grow their revenue 9X faster than the S&P 500. And the glaring emphasis is on “and What to Do About it”. We think the implication in one of the largest business model shifts for investors in Value 3.0 in an exponential world is that a distinctive and alternative investment strategy 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 or risking to chase richly-valued loss-making cash-burning tech start-ups, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio, is ever more critical.

At H.E.R.O., the only Asia SMID-cap tech-focused fund in the industry, we are grateful to develop the opportunity with you to be the steward of this perspective to do work that matters to serve the far-sighted, open-minded and curious lifelong learners who care deeply in growing together exponentially on the H.E.R.O.’s Journey.

Companies driving to remain competitive and to fulfill the customers’ demand for instant experience in the age of Amazon Prime are struggling with last mile delivery, which run in excess of US$87.3 billion annually in cost globally and account for a staggering 50% of the total cost of delivery according to McKinsey. When packages are misdelivered or delivered, those costs increase.

“EC (ecommerce) expansion will continue and home delivery handling volume will be 4.1 billion in 2020, but in fact it will increase at a faster pace. The demand increase resulted in redelivery exceeding 20% of the total number of delivered items, causing serious delivery load problems,” commented Shigenori Kanazawa, CEO and co-founder of Logizard (TSE: 4391).

How will companies conquer this precious distance between customer satisfaction and what must feel like a penalty for meeting customer demand?

Enter Logizard, Japan’s #1 cloud-based logistics WMS (warehouse management system) software-as-a-service (SaaS) company commanding an overwhelming market share of over 77% based on number of client user sites, handling over 52 million parcel delivery items out of the 4 billion annually in Japan (based on 2016 industry data vs 26 million in 2013 and an estimated 80 million in 2018), yet there is still a long runway for growth with a large total addressable market to penetrate and convert into recurring sales. Logizard serves over 1,000 clients such as Rakuten Ichiba (TSE: 6755, Japan’s largest B2B2C ecommerce operator), luxury goods brand Anteprima, and 3PL operators who undertake warehouse management of inventory from manufacturers, distribution companies, retailers and shippers, such as Yamato Holdings’ (TSE: 9064) Ta-Q-Bin and SG Holdings (TSE: 9143).

Compared to SaaS providers in other parts of the logistics value chain handling and streamlining complex administrative tasks such as invoicing, dealing with customs systems and electronic data interchange (EDI), clients of Logizard entrust their valuable, mission-critical and confidential inventory data and delivery schedule to be stored and managed on the cloud to track and run logistics and delivery real-time by location in warehouse and store, and inventory management is the lifeblood of its clients. Logizard’s WMS SaaS in solving the high-value last-mile problem in increasing misdelivery and redelivery rates has been creating new demand due not only to its low-cost for adoption but more importantly because it is able to be implemented in less than a month (compared to at least 6 months for competing software systems) without disrupting the workflow of its logistics clients.

With the compellingness and circumspection exponential edge in solving pain points for its customers to result in substantial cost and time savings, Logizard’s SaaS business model generates stable and recurring monthly subscription revenue, achieving a 33% and 88% absolute increase in sales and operating profit in the recent 3 years with EBIT margin of 10.9% (vs 1Q19 EBIT margin of 21.6%), positive free cashflow margin of 17%, and ROE (= EBIT/ Equity) of 32.6%, propelling a 160% increase in market value since its listing at IPO price of 900 yen on 4 July 2018 to US$66m. Selling and distribution cost as a percentage of sales is also relatively modest at 17.7%, much lower than the typical SaaS companies of 20-40%. Future Corp (TSE: 4722), an IT consulting firm, and Contec (TSE: 6639), the industrial computer and electronic equipment subsidiary of Daifuku (TSE: 6383), the global #1 leader in automated material handling equipment and automated warehouses for clients such as Amazon, are strategic shareholders since 2012 with a 28% and 9% stake respectively. Logizard is also the WMS engine supporting Hamee’s (TSE: 3134) NEXT ENGINE and NHN Savaway’s TEMPOSTAR which are SaaS business management platforms for EC operators. Logizard was founded by Chairman Hachiro Endo and CEO Shigenori Kanazawa in 2001 who owned a combined 28.578% stake.

