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These days Naoki Kitamori finds himself spending much of his working hours watching Netflix or refining his putting technique at his office in Aoto, a riverside neighborhood of small factories and homes in the northeast of Tokyo.

The metal clangs and the buzz of industrial machinery that typically fill the alleys are mostly silent, replaced by the carefree chirping of birds.

“Things have been pretty slow,” says Kitamori, president of aluminum parts maker Sadokita Seiki K.K.

“It reminds me of the Lehman shock,” he continues, using the Japanese term for the global financial crisis of 2007-08 that was exacerbated by the collapse of the investment bank Lehman Brothers.

Back then, Kitamori’s family-owned company narrowly survived what became the worst financial crisis since the Great Depression, adopting a three-day work week as sales plunged and business came to a screeching halt.

This time it could be worse, he says, as millions of small and medium-size companies like his struggle to cope with the economic fallout of the COVID-19 pandemic that is raging across the world, leaving a growing tally of body bags and bankruptcies in its trail.

Naoki Kitamori heads aluminum parts maker Sadokita Seiki, a company founded by his grandfather that makes industrial valves for domestic companies' production lines. | ALEX MARTIN
Naoki Kitamori heads aluminum parts maker Sadokita Seiki, a company founded by his grandfather that makes industrial valves for domestic companies’ production lines. | ALEX MARTIN

“The first wave hit when Chinese plants began shutting down and deliveries of raw materials were suspended,” the 42-year-old says. Founded by his grandfather, the company makes solenoid valves for domestic production lines using aluminum extrusions imported from China.

“Shipments that were supposed to arrive in January were delayed for two months,” he says. “During that period we received orders but didn’t have the raw materials to make our products. Now we have entered the second phase, where we are catching up with the production of preexisting orders but are not receiving new ones.”

Kitamori is still able to provide wages for the 18 workers his firm employs, but expects annual revenue to be slashed by half if demand remains abysmal.

“We don’t have any debt and I had the foresight to invest some company assets in a well-timed short of the stock market before the coronavirus began impacting supply chains,” he says. “But I’m afraid there won’t be any bonus this summer. Pretty soon we may have no work to do.”

Small manufacturers such as aluminum parts maker Sadokita Seiki (left), which is headquartered in Tokyo's Aoto neighborhood, play a crucial role in the country's manufacturing and export supply chain. | ALEX MARTIN
Small manufacturers such as aluminum parts maker Sadokita Seiki (left), which is headquartered in Tokyo’s Aoto neighborhood, play a crucial role in the country’s manufacturing and export supply chain. | ALEX MARTIN

According to the trade ministry, 99.7 percent of all businesses in Japan are small or medium-sized. These companies employ around 70 percent of the working population and account for a large portion of economic output. They are the cornerstone of the service sector and play a critical role in the manufacturing and export supply chain, but they are also the ones bearing the brunt of the virus-induced quarantines and business closures amid a nationwide state of emergency.

In an ominous sign of what may lie ahead, the number of bankruptcies has been steadily creeping higher. As of April 24, 93 firms are believed to have gone belly up due to the pandemic, according to Teikoku Data Bank.

The list of insolvent firms spans many sectors: travel agencies, cruise line operators, hotels and ryokan (traditional Japanese inns) are all suffering from a decline in tourism, while retail outlets, restaurants and bars have shuttered as self-quarantines keep customers at home. Manufacturers have cited the disruption of supply chains, specifically those in China, for their demise, while a cram school chain lost much of its business as schools closed and examinations were canceled or postponed.

Export markets are paralyzed, the 2020 Tokyo Olympics have been postponed, and businesses are curtailing or suspending operations while stay-at-home requests remain in place. The overall economic impact of the pandemic is difficult to assess at this point, but economists forecast a deep recession ahead.

Small or medium-size companies account for a large portion of the country's economic output. | GETTY IMAGES
Small or medium-size companies account for a large portion of the country’s economic output. | GETTY IMAGES

To ease the widespread damage, Prime Minister Shinzo Abe plans to roll out a multipronged economic stimulus worth ¥117.1 trillion — by far the largest in modern Japanese history. The package will feature universal cash handouts of ¥100,000 per individual. Meanwhile, businesses feeling financial strain are eligible to seek out interest-free loans from public and private lenders.

In Daikanyama, an upscale neighborhood in Tokyo’s Shibuya Ward known for its boutiques and trendy eateries, Masamichi Nakawatase’s Michel beauty salon was granted a ¥10 million loan from the government-owned Japan Finance Corp.. with a 15-year repayment period.

