japanese market insights

Insights from Japan

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Introduction

A market visit was made to Tokyo, Japan in June 2008 by Steve to develop insights for the Japanese market.

Store Visits: Serbr-Ginza, Matsuya- Ginza, Mitsukashi, Omotesando Hills

boutique/ department stores (Harajuku), Louis Vitton (Harajuku), Bathing Apes (Harajuku), ISETAN-Shinjuku, Marunouchi Building, AEON (Biggest

chains).

What follows are the series of insights from data collected from the visit.

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Japan macro economy

• Japans economy is the second largest in the world

• Japans economy is currently in recession

• Per capital GDP Japan is $36,544 (€27,667) -- 34 in the world

• Japan has one of the lowest population growth rates in Asia

• Japan has a rapidly ageing populations -- 19% over 65 years (doubling since 1985)

• By 2050 42% of the population will be over 60 years old

• Average balance in a current account would be about €70 – 80 K ($92 – 106 K)

• Grocery sales per capita are growing $5,925 (€4,486)

As one of the most developed economies in the world, Japan is suffering from many of the same symptoms of developed Western markets; a

prosperous but increasingly aged population and recession or very slow economic growth.

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The Retail Environment

Hypermarkets/ (superstores) spread across 4-5 stores e.g. Meguno

• C-stores (convenience) in huge increase (almost every street corner)

• Convenience stores are developing additional services e.g. bill paying ATMs, pick up for home delivery etc

• Department stores under pressure from super and hypermarkets

• Since 2007 new city planning restrictions mean large store openings in suburban areas will fall 87%

• Restrictions on the opening of large sized stores (greater than 10,000 m²)

Until recently, high land prices and regulations against large stores have also stifled expansion of the major chains and encouraged the growth of convenience stores (especially 7-Eleven). However, consolidation is now gathering pace and the top players, aided by their expansion plans, are

undoubtedly gaining market share.

7-Eleven Japan is the largest convenience store operator

• Sales up

• New products

• Refine product mix

• Lawson convenience stores

• Closed unprofitable stores

• New formats for women and elderly

• NANRAL/ LAWSON

• Family Mart

• Closed unprofitable stores

• Reopen in hotels/ offices and hospitals

• 6 largest convenience stores range responsible for all the growth – 23,837 (in 1991) 45,000 (in 2007)

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Consumers are very used to shopping in small convenience stores / small corner supermarkets rather than large malls (in the city, private cars are

not often used)

• Convenience stores are developing additional services e.g. bill paying ATMs, pick up for home delivery etc

Japanese shoppers will visit local stores 3 – 4 x per week freshest produce


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• Retail sector highly fragmented: top 5 have less than 20% ms.

• Retailers with economic downtown price of land dropped: retailers encouraged to pursue aggressive store openings

• Hypermarkets/ (superstores) spread across 4-5 stores e.g. Meguno

• Own label increasingly important especially premium

• Number of supermarkets +20%, sales area +86% (bigger store formats)

• There is a concentration of department stores through mergers/ acquisitions investigate


The retail segment is experiencing pretty sluggish growth. For a market that is so developed Japan's retail sector is highly fragmented with the top five players holding a market share of less than 20%.

• 2001 – 2006

• 344 new shopping centers

• 70% 10,000 m²

• Built in suburban areas, which means cheaper land

• Department stores under pressure from super and hypermarkets

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Major Retail Brands

• AEON (Biggest chain)

• now leading retailer in Japan, vision to become one of the top 10 largest retailers in the world

• The largest supermarket player (MaxVaw chain)

• AEON and Daiei merged to create the countries largest retail group

• Seven & i Holdings(Biggest convenience store chain)

• 7-Eleven

• 1 to Yokado?