On 13 Nov 2018, Logizard announced its 1Q results (Jul-Sep 2018) in which sales increased 20.1% yoy to 398m yen, operating profit rose 43.9% yoy to 86m yen with a profit margin of 21.6%. Balance sheet is healthy with net cash of 697m yen (gross cash 718 yen), or 10.5% of market value. Logizard commented that the investment motivation for real-time inventory management in the distribution and EC industry will continue to be aggressive. In the logistics industry, as the rise in labor cost and the increase in shipping expenses due to the labor shortage are getting worse, there are an increasing number of companies that are beginning to work on introducing automated material handling such as RFID, robotics and automated warehouses. Logizard announced that it has developed an API that enables automatic linkage with other logistics systems and labor-saving devices, which makes it easier to collaborate with other business partners to provide a total solution to solve the problem of labor shortage at logistics sites. It has also added the Thai language as the fifth overseas correspondence language in its software service. On 8 Nov 2018, Logizard announced that starting 1 Nov 2018, Logizard’s API will be connected to Alibaba’s distribution platform integrated API which will enable seamless cooperation in e-warehousing when Japan’s EC operators sell their goods on Alibaba’s platform and Logizard also expects to expand adoption of its WMS SaaS to local Chinese EC companies.

CEO Kanazawa commented that the spread of ecommerce has propelled the growth of Logizard: “With the spread of e-commerce (EC), rationalization and efficiency improvement of logistics and inventory management through technology are accelerating. We aim to contribute to the development of the society that converts to EC by accumulating and utilizing inventory information that remains more and more in the cloud. Since 2001, we have provided an inventory management system centered on WMS (warehouse management system) as a cloud service with logistics inventory as the business domain, realizing IT at low cost. As a result, we promoted the IT conversion of small and medium-sized retailers and 3PL industry that are concerned about inventory management, and have earned great trust from the industry. Since launching the service, we have consistently positioned it as ‘customer support for business’ and have grown through committing to the success of the customer’s business under the spirit of ‘absolute shipment’. We have been helping the inventory logistics management of automated warehouses and transportation and delivery of more than 1,000 clients. In the meantime, as ECs have developed dramatically by the spread of the Internet, efficient shipping work and accurate inventory information in the supply chain and logistics industry are recognized by businesses as important and indispensable.”

“We are in an unprecedented era in ecommerce. Rakuten Ichiba, Japan’s largest B2B2C ecommerce operator, currently has more than 40,000 online stores, a huge jump from around 100 stores during the time we first started. We have accumulated know-how by working on WMS fitted to EC logistics as an IT infrastructure that supports rapid and accurate shipping dispatch, which is the lifeline of the ecommerce business model. We take pride that our knowledge on EC logistics is definitely top class. Logizard ZERO WMS supports a series of tasks related to customer logistics, from warehouse arrival to shipment and inventory management. Clients can manage the barcode of items at the wireless portable terminal and check inventory, shipping and shipping status in real time. Our POS Pita RBM cloud inventory management system is a service that can perform inventory data update work such as sales and arrival registration with smartphone or tablet. It is also characterized by being able to cooperate with SOFTBANK’s cloud POS. In addition, our omnichannel cloud tool, ‘Logizard OCE’, centrally manages stocks through data linkage between multiple online to offline sales channels to prevent excessive inventory and missed sales due to inventory shortage.”

“With the strength of cloud software-as-a-service which is low-cost and maintenance-free and the knowledge accumulated for more than 10 years, we achieved our 11th consecutive year of sales revenue growth. Sales in the fiscal year ended June 2018 increased by 25.4% compared with the previous fiscal year and operating profit increased by 64.1%. In addition to steadily increasing sales of cloud services and new client account, demand is also expanding in development and introduction services such as custom specifications. EC is expected to expand to become a 20 trillion yen market in Japan by 2020. New EC companies also increased sharply and Logizard is expanding in earnest to meet the growing needs for WMS. We have platforms and data that have supported Japan’s EC logistics for more than 10 years and it is no exaggeration to say that our WMS has supported economic activities that affect Japan’s GDP. I believe that management resources have the potential to lead to new business such as big data area in the future.”

