A SOU employee checks a used Louis Vuitton bag at the company office in Tokyo. Photographer: Kiyoshi Ota/Bloomberg
INTERNATIONAL - The resale of Hermes bags, brand-name jewelry and other luxury items is a thriving industry in Japan, with one critical bottleneck: building inventory is tough.

SOU Inc. offers a solution: pawn shops dedicated only to buying up second-hand merchandise. Business has been so good for founder Shinsuke Sakimoto — who posted profit of 1.14 billion yen ($11 million) on sales of 22.7 billion yen for the year ending August — that he’s taken the company public. Shares of SOU opened for trading in Tokyo Thursday at 4,100 yen a share, 24 percent higher than the IPO price of 3,300 yen.

Japan’s resale market for luxury brand goods is worth almost 200 billion yen, according to a government report. Yahoo Japan Corp.’s auction website is dominant, but there’s plenty of competition. Mercari Inc. became Japan’s first startup unicorn with a marketplace app, and even EBay Inc. is returning to the market. With plenty of demand for second-hand goods, Tokyo-based SOU has focused on making it easier for people to part with their expensive bags, watches and jewelry.

Second-hand Hermes International SCA bags are displayed for sale at a Daikokuya Inc. store in the Shinjuku district of Tokyo, Japan, on Monday, March 19, 2018. Photographer: Kiyoshi Ota/Bloomberg
“We are specialists in purchasing other items; we do not sell them,” Sakimoto, 35, said in an interview. “Other companies will open stores to sell the items they buy as an exit. We are B-to-B, so we use auctions to say ‘bye-bye’ to the items in a short amount of time.”

The company, named after the Chinese character for “thought,” has a network of 57 stores across Japan. They’re stylish, attractive locations where people can sell their used luxury goods in a relaxed atmosphere. SOU is planning to open more stores, funded in part with the sale of 4.9 billion yen worth of shares. SOU, which is trading on the Mothers Exchange, has a market cap of about 24.5 billion yen. SMBC Nikko Securities is the underwriter of the IPO.

SOU doesn’t rely on much technology or smartphone apps. It has a barebones website. The company’s growth, according to Sakimoto, comes from their “ability to round up customers, to purchase the goods, and then sell them off quickly.” For the current fiscal year ending in August, the company expects sales to increase 31 percent from the year-ago period.

A SOU employee dresses a mannequin during a photo shoot. Photographer: Kiyoshi Ota/Bloomberg
Still, SOU will be wading into a crowded market where consumers will have their choice among websites, smartphone apps and Japan’s already built-out network of pawn shops for how they want to sell their items.

Sakimoto says it’s impossible to know when an item will see less or more demand. So once SOU buys used brand-name goods from customers, it auctions them off to other businesses four times a month.

The next stop could be another city in Asia. SOU is also considering a location overseas, and has previously held auctions in Hong Kong to sell diamonds.

An employee talks with a customer while appraising a handbag and a pair shoes in Ginza, Tokyo. Photographer: Kiyoshi Ota/Bloomberg
- BLOOMBERG