• Acquired Millennium retailing group in late 2005

• Wal-Mart acquired stake in Seryo

• Tesco

• Tesco C2 operates as a discounter competes vs. local grocery and small regional supermarkets

• Acquired majority stake in C2 network and fre’c discount network (2004)

NB: Tesco and Wal-Mart arriving in Japan = bad news for domestic retailers (PR)

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The Environment for Pharmacies and Drugstores

• Japanese prescription pharmacies are very old fashioned and not very open to OTC / Dermo-cosmetic products

• Increasing Non prescription pharmacies are developing (these carry prescription and non prescription) they are more open and coming close to drug store formats but in smaller space

• Drug stores are growing stronger than the rest of the retail market

Traditional pharmacies are closed to OTC and Dermo cosmetic products. However there is a strong consumer and legislative changes that are

driving a shopper trend towards non-prescription pharmacies and drug stores which are both growing in share.

• In April 2009 sales regulations for OTC will be relaxed. This is predicted to cause some big changes in the drugstore sector in Japan (growing faster than the sluggish retail sector)

• Market for stimulants is very large. These would include herbal, naturals and neepards?

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The Environment for Pharmacies and Drugstores

• AEON (the largest retail group in Japan) in Feb 2007 AEON Welcia has become the largest drugstore group in Japan with 1800 stores of 9 regional drugstore chains (net sales of JPY 600 Billion / US$ 5.1 Billion)

• AEON is expanding Welcia Store network of allied drugstores chains across Japan

The major drugstore group is AEON Welcia with up to 2000 stores in 9 regional chains (expected to grow to 2900 stores in 2015). Success in this

chain is critical to the success of new products.

• AEON is expanding Welcia Store network of allied drugstores chains across Japan

• 2008 AEON will expand share of CFS to 33.3% from 15% at present increasing to 2000 stores

• AEON is expected to be in the Top 10 Global drugstore and pharmacy operation with 2900 stores US$10B


Japanese Women

• Huge popularity for exclusive merchandise with the younger teens

• Very much a group conformity within the teens

• ‘Cute’ / Kawaii is embedded into culture manifests in women e.g. pink/ fluffy/ squeaky voice

• ‘Cute’ gets more attention from the boys

• ‘Cute’ always floats above the fashion trends

Women go through several very clearly defined and regulated stages in their lives from the younger teen, older teen, young single woman, married woman, mother, and

grandmother.

In theory Consumer insights are simpler in Japan as the need to conform to the expected behaviours of each stage over rules the deeper emotions and beliefs of each

individual.

Younger / Older Teens for them is all about being a part of the group (and their idols), sharing the latest technology or fashion with the group and being seen to be attractive and

“cute” especially to the opposite sex:


Japanese Women

• Unmarried professional women have very high disposable income and will spend it

• High levels of spend on international fashion brands

• High levels of spend on make up, skin care, fashion

• Low levels of spend on house and home

• Professional women will stay in the family home till late 20’s, early 30’s


grandmother.


individual.

Single Professional Women, for them it is all about enjoying life to the full including all its luxuries


Understanding Japanese Women

• “When a woman marries, she believes that her personal life is over”

• Older women have tremendous buying power

• Apartments are small (50 – 70 m²), contain basic furniture. Mothers don’t spend money on themselves the family is first (children then husband)

• There is a high need for order (kata) in all elements of Japanese life


grandmother.


individual.

Women married with kids. Her life is all about being a mother and wife. She comes last in terms of priorities but is the one that maintains the ‘order’ or kata in the family home


Japanese Shopper

Japanese food shoppers will visit local stores 3 – 4 x per week to get the freshest produce (also important reason that the stores are local to them)

• Home refrigerators/ freezers are very small in Japan

• Many fashion conscious shoppers will go to the shops every week to see what is new in the market

• You never tip in Japan for service as it is an issue of pride to serve you perfectly

• Japanese consumers really read/ study magazines to get information on their products

• Product leaflets very important to educate the consumer, in detail, on how to use the product

• Top Tip: Hire your brand target market to sell your brand

• Retail stores staff are always interacting with customers or the product and never between themselves

