UPDATE 1-Japan's Zozo cuts outlook, blames failed measurement-taking Zozosuit

* Sees full-year operating profit Y26.5 bln vs previous Y40 bln

* CEO says people ordered Zozosuit, did not use it to buy clothes

* CEO says will ditch “high risk, high return” strategy (Adds CEO comments, other details)

TOKYO, Jan 31 (Reuters) - Japanese fashion e-commerce website Zozo Inc slashed its annual profit outlook and dividend on Thursday, blaming a failed and costly experiment with a skin-tight bodysuit for taking measurements.

Zozo, with a nearly 50 percent share of Japan’s e-commerce market for mid- to high-end fashion, had tried to branch out by launching its own private brand and a made-to-measure service.

But last quarter it scrapped the Zozosuit, a polka dot bodysuit it distributed for free that allowed users to upload body measurements, amid complaints over distribution delays.

The bodysuit, along with billionaire CEO Yusaku Maezawa’s plans for a lunar flyby as the first private passenger on Elon Musk’s SpaceX mission, had helped spread the company’s name globally. Its end has cast a shadow on Zozo’s strategy.

“It was a year of trial and error. We have caused our investors great concern,” an unusually contrite Maezawa told an analyst conference, adding he would now ditch his “high risk, high return” strategy for lower risk and medium returns.

Many people ordered the bodysuit but did not use it to buy clothes as expected, he said. Some did not even upload their measurements, he added, leaving the company saddled with the huge cost of distributing the suits without seeing returns.

The made-to-measure service also struggled to keep up with the orders that came in, with some customers waiting for five months for suits to be delivered, he added.

“By distributing the ‘Zozosuit’ for free so that people could take measurements, we were hoping to create demand for the Zozotown business, including the private brand. But the impact did not have the scale that we had hoped for,” the company said in a statement earlier in the day.

The company now expects a full-year operating profit of 26.5 billion yen ($244 million), down around 19 percent from a year earlier. It previously forecast a rise to 40 billion yen.

Investors have recently turned wary about the company’s outlook, particularly after apparel company Onward Holdings Co pulled its brands off the shopping website due to friction over discounts that Zozo implemented.

Maezawa said 42 of 1,250 shops on its platform had halted sales due to objections about Zozo’s discounting strategy.

The company’s shares have halved in the past six months.

Zozo said it now expects to pay a year-end dividend of 10 yen per share instead of an initial forecast of 22 yen. ($1 = 108.5700 yen) (Reporting by Ritsuko Ando; Editing by Himani Sarkar)