“We are committed to addressing the following needs as an initiative for 2020.
(1) Omni-channel needs: In the future EC will continue to expand reliably, the contact point with the product will go beyond place and time more and more. Along with this, consumers are increasingly desirous of purchasing styles to buy products from anytime and anywhere, so that they can receive it when they want to, and the supply chain industry is integrating sales channels such as EC sites and real physical stores We will advance omni-channelization. In order to realize this, it is necessary to have accurate location-specific inventory information in real time and realize sales efficiently and IT technology enabling various receipts based on customer’s request after sales. We will provide accurate inventory information in real time and contribute to the realization of a richer consumer society.
(2) Work productivity improvement needs: It is said that EC expansion will continue and home delivery handling volume will be 4.1 billion in 2020, but in fact it will increase at a faster pace. The demand increase resulted in redelivery exceeding 20% of the total number of delivered items, causing serious delivery load problems. Like the delivery load, even at the site of inventory management such as warehousing, the shortage of workers is serious, including the trend of declining labor force in the future. We will discover functions and services that will contribute to the automation and labor saving of operations to solve problems existing in the world, promote collaborative measures, and realize a more safe and secure work environment for our customers.
(3) Overseas management needs: EC has grown remarkably overseas, especially in Asia. Similar needs to Japan are emerging, and business opportunities are expanding. We will promote overseas partner strategy, not only to penetrate our own services, but also to introduce overseas IT services that are also effective in Japan to the domestic market.
(4) Information needs: We will develop and offer new IT services, such as ‘Logistics and Matching’ that will quickly introduce the information of 3PL (logistics outsourcing) company.”

On Logizard’s overseas expansion strategy, CEO Kanazawa said, “Logistics has no borders. In addition to expansion into China in 2013, we advanced to Thailand in November 2015. Global expansion starting from Southeast Asia also got into full swing, including in Singapore, Bangladesh and Vietnam. In emerging countries, the systemization of logistics and warehouse & inventory management is a big problem and has not progressed. Based on these needs, we will continue to strengthen new services that will expand beyond EC.”

While Logizard is profitable and positive free cashflow generative now, co-founders Chairman Endo and CEO Kanazawa shared that the entrepreneurial journey to start Logizard has been full of struggles and told reflectively the inspiring story: “The origin of our company name Logizard is Logistics + Wizard. When you need to work with complicated programs, you can easily learn and proceed with the settings interactively by following the choices and messages displayed by the computer’s ‘wizard’. We have a desire to expand the image of logistics systems as a high-priced and difficult system that only major companies can introduce, and broaden the scope of being easy and affordable to use even for small and medium-sized enterprises. With our company name, we are expressing the desire to contribute to industry and society by making logistics innovative and efficient like magic.”

Chairman Endo shared: “I was originally a programmer. In 1979, we launched a company that is the predecessor of Logizard, and there were twists and turns. It was mainly focusing on software development of logistics automatic warehouse system. Logistics is indispensable in any industry. Increasing the efficiency of logistics operations through the use of IT will contribute to society as a whole. I think that the significance of engaging here is great. At the time of establishment, we were contracting out software development of automatic warehouse system from logistics equipment makers, and making programs by ourselves. In the mid-1980’s, packaged software appear. So I also started to develop packaged software.”

“Although these were sold to a certain extent, they are consigned sales, so sales will increase if you upgrade the previous version. Returned goods at the next version upgrade is a so-called bad stock with tax on assets. This has become a big hurdle for the business. Since I am a programmer, I am always aiming to make good software, but stuck in a vicious circle where the profits are lower as I make it, I decided to borrow more debts. In addition, with the collapse of the bubble economy, I really felt a lot of trouble during that time.”

“Around this time, we managed to provide applications through the Internet in ASP (Application Service Provider) which appeared around this time. Since I was feeling painful in stock, I was surprised at how software can be sold without inventory, I thought that this business model is nice. Inventory is something that everyone has to carry. Also, as with logistics, inventory management is a work common to the world and it takes time and effort. If we could provide services for this via the Internet, we could sell the Warehouse Management Inventory Management System (WMS) as a business without holding software product inventory. Just around that time, I met our now co-founder and CEO Kanazawa. He was consulting apparel companies where inventory optimization was a big management task, but they are in trouble because they could not grasp the inventory accurately anywhere. WMS is costly and time consuming to implement. I was just feeling the dilemma that package software is too expensive for small- to medium-size apparel company. So we started working together to make and sell our Logizard WMS in ASP format. I was in charge of technical development, Kanazawa was selling Logizard PLUS.”