• “I love to watch the staff in the store – they are so trendy” – Japanese fashion shopper

• Attention to detail in retail is immense - the store design, staff, posters, prices are all about the brand

Japanese consumers are the most demanding and active shoppers in the world. They will go to the stores every week to see what is new, get

information, buy the freshest, most up to date product


Fashion and Skin Care

• Trends (Fashion / Skin Care) might start national but then individual groups take over the trend and make it “better” “perfect”

Some designers will not work if there is a budget as it may stop perfection

• Shibuya style street fashion trend setters

• Concept stores will trial small collections from unknown designers

• Concept stores are 2 years ahead of the main fashion trends

• Concept stores are key drivers of fashion trends

• Loveless is a leading concept store for fashion with limited range and limited life for designers (2 years and out)

• Osaka is 6 months behind Tokyo • Japanese designers don’t know they lead

world fashion

• Foreign designers do not believe that Japanese designers lead world fashion

• Printemps’ buyers make an annual visit to Tokyo to see the fashion trends for the next 2 to 3 years

The high need for perfection of Japanese culture is a major driver for the development of fashion and skin care in Japan.

Japanese culture is external facing. Its how you act and look that is important not what you feel.

• Japanese people have a major need to be perfect

• Imperfection is not tolerated Japanese consumers have to make it perfect

• Fashion is not about just clothes but the total package hair, make-up, bag, shoes, accessories

• Accessories are key to improving ‘perfecting’ fashion

• Very short lead time from design to production because of the close cooperation with factories in China

• In fashion retail, the customer service that is provided is not forced. You are approached like a friend/ they are advisors, not sales people


Fashion and Skin Care

• Cartoons/ Animé are a huge source of influence for fashion

• There is a phenomenon of Cosplay amongst the younger teens dressing like cartoon characters

• Art defines Japanese youth culture

• Attention to detail in retail is immense

• Don’t see too much evidence of promotions involving price

• Co – Branding at retail is successful e.g. Mac and fashion brand/ shop and magazine

• In retail stores (fashion) staff are the embodiment of the brand: hair/ dress/ make up/ style/ service

• Celebrity endorsement and product placement is a driver of fashion trends

• Fashion magazines are key to setting trends “SWEET”

• Kawaii magazines aimed at 15 – 19 year olds

Inspiration for fashion and skin care comes from Art, Youth Culture, Celebrity and Fashion Magazines. Japanese consumers are continually looking to these

icons for inspiration and direction


Skin care in Japan

• High need for instructions in skin care – magazines/ on pack/ leaflet/ POS/ staff classes/ workshops

• Some cosmetic brands offer ‘schools’ for teaching how to apply cosmetics / skin care

• Japanese consumers believe that skin should look naturally perfect (not made up)

• High incidence of ‘packs’, multiple products together in one pack, starter pack etc

• Japanese consumers believe in regime for skin care and will look for a number of products to use together

• Need to improve Western products to make it perfect

• Japan is a source of inspiration for make up (Beauté)

• Pharmacies vs. clinics in Japan very little opportunity for dermo cosmetics in pharmacy but high opportunity in drug stores

• “doctors cosmetics” are cosmetics developed with and for use by doctors

• 5 million patients will be treated with ‘cosmetic dermatology’ in Japan (2005) double that of 2001

• 70% of Japanese women have expressed an interest in Cosmetic Dermatology but only 10% have gone for treatment

• The market for “doctors cosmetics” is estimated at Yen 23 billion / 180 million Euro

• Japan dermatological association has 10,000 members (over 4000 qualified derms)

• Eyes are super important segment in Japan

• Cosmetics

• Lashes

• Extensions (lashes)

• Fragrance is not wanted in Japan negative associations, therefore market is very small

• Very clear range segmentation/ explanations e.g. Bioderms

Skin Care Consumers look for direction and instruction from the Brands and Authorities in Skin Care. Dermatologists are an important source of reference

for “doctors cosmetics”


New Brands to Japan

New Brands entering the market must demonstrate a clear and relevant advantage to Japanese brands but also show that they have adapted to the

Japanese consumer needs.

