Big retail winners in Japan’s downturn

Here is my list of some of the few companies that have found success during the recent economic downturn. Note their domestic orientation and low-priced offerings:

Disneyland – Multiple upward earnings revisions. Popular as alternative to international travel.

Nintendo – Record earnings. Gaming as substitute for an expensive social life. Their strategy to expand the pie of gamers through educational titles and the like has paid off enormously.

McDonald’s – Record earnings. 100 yen burgers for high school girls who want a place to chat and penny-pinching single salarymen who don’t cook for themselves

Fast Retailing – operators of cheap apparel seller Uniqlo, offering reasonably fashionable cheap clothes, plus a popular line of ultra-warm “Heat Tech” thermal underwear.

Nitori – cheap imported furniture, many convenient locations and no IKEA-style assembly requirements, no-pressure shopping experience (contrast with expensive, high-pressure Otsuka Kagu).

Tsutaya – is reporting surging new membership in their Internet rental service (similar to Netflix) is surging, while rentals-plus-online numbers have posted a sixth straight record year. People apparently spend their vacations watching the entire Sex and the City series instead of traveling to Hawaii.

Anecdotally, some of the supposedly high-end shops, such as the Caldee line of imported food stores, seem to be pretty popular. For one, the yen is strong, and for two, even relatively expensive items,  are still cheap compared to the overseas trip you’ve decided to skip this year.

Writing in INSIGHT NOW!, small-business M&A consultant Shin Satake identifies four lines of business that do well in economic downturns:

 1. Education services (people who have lost their jobs turn to retraining to make them more competitive)

2. Medical services (stress is a killer!)

3. Repair/maintenance (people decide to get stuff fixed rather than buy a replacement)

4. “Escapism” businesses – (the desire to escape everyday existence is a self-defense mechanism. Includes entertainment, etc.)

17 thoughts on “Big retail winners in Japan’s downturn”

  1. “Is there McCafe in Japan”

    Seen them in a few of the big cities.

    Is it just me or is every coffee better than Starbucks?

  2. Just have say:

    This blog is probably one of the better sources of information on Japan, and one of the best places – no, THE best place – to have an online discussion about the country. There are other informative sites that tend to have either a “right” or “left” bias, but this is the most moderate, reasoned and sane forum there is.

    This is all thanks to the hard work of Joe, Adamu, and Roy.

    Good work, guys!

  3. I think Pachinko was suffering from a generational problem, i.e., young people weren’t that into it. I don’t know what the recession has done to the equation though.

  4. The list doesn’t seem much different to those businesses which did well in the first couple of years of the post-bubble economy. I don’t have old stock price charts and company shikiho near to hand but it I’ll try to remember what else started to do well then because it might point up similarities and differences this time around.

    Nintendo was on a roll because they had launched their first handheld, the Gameboy, in 1989 and it was a runaway success. Pocket bell, pagers and PDAs like Zaurus were still a few years away from peak popularity so Nintendo had the bored commuter market to itself on top of the usual gamers.

    One group of retailers seeing good sales growth in the early nineties were so-called “roadside” companies which had sprung up along suburban routes. These included cheap suit companies like Aoki and Aoyama Shoji because people still assumed they would need a suit but didn’t fancy paying department store prices. Since people still owned cars in the early nineties, and were more likely to go for a doraibu in lieu of anywhere expensive, these roadside locations were thought to be good which is why family restaurant chains such as Volks began to really expand. Car accessories were also increasingly popular so Autobacs did good business. Second hand cars began to lose their stigma so dealers like Gulliver began to grow. Another second-hand dealer, Book Off, opened for business in 1990 but it took a few more years to get going.

    Uniqlo was around, growing in fits and starts, but only really made a nationwide splash when the company opened a Harajuku store in 1998. Retailers like Shimamura, selling cheap clothes for working women, did better at first along with some companies like Itariyard, now bankrupt.

    The pachinko industry was also initially quite recession-resistant and thrived for some years. This was also the beginning of a boom time for unsecured consumer loan companies. With mainstream banks mired in countless post-bubble scandals, suddenly their murky reputations didn’t look so bad by comparison.

    100 yen shops had been around for some time but the strengthening yen in the mid-nineties gave them new purchasing power and suddenly they were everywhere. You have to go back to a different mindset to some degree because you were always told that Japanese people didn’t ask for discounts: they paid full price or not at all. Of course this was never really true in places like Osaka or even shitamachi Tokyo but it did hold to some degree. However, we began to see “discounters” popping up selling cheap booze, cosmetics and luxury goods. Only a few of these companies, like Don Quijote, went on to bigger things nationwide but they opened the door for category-killers like Matsumotokiyoshi and Uniqlo who were prepared to pass on cost advantages to consumers in a way the department stores and supermarkets had failed to do. This is so entrenched now in retailing that it’s difficult to imagine the benefits of the current strong yen not being passed directly to consumers now.

    Arguably, though, the better comparison with today might be 1998 when Japan’s financial system finally collapsed into crisis. Some of the companies which had thrived initially relied to some degree on people keeping up appearances but large scale public bankruptcies meant that this was no longer on the cards. That’s when Book Off, Uniqlo and Don Quijote really hit their stride. It’s also around the time when mobile phone services began to explode which reduced spending in other areas.

    A slightly odd one is Starbucks which first opened in 1996 and took off straight away. It charged more for coffee than a chain like Doutor so it certainly wasn’t for the price-conscious consumer. However, the economy had seemed a little firmer in the post-Kobe earthquake post-sarin attack period so there were more people open to the idea of “new” rather than just “cheap”. By the time Yamaichi went bankrupt, Starbucks seemed to be benefiting a little by association with the vibrancy of US finance and technology markets.