“At that time WMS was at a price that cost more than tens of millions of yen, so many inquiries are available for software services that can be used at around 50,000 yen per month. In 2001 when we started the service, the Internet was still slow and not popular. It was too early. At around 2003, we finally got a lot of companies saying ‘I will also enter the net’, but until the environment where fast Internet became available, the understanding and adoption of ASP was also low and it was a difficult struggle. Breakthrough came from an unexpected place. Consultation was made through acquaintance with Rakuten Ichiba, a famous B2C net shop that grew rapidly in 2003 but seems to have trouble with inventory management. Since WMS was originally a system for B2B, the concept was totally different. It is a completely different logistics flow, such as work procedures, how to arrange and sort items, etc. While studying the customer’s work flow, we learned the logistics know-how of the net shop and expanded the service by using it as a function. We were able to realize the specificity of inventory management at the timing when the net shop grow, and the knowhow has become a tremendous wealth for our company. Also, as Rakuten was introduced by the media every time, it was advantageous for us to be associated with doing the WMS of Rakuten.”

“Since the shipping company obtains cargo information for the first time after picking up the goods, it is roughly half a day since the good was ordered at the EC, and there is a time loss of about 12 hours. For EC companies such as Amazon, they can grasp the direction and number of orders to be delivered in real-time. Therefore, WMS means that you are in the position to track and run logistics in real-time for the first time.”

“Our logistics software system has the characteristics that it is difficult to change so easily once you start using it. Since WMS manages all delivery destinations and suppliers, it is a considerable challenge to switch to another system. Even if trivial things are wrong, it becomes a claim. Therefore, our company’s responsibility is serious. We cannot betray our customers’ trust. Our products can be launched in ASP at a low cost. We can lower the psychological hurdles and contribute directly to improving productivity of our customers’ business. Logizard aims to contribute to the improvement of the social status of the logistics industry by making it possible for many people involved in logistics to be able to work happily and to do a good job by reducing their troubles. We will not forget to serve customers and society with a high-performance low-cost service.”

CEO Kanazawa shared on his early entrepreneurial period: “I was born and brought up in Hitachinaka City in Ibaraki Prefecture and I am 51 years old this year. In high school I was busy with the activities of the bands and student councils, I did not go back home so much and stayed at my friend ‘s house. After graduating from high school, I joined a local university and continued music activities. I entered the apparel industry after graduating from university and was mainly in charge of back office work at fashion specialty store chain Adastria (TSE: 2685) in 1990. At that time, it was a company with less than 20 stores and its founder Mr Michio Fukuda communicated the vision that ‘I will make 1,000 stores in the future’, and now it has over 1,300 stores in Japan. Because there were no entrepreneurs who seriously talk about such a dream, I was strangely curious.”

“The last thing I worked on was a distribution outlet business on how to handle inventory. In short, it faced the challenge of unsold inventory of clothing items in which the value is going to be damaged. Therefore, we sought to dispose of inventory by objectively evaluating its value by selling it at a distribution outlet. If you can successfully sell inventory, the cashflow goes around, but if you hold in on the other hand, it will cost more for management. Inventory is a source of revenue and, at the same time, it is a risk to management. I was keenly aware that inventory management is extremely important.”

“As I often visited the warehouse, I was able to grasp the logistics mechanism and it was about the time that IT began to spread. So I thought that knowing how to raise cash flow by turning over inventory is useful for someone and in order to develop consulting service on inventory management by utilizing the latest technology, we established our company to propose our solution to apparel companies. I faced a shocking fact then. Every company has no correct inventory book. Inventory management at that time in the apparel industry was very analog and it was not unusual for about a discrepancy of 30% to occur between the inventory on the books and the real numbers of physical inventory.”

“My knowledge on inventory management will be useless if the inventory information is not accurate. Therefore, we expect that the potential needs for rationalization and efficiency improvement of inventory management are high, including the apparel industry. It was serendipity that I meet Chairman Endo who wanted to provide WMS over the internet and said, ‘With ASP, even a small company can introduce WMS information systems at low cost’. Because Chairman Endo had a deep knowledge of the IT industry, there is a prospect that WMS will also be lower in price to make it more affordable to use by everyone.”