• Foreign products must be better/ different than Japanese or else there is no reason to be there

• Need to allow for a degree of adaption of products to Japanese consumers • To be foreign is to be tolerated, not absorbed into Japanese society


Distribution

New Brands entering the market must comply with the existing ‘rules’ of the market working with the established distribution networks and channels

• Wholesalers are traditionally the middleman of Japanese Retailing • Japan distribution systems are very complicated. Therefore wholesalers play a very

important role • Group alignment is much more important than individualism do not stand out • Keeping harmony is most important in Japanese business


Sales Staff

Trained and Motivated Staff are key to delivering exemplary customer service as well as being the human face of the brand to the consumer

• Shibuya 109 is the highest turnover retail store (per ft²) in the world

• Retail stores staff are always interacting with customers or the product never between themselves

• It is seen as an honor to serve the public • Sales Staff are the ‘icons’ for the fashion brands /

fashion shops • “I look up to the Sales Staff – they look really great”


Innovation

• Anniversary/ New/ limited editions are important in Japan

• Shops/ designers copy and improve at very fast speed

• Limited editions stores are very popular and attract huge queues. Need a ticket to get in.

• Promotions are very important but more so the added value promotions (gift sets, gift with purchase, combination deals) not the price promotions

Brands must continually innovate and reinvent themselves to show exclusivity, specialisation and expertise


Technology

• Japan is leading world in M-commerce buying over the mobile phone • Bar code readers on the phone take picture of the code on POS/ leaflet go straight to

the website • Japan is one of the most developed e – commerce markets in the world

Technology is a hugely powerful motivator and channel for consumers / shoppers in the Japanese market – Brands can leverage technology have a

significant advantage


Appendices


Bathing Apes Case Study

A Bathing Ape (or BAPE) is a Japanese clothing company founded by Tomoaki "Nigo" Nagao in 1993.The company specializes in street wear, operating stores in Japan, including BAPE, BAPE Store, Foot Soldier and the Bape Exclusive store (located in Aoyama, Tokyo). The company also operates Bape Cuts hair salon, Bape Café and gallery, Bape Sounds records. There are also stores located in Hong Kong, London, New York, Taipei and Los Angeles. Nigo also founded the women's clothing lines "APEE", and "BAPY", the female "couture" clothing line.Bathing Apes (Harajuku)

The marketing of the brand is opposite to mass marketing of the big brands. The store has no signs and is completely anonymous when you pass by it. There is no advertising, no logos on the product. The logo (Ape Head) is built into the design.

He has tried to be incredibly selective. Producing very limited ranges of clothes and giving half the range away to celebrities and friends and selling half. This has created a huge value in each article. For example sneakers will frequently retail for €300-400 and T-shirts for €50-60


Bathing Apes Case Study

In January 2005, Nigo and Pharrell launched the first "Bathing Ape" store in New York. The official name, according to the salespeople at the store, is "Bathing Ape in Lukewarm Water.“ the Brand is now also launched in London, Hong Kong, Taipei and Los Angeles

Although he has co-branded with Pepsi, he keeps relationships with other brands at a minimum. He is aware that the fashion clothes brand will be copied and so he has stretched the Brand into music, events, PR.

Nigo is also co-owner and head designer of Williams' Billionaire Boys Club and Ice Cream. In 2006, Nigo and N-Kei Enzaki started a record company, Ape Sounds, with help from James Lavelle, a UK DJ and owner of the Mo' Wax label. He serves as a producer and director for his CDs, blending Western hip-hop with Asian sounds.


Bathing Apes Case Study – Implications for Brands

Clear Target Audience

Create exclusivity with limited editions and high price

Anti – establishment

Rely on Word of Mouth and Celebrity Endorsement

Ignore the rules of mass marketing


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