“Reservations are being canceled,” the 38-year-old Nakawatase says. “If the situation continues, I think we will be seeing many beauty salons closing in six months or so.” He adds, “I’ve been working my tail off since opening my own place seven years ago and we were finally making a steady profit, but any savings we have made will now be lost. April sales are looking to be disastrous, so this loan helps.”

Tokyo separately announced an ¥800 billion relief package that includes cash payments for businesses and private institutions that acquiesce to suspension requests. The long list of establishments being asked to close includes universities, bars, nightclubs, live music venues, karaoke studios, driving schools, bowling alleys, theaters, museums, art galleries, libraries, internet cafes, and mahjong and pachinko parlors.

Only select businesses deemed “essential” have been spared, including supermarkets, drug stores, public transportation and health care providers. Barbers and beauty salons were also allowed to operate, a decision that brought a measure of relief for hairdressers like Nakawatase, who decided to stay open, albeit with shorter hours to mitigate contagion risks.

Nakawatase expects customers to return once the state of emergency is lifted on May 6, but admits that may be wishful thinking as the number of reported cases and deaths from the coronavirus continue to climb. Academics and scientists have been warning that the battle against COVID-19 will be a prolonged fight that could last for years, involving a cycle of tightening and then easing lockdowns and other measures to curb the spread of the pandemic and prevent health care systems from being overwhelmed.

Small or medium-size companies are the cornerstone of Japan's service sector and play a critical role in the manufacturing and export supply chain. | REUTERS
Small or medium-size companies are the cornerstone of Japan’s service sector and play a critical role in the manufacturing and export supply chain. | REUTERS

As of April 25, there are a total of more than 12,600 confirmed cases of COVID-19 in Japan, with more than 300 deaths. In the same way as other nations that have so-called lockdown policies in place, Japan will need to decide whether or not to extend or halt the strategy before its self-imposed deadline arrives in a little over a week.

For some, the pandemic couldn’t have come at a worse time.

In late March, after five years working for a major mobile phone operator, Yuichi Mizui quit his job and took over a curry restaurant in Kichijoji, a retro-hip neighborhood in western Tokyo.

“I spent a year preparing for the move, but didn’t expect this kind of welcome,” Mizui says. The opening of his eatery coincided with the death of iconic comedian Ken Shimura from COVID-19-induced pneumonia, an event that served as a wakeup call for many who had been underestimating the dangers of the pathogen.

“Things got very real then,” the 37-year-old says. “The number of people out on the streets visibly declined.”

While Tokyo’s restaurants and izakaya (Japanese pubs) can stay open until 8 p.m. under the city’s business closure plans, an increasing number of people are refraining from dining out to avoid other customers in enclosed spaces. Under the circumstances, Mizui decided to halt walk-in restaurant operations and concentrate on takeouts, enticing pedestrians to try out his keema and chicken curries at home.

“While I have some savings to get by for a few months, I don’t really have the option now to stay at home and do nothing,” he says. “I decided it’s best to focus on going out and having locals get to know me and my curry, to prepare for the day things get back to normal.”

Takeouts and food deliveries are now thriving in cities as local governments urge the public to avoid what has become known as the “three Cs” — closed spaces, crowded places and close-contact settings. While major services such as Uber Eats are expanding tie-ups, some entrepreneurs have begun to organize their own delivery systems to serve their communities.

Architect Mitsuyoshi Miyazaki is a well-known figure in the so-called Yanesen district in central Tokyo that includes the Yanaka, Nezu and Sendagi areas known for old-fashioned mom and pop stores, temples and craft shops. Since renovating a derelict traditional Japanese house into a cafe and gallery called Hagiso seven years ago, his firm, Hagi Studio Inc., has opened a guesthouse, deli, bakery and community space all located in the neighborhood and staffed by the company’s employees.

Miyazaki was expanding the scope of his business when COVID-19 derailed his plans.

His firm handled the interior design of Landabout, a hotel in Tokyo’s Uguisudani district that opened in January, following an ambitious project to transform a vacant building sitting outside JR Nishinippori Station into a shopping and dining complex called Nishinippori Scramble.

“We were about to step on the accelerator when the pandemic struck,” Miyazaki says. “Hotel rooms are mostly empty as foreign travelers have stopped coming and people no longer wine and dine. But there’s no time to despair.”

Mitsuyoshi Miyazaki heads Hagi Studio Inc., an architectural firm that also operates eateries and a guesthouse in central Tokyo's so-called Yanesen neighborhood. | ALEX MARTIN
Mitsuyoshi Miyazaki heads Hagi Studio Inc., an architectural firm that also operates eateries and a guesthouse in central Tokyo’s so-called Yanesen neighborhood. | ALEX MARTIN

The Japan Tourism Agency says the number of overseas visitors fell 93 percent in March compared with a year earlier. That’s the largest fall on record, surpassing the 62.5 percent year-on-year drop the country experienced in April 2011, the month after the Great East Japan Earthquake devastated northern Japan and triggered triple meltdowns at the Fukushima No. 1 nuclear power plant.

