August 21, 2012
August 2012 Fashion
By Dominic Carter
In the past decade, Japanese retail has undergone a series of
developments that have seen it come closer into line with the retail
landscape in other advanced countries. Important changes have
included, of course, the popularization of the Internet as a sales
channel, but also the continued decline of the traditional Japanese
department store format that had held sway for most of the 20th
century. At the high end, recent years have seen an erosion in the
position held by foreign luxury brands, which heretofore had
counted on Japan as one of their key sales drivers and pioneered the
notion of “mass-luxury”.
In addition to this, one of the more market-shaping trends has been
the growth of the “big-box” shopping centre in the suburbs and
countryside. Whilst strict planning regulations have served as a
handbrake on the proliferation of shopping centers, their numbers
have continued to increase. The shopping center format lends itself
particularly well to the specialty apparel chain-store sector, which
for a long time was quite underdeveloped in Japan.
With the exception of trailblazer Fast Retailing’s Uniqlo, the most
significant influencers in the specialty apparel market have been
foreign firms which started to enter in the late nineties and have
continued their progress unabated. Although Gap, which launched
in 1995 and Inditex of Spain’s Zara in 1998, had seen success in
Japan, the tipping point in the market seems to have been the
successful launch of Swedish fast-fashion brand H&M. While fastfashion and luxury are clearly not direct substitutes for one another,
the progress of H&M in Japan has occurred alongside tough times for
traditional luxury retail.
H&M came to the market in 2008 with a younger focus than Zara,
and with a great deal of buzz driven by its collaboration with
celebrities and celebrity designers such as Madonna and Stella
McCartney. Its value platform of super-current fashion combined
with rock-bottom prices was something Japan had not seen before,
and was perfectly timed to capture a stagnating consumer wallet
whose bubblicious days of frivolous extravagance were well behind
it. Not only does H&M hit on a good value formula, but its fashion
stretch and quick stock turnover also creates an experience of
shopping there that delivers some fun and is inherently repeatable.
H&M was soon followed by Forever 21 in 2009, by Inditex’s Bershka
last year, and in April this year by American Eagle Outfitters and
Old Navy. Old Navy is Gap Inc. of the U.S.’s least costly brand and
sits at the bottom of a pyramid comprised of Banana Republic at the
(mass) high end and Gap in the middle. Banana Republic launched
in Japan in 2005, and was the brand’s first foray out outside of
North America. Old Navy in Japan is following in the footsteps of
its sibling in that it is also the first location outside of North
America.
Old Navy has ramped up the fun aspect of shopping and is aimed a
clearly more family-oriented and less fashion conscious market than
H&M. Its launch store, in Tokyo’s Odaiba DiverCity complex (a play
on the location Daiba and “diversity”), is a colorful, energetic and,
for the time being at least, extremely popular place to shop. The
retail environment in Old Navy is conspicuously American and
quite unlike anything seen in Japan to date in its sector. Perhaps
taking a note out of Ikea’s book, it even features a play area for kids
allowing mums and dads to spend as much times as they like in the
store.
So, where to from here for specialty apparel and fast fashion in
Japan? According to Nikkei’s Consumer Diffusion Index, in July
2012 consumers’ willingness to spend has dropped significantly year
on year, and this is blowing a headwind for established businesses
such as Uniqlo that has seen a drop in sales year on year. In the
context of a long-term stagnant market and well-entrenched
domestic players, there are only so many new entrants that can be
successful. Uniqlo, although a clear success story, does seem to be
under pressure to find sources of new growth. Excelling as it does on
basic fashion items, their current largely suburban and provincial
customer base would probably not respond well to a fundamental
change in their established product strategy in order to meet foreign
entrants head on. Uniqlo’s response has been to take the fight to the
competition in their home markets, but this is a long-term
proposition for Fast Retailing and doesn’t really address the issues in
its home market.
At the end of the day foreign specialty apparel chain-stores are
dwarfed by Fast Retailing and overall make a tiny fraction of
Japan’s 9 trillion yen apparel business. Nevertheless, these new
entrants are setting the agenda and it is up to domestic firms to
respond. Future years are likely to see consumers even more spoiled
for choice as we see even more entrants from overseas, as well as
creative responses from domestic firms.