“Logizard was originally developed for major apparel enterprises, with functions corresponding to logistics for a lot of SKUs (stock keeping unit). Since the introduction cost as an ASP service is inexpensive, I thought that it would be accepted by many companies. However, it seemed that the idea was slightly too early to commercialize and put on track. Technically, ADSL was the fastest communication line at that time, and there were not many network connecting up to the warehouse town. Also, since inventory data is originally confidential, it is a high hurdle to develop and win customers for startup ventures like ours that are not highly creditworthy.”

“However, since around 2004, e-commerce began to spread rapidly, and the number of companies who open online stores on the Internet has increased rapidly. As a result, the burden of product management and logistics work has increased, and the need for our logistics and inventory management service has become apparent. At one point, a company that is rapidly growing online sales at a major portal site is struggling with shipping and delivery and is looking for an IT company that can help them implement WMS within three months. The introduction of WMS is usually at least a project that takes half to one year.”

“However, Logizard can be used from that very day once connected to the Internet. We added functions according to the flow of mail order and we were able to operate safely in a short period of time. It is also a coincidence that a major shipping company came to pick up the goods at the warehouse. At that time, the shipping company was advancing a major EC logistics contract, but it seems that the IT vendors responsible for system construction declined just before the start of operation, and they were looking for alternatives in a hurry. Word started to spread on how ‘that warehouse seems to have put in a new system in a short time’ and we earned a voice and reputation. We were able to get the WMS up and running for them. At that time, I saw a new market in e-commerce where the value we have lives in connecting the online stores to warehouses and 3PL business that provides logistics. Ecommerce people have no resistance to using services on the Internet.”

“Amongst the EC companies, word started to spread that ‘There is a WMS called Logizard. If you have Logizard, you can start running in less than a month. As customers came to talk about us, we finally came to be able to breathe as a company. And as we were used by Rakuten Ichiban, the major B2B2C internet mall platform used by customers who were proud of the top selling results at that time, the circle of introduction expanded with word of mouth. We succeeded in building the foundation in this field ahead of other companies, and we were able to start the cloud development of logistics operation system. Particularly in e-commerce, distribution and inventory management by the cloud is important. Compared to ordinary goods sales, the weight of logistics costs relative to sales is high, so rationalization and efficiency improvement is a major issue.”

While we are somewhat disappointed that Logizard has not expanded early on into the order management system (OMS) business that is now populated by companies such as Hamee’s (TSE: 3134) NEXTENGINE, NHN Savaway’s TEMPOSTAR, we are also concerned by the growing competition in the OMS space and Logizard has chosen instead to collaborate with Hamee and NHN as long-term business partners, focusing on WMS in which it is still the overwhelming leader with 77% market share. When asked about the competitive strengths and edge of Logizard, CEO Kanazawa said, “The strengths of Logizard are three points: fast delivery, low price, high service. From around 2004, small and medium-sized EC operators who opened stores at Rakuten began to increase. Because EC businesses suddenly increase in quantity, there is a need to immediately use the inventory control system according to the growth speed. The ratio of logistics expenses to sales is about 11% on average, which is higher than other industries, and EC operators want to keep the distribution cost down. There were two notable needs in the EC industry. One is a sense of speed. The value of Logizard was automatically raised because our WMS enabled EC operators to grow fast without inventory and logistics problems. For example when media talks about the health food of the EC operator, it may be necessary to ship ten times the usual volume the next day. Another is that the 3PL industry that undertakes these logistics has a need to get started right away and wants a IT mechanism to stop immediately as soon as contracted delivery is no longer needed. The IT system in which tens of millions had been invested becomes unnecessary if the contract expires, and what about the remaining charge? Mail misdelivery is fatal when it comes to undertaking online mail order sales. Many logistics companies do not have a warehouse management system, and introduction of WMS was mandatory for entering into the EC operators’ business. Logizard’s cloud service can be introduced quickly and investment risk is small. I also worked at Rakuten Ichiba during its early days and have a good knowledge on the flow of EC logistics that is not found in other companies’ products which has also become a strength of our company.”

“Since we always have an antenna for industry trends, we can say that our value is our high transmission ability. We collect and provide information by our customers, with the intention of having information, suggestion power, solution capabilities that we can propose to customers ahead of their problems and needs. We will continue to make efforts to keep logistics a vibrant industry and to support the expansion of our customers.”