As stay-at-home orders saw people disappear from the streets, Miyazaki scrambled to come up with a plan to keep his business together. He hashed out a survival strategy that included the launch of a delivery network allowing locals to order food and other goods from both the shops Hagi Studio operates and the many restaurants and bars that dot the area.

Called Yanesen Takuhaibin (Yanesen Home Delivery), the project was set in motion in late March and now counts a dozen establishments that take orders. Hagi Studio’s staff make the deliveries on bicycles for a ¥500 fee.

Simultaneously, Hagi Studio began issuing what it calls Mirai (Future) Ticket, ¥1,000 tickets purchasers will be able to use at any of the shops Hagi Studio operates when customers are ready to visit after the pandemic subsides. Tickets worth around ¥2.5 million have so far been sold, Miyazaki says, allowing him to continue paying bills and wages.

Similar initiatives are being introduced elsewhere. Gourmet community app KitchHike Inc. sells meal tickets for registered establishments that can be used in the future. Thus patrons can support restaurants while walk-in business is down.

Meanwhile, companies such as Dirigio Inc. and Xgravity Inc. are offering shops free access to mobile payment and ordering systems for takeouts to simplify transactions and limit physical contact.

Social media is playing a role in connecting agricultural producers and restaurants to potential customers. Numerous Facebook groups have sprung up allowing farmers, fishermen, flower shops, retail stores and eateries, among others, from across the nation to ship their goods directly to interested consumers.

While these projects may help businesses weather the storm for the time being, experts say the underlying issues facing the nation’s approximately 3.5 million small and medium-size enterprises will only worsen by the pandemic.

Smaller firms face a disadvantage in securing finances and human capital compared with their larger counterparts, and are hit hardest during recessions when domestic demand dwindles. As the nation’s shrinking population grays, many are also family businesses with aging owners struggling to find successors.

“Unless something is done about the succession problem, approximately ¥22 trillion of gross domestic product and 6.5 million jobs will be lost in the decade leading up to 2025 as many small and medium-size firms go out of business,” says Shinya Okumura, citing trade ministry estimates. Okumura is executive director of Take Over, an association supporting young successors of family-owned enterprises.

Shinya Okumura, executive director of Take Over, says many small and medium-size firms are family businesses with aging owners struggling to find successors as the nation’s shrinking population grays. | ALEX MARTIN
Shinya Okumura, executive director of Take Over, says many small and medium-size firms are family businesses with aging owners struggling to find successors as the nation’s shrinking population grays. | ALEX MARTIN

Through pitching contests, meetups and a membership-based Facebook community, the group has been urging successors to come up with innovative ideas and sales strategies to create new revenue streams. Amid the pandemic, Okumura says some members have found new opportunities.

Atsuhiko Fujii, an executive at Palais Futaba Co., an Osaka-based apparel maker founded by his grandfather that specializes in stretchable trousers, decided to produce washable medical masks made of tricot at the company’s factory in Fukuyama, Hiroshima Prefecture.

All 40,000 pre-orders of the two-for-¥1,000 fabric masks sold out immediately amid the national shortage, prompting the company to partner with an apparel factory operator to boost production volume.

“Our expertise in sewing has allowed us to create high-quality masks,” the 33-year-old says. “From now on, we plan on including mask production in our business portfolio.”

Small manufacturers like Kitamori’s firm are also getting an unexpected windfall from the coronavirus outbreak. Recently, his company received orders to produce machine parts to be used for production lines making ventilators.

Naoki Kitamori demonstrates how to use one of the machines in his factory in Aoto, a riverside neighborhood in Tokyo's Katsushika Ward. | ALEX MARTIN
Naoki Kitamori demonstrates how to use one of the machines in his factory in Aoto, a riverside neighborhood in Tokyo’s Katsushika Ward. | ALEX MARTIN

“I’m glad, but we can’t just rely on these one-off orders,” Kitamori says, explaining how he may have to shrink his operation by merging two factories into one and retiring his aging relatives working as part-timers if business remains stagnant in the coming months.

And like the rest of the population, Kitamori ponders on how to spend his time in the age of social distancing.

“Getting together for a round of golf isn’t really an option anymore,” he says, and heads up to his office’s rooftop putting green overlooking the eerily quiet city. “I suppose I’ll keep working on my putting technique until things calm down.”

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