    What’s interesting about Adamu’s list is that all those companies are fairly well established in Japan so they don’t really have the same growth potential as a company starting from a smaller base. Then again, if we could so easily identify which new companies were going to thrive in this environment then we’d all be very wealthy.

    I’m interested to see that “education services” is one area mentioned by Satake because this didn’t really happen before. Mind you, it’s not an easy one to categorize because you could conceivably have included NOVA as part of a “retraining” boom. Medical services is always identified as a growth market in Japan but the flipside to that is a national budget constraint which means the government has some incentive to try to get those services at a cheaper price. The repair/maintenance idea is also interesting. On the consumer goods side, though, most things appear to be engineered to hinder repairs so I wonder how this will change. Since people aren’t buying cars as much any more, I also wonder what people have that they could consider maintaining better? Perhaps “relationships” but that takes us back to another Mutant Frog topic. And if the “desire to escape everyday existence” is identified as another growth area, I foresee good things for this blog because it certainly allows me to put aside the horrors of my working life for a few entertaining moments each day.

  5. I think that the eruption of Pachislot over the last few years brought in the young people. Some of the DS and PSP adaptions of Pachislot even became bestsellers.

    However, I am hearing more and more in the way of grim stories about the Pachinko / Pachislot industry.

    – People that I know who play a lot are staying away. Apparently, because of a decline in customers, the shops are paying out less in order to keep profits up (by preying on addicts) instead of paying out more to draw in the casuals. This could spell disaster.
    – There has been a big rise in “ichien” Pachinko. I see it advertised all over the place. This means lots of machines in the shops that just won’t be earning the big bucks (yen).
    – I see that lots of shops are increasing the number of “special days” every month (my favorite name for a special day – 出しマンデー). It is getting so that each and every day is some special event and this reeks of desperation.
    – There has not, to the best of my knowledge, been a big “hit” machine in a while now – there was a string of them when times were better – hokuto no ken, hissatsu shigotonin, dai yamato, fuyu no sonata, etc. but nothing in what seems like ages.
    – There is a chance that legit consumer credit will dry up and there is only so much that you can get from yamikin so I don’t think that this will be a bright few years for pachinko.

  6. Disneyland, of course, is not actually the company. What we know and love as Tokyo Disney Resort is mostly Oriental Land, which is a very domestic feeling Japanese operating company, with meticulous oversight from Walt Disney Attractions Japan, a handful of ex-pat managers, ex-pat engineers, Japanese interpreters etc. Disney the company is not having the best of years, and has starting offering early retirement packages to employees.

    Wife was just saying this morning that upward earnings revisions were due, as the news says, to the 25th Anniversary hullaballoo and the choice of travelers to stay within the country, but seeing as how OLC also depends on goofy homegrown projects like Ikspiari for revenue that could bleed them cash in FY2009 if retailers pull back; furthermore, with no “26th Anniversary” events to lure people to the park, OLC would be wise to forecast conservatively for the coming year. As well, who knows how long Cirque is going to be able to stay around in Japan.

  7. Wow Mulboyne, thanks for all of that analysis! I think a few numbers and we could collate this thread into an article for the WSG or Economist right now.

    It’s interesting that he describes the Wii as “treading water in Japan” while the DS is a truly massive runaway hit. Does this come back to Japanese patterns of daily life, where portable games you can play on the train have an easier market than multi-player games that you need to invite friends over to fully enjoy? When teenagers in cities live in pretty scattered areas and rarely gather to hang out in someone’s house, and college kids mostly either still live at home or in tiny one room apartments where you can’t even fit four people playing Wii, it just doesn’t have the same appeal. Can you imagine someone trying to set up a full Rock Band set in their 6-tatami room?

    On a related and even geekier note, I’ve always suspected this is why tabletop roleplaying games like D&D never really took off in Japan (although localized editions and players do exist), even though the basic concepts of D&D were turned into some of the biggest video games Japan has ever seen, such as Dragon Warrior or Final Fantasy.

  8. “I’ve always suspected this is why tabletop roleplaying games like D&D never really took off in Japan”

    They did have something of a boom around 1985, but I think that the big difference was that D&D had several pre-computer years to catch on in the USA while Japan got tabletop and Wizardry (huge in Japan), Dragon Knight, only a short time after D&D came ashore. There were plenty of theoretical spaces for D&D games in Japan – high school and college club rooms, for example.

    In addition, this is around the same time that Japanese nerds got Nausicaa, Macross, the birth of the OVA, etc. so they had other things on their minds.

    “Does this come back to Japanese patterns of daily life”

    Partly, but I think that it also helps to look at software. Wii has a weak lineup. DS has a fantastic lineup. The new Dragon Warrior, a DS exclusive, should move mad copies despite the recession.

    The “killer ap” theory also works for the PSP – its sales took off when a game that Japanese want to play (in this case, Monster Hunter) was released.

  9. Yes, and college TRPG (in Japan the T stands for “Tabletalk” which is a nice example of 和製英語) gaming clubs still exist in Japan, but it’s a minuscule hobby compared to say, North America or Germany. I mean, I knew easily a couple of/a few dozen RPG gamers just in my own high school and I can’t say I’ve ever met a Japanese person who played.

    The software lineup for the Wii and DS is obviously the main factor, but a huge part of the appeal for the Wii has been the party game factor, and if you can’t invite at least 3 friends over that entire factor is missing.

  10. Wow…your list is very similar to what I came up with for the most recent BizCast, which should come out tomorrow.

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