“We cooperate with enterprises such as Hamee’s (TSE: 3134) Shippinno and Sato (TSE: 6287) with API (Application Programming Interface) to acquire and link up automatically shipping information and goods receipt information in real time, instruct the picking work in the warehouse by voice control etc.”

“Evolution of the Internet world is fast and competition to provide WMS with SaaS is also increasing, but we overcome others by value rather than by pricing competition. As technology evolves intensely, customers want their day to day operation support. I believe that there is value in responding to those voices. Customers are looking for partners who will not stop their logistics. Our policy is ‘absolute shipment’. Even if something happens, we are prepared to solve it on that day. I was doing customer support for New Year’s Day for 16 years. Even now, I am a member of the support team of large EC events held in Shanghai in November (laugh). Waves of business volume will also come in seasonal products and online festival sale, so inventory control is important.”

When asked to elaborate on the new big data business and future growth strategies of Logizard, CEO Kanazawa elaborated: “There are various services that can be done by increasing handling data. We have began offering free matching service from Nov 2016 for customers who are considering the outsourcing of logistics operations. We will interview the conditions and requests of logistics warehouse of customers searching for logistics warehouse and introduce the optimum warehouse for customers. Since Logizard supports a variety of materials, we know the features of various industries. You know the fact that we are in a neutral position between 3PL merchant and shipper and the worries of the warehouse and the shipper’s request, so we can see the economic merit deteriorate for both parties. Warehouse companies are weak at specialty in handling certain material and we have seen quite a lot of the tragedies that occur. As you can decide after consultation with the warehouse, we will introduce the warehouse which introduced Logizard ZERO, the #1 cloud WMS (Warehouse Management System) in Japan.”

“Logistics is so physical that the challenges will soon become obvious. We would like to make use of our data for the last mile issue. By utilizing the data accumulated in Logizard, you will be able to go to pickups efficiently in the required places at the required timing, so you can eliminate unnecessary pickups and waiting times. I think that it may help to reduce the working hours of the delivery driver. “Logizard ZERO will enter B2B again. It is because we need to manage the whole distribution flow. Channels that are not just ECs have come into view. Since the number of client accounts also exceeded 1,000, we are planning a data analytics business that utilizes the collected inventory information. Specifically, we want to be able to manage all inventory in one central location for ECs, stores and factories, and would like to develop data business that will suggest the best inventory stock when customers want to buy. There is a strong need for EC operators to adopt real solutions to solve the problem of wanting to avoid missed sales.”

“We are promoting R&D on our own with respect to three new technologies. One is a management system using RFID electronic tag. If it is put to practical use, you can manage incoming and outgoing inventory with significantly fewer personnel without using a barcode scanner. The second is the introduction of RPA (robotic processing automation of operation task) in logistics and inventory management. The third is to introduce robotics technology into shipping work in facilities such as warehouses and to achieve dramatic efficiency. The direction of logistics, especially against the declining population, is a big issue. SMEs must think about improving productivity in a different dimension from cost down so that high quality work can be done with less resources. What we are thinking is, for example, a solution like a sharing model, such as shifting expensive material handling equipment in time to use. Short term rental is the same as annual rental if you can see the destination ahead of the year throughout the year. In addition, we are also developing an omni-channel function utilizing real-time location-specific inventory information. We will be collecting data in the cloud from the operational situation of the robotics technology used in the warehouse and the know-how accumulates accordingly. Data is collected and analyzed, and the AI learns the data with the information algorithm from the feedback loop, making it harder for any other competing systems to catch up with us. We will proactively turn our upfront investment into profits.”

CEO Kanazawa summed up: “Under the mission ‘absolute shipment’, we will do our best to ship items at any time. Logistics service and support continued to move even in unprecedented emergencies such as power outages due to the earthquake. ‘If you are in trouble, you can move together with Logizard. The trust from our customers is the most motivating force for us. It means that customer’s trust is lost if our service stops, especially serious when EC customers want instant gratification in fast and timely delivery. Everyone is always strongly aware of our mission to support the infrastructure to handle 100 million delivery transactions. We are working on development of operational knowledge as a means to solve the problem and work equally with our clients as a business partner rather than a trader, so the required level of trust and knowledge is high. But it is an environment where we feel more useful to society every day and we aim to be a company that everyone can enjoy a holiday properly because we devote ourselves to making our products and services.”

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 300 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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