As consumer spending woes continue to weigh on Japan’s sluggish economy, foreign apparel makers have expanded their business by taking a more direct approach.
Ranging from Hermes and Louis Vuitton — status symbols for Japanese women — to the more casual Benetton and the sports-minded Nike, these brands have increased the number of large, directly run shops in first-class shopping districts in Tokyo and other major cities.
An intensifying realignment of U.S. and European apparel makers has apparently prompted them to seek higher profitability in Japan, one of the world’s major consumer markets for imported apparel. In addition, the continuing fall in land prices in Japan has made it easier for foreign fashion brands to expand their retailing into the country’s top commercial areas.
The direct approach, however, is not good news for domestic businesses.
On the one hand, some foreign brands have scaled down business ties with domestic makers of licensed products, shifting the two camps from collaboration to outright competition.
On the other hand, department stores selling foreign apparel products have been increasingly bypassed, losing a major source of income.
Amid the current consumption slump, the combined sales of the country’s major department stores in 2000 were down 1.8 percent from 1999 to 8.82 trillion yen, of which the sales of all apparel goods posted a 2.9 percent decline, according to the Japan Department Stores Association.
Foreign brands upbeat
Foreign apparel makers’ attempts to launch direct outlets in top commercial districts in major cities have intensified since last year.
Last April, Prada opened a store in Tokyo’s Marunouchi district. Nike followed with a shop in Osaka’s Shinsaibashi
district. Louis Vuitton opened shop in Tokyo’s Ginza district in November.
In December, Benetton established two direct outlets, in Tokyo and Kobe, while Nike launched another shop in Kichijoji, Tokyo. Hermes plans to open a store in Ginza around the end of June.
In terms of sales, Louis Vuitton has enjoyed the lion’s share in Japan’s import fashion market. Louis Vuitton Japan K.K., the brand’s Japan branch, posted sales of 100.3 billion yen in 2000 — the first foreign brand to reach 100 billion yen in annual sales.
In the last few years, the French fashion giant has opened worldwide what it calls “global stores” with floor space of more than 500 sq. meters. Its Ginza store, which boasts 1,230 sq. meters of floor space, is the fifth of its kind in Japan.
“Japanese consumers are aware of fashion and looking for something new,” said Fabrizio De Nardis, president and CEO of Benetton Japan Co. “Opening direct outlets is becoming a must to quickly perceive the consumer trend, although it is one of our many marketing tools.”
Boasting a sales network covering 120 countries, the Italy-based Benetton group has more than 200 shops in Japan, of which 15 are directly managed by Benetton Japan, De Nardis said.
The company expects some 1 billion yen in sales for the first year at its store that opened in December in Tokyo’s Omotesando district and 300 million yen at its Kobe shop. It plans to open 10 more direct outlets over the next three years.
The 1,089-sq.-meter Omotesando store offers consumers the opportunity to walk, shop and enjoy themselves — a wholly “new experience” in shopping that a conventional small boutique in a department store could never provide, De Nardis said.
Meanwhile, Hermes Japon Co., the French brand’s Japan arm, has been trying to promote brand recognition in a different way. Its 2,025-sq.-meter flagship store in Ginza that opens in June will feature an exhibition space and an atelier to help explain the culture of the brand, company officials said.
Business turning point
While shifting business resources to direct marketing, some foreign brands have scaled down business relationships with their Japanese partners, including department stores and makers of licensed products.
License production is one way of keeping up supply of coveted foreign brands. The other form is importing, in which goods produced in the home countries are exclusively imported and distributed by Japanese representatives. Some brands, such as Louis Vuitton and Hermes, provide only imported goods in Japan.
License production began in Japan in the 1960s. For foreign apparel makers with few footholds here, it brings in license fees and promotes brand recognition, but may hurt scarcity value if such goods become too common.
In 1997, French apparel maker Christian Dior cut off ties with Kanebo Ltd., terminating a license contract held since the 1960s to produce women’s clothes under the brand’s name.
Japan’s major umbrella maker Moonbat Co. stopped selling umbrellas licensed by Italy-based Fendi at the end of December after Fendi terminated in September a license contract that started in 1993. A Moonbat spokeswoman said the company’s umbrellas licensed by Fendi represented some 10 percent of its umbrella division, sales of which registered 7.6 billion yen in fiscal 1999.
“Despite the damage, however, we are trying to make up for the losses with new license contracts with other brands and by changing the balance among existing business deals,” she said.
In line with phasing out licensed production, Fendi last month established a joint retail venture with a Japanese partner to strengthen its retail business in the country.
One reason for the reduced license production is harsher competition in the shrinking Japanese market for imported luxury apparel, said Noboru Ikeuchi, an industry analyst at Yano Research Institute, a Tokyo-based market research firm.
The firm’s statistics show that the market size for such products peaked at 1.9 trillion yen in 1996 and declined to 1.35 trillion yen in 1999. The firm expects the fall to continue.
“Intense competition has forced some brands to shortcut conventional retail routes or end their license contracts with domestic apparel makers,” Ikeuchi said. “They are trying to improve profitability by reducing third-party involvement.”
The changing behavior of foreign brands also stems from the realignment of U.S. and European fashion brands that began in the mid-1990s, Ikeuchi said.
“As seen in the expansion of the Louis Vuitton group, the changing landscape in the global apparel industry has prompted each group to earn more in Japan,” Ikeuchi said.
Paris-based fashion conglomerate LVMH Moet Hennessy Louis Vuitton has acquired such brands as Givenchy, Christian Lacroix and Kenzo in recent years, making it an international group of companies that produces and sells prestigious luxury goods.
The land price fall in Japan is also a key factor enabling foreign businesses to expand into first-rate commercial areas, Benetton’s De Nardis said.
“Some 10 years ago, nobody could buy land in Omotesando, except for very rich companies,” De Nardis said. “Now Japan is becoming normal. Land prices are becoming more reasonable than before, which has definitely helped our business expand.”
Recent government statistics showed that land prices declined by an average of 4.9 percent in 2000, the 10th-consecutive yearly fall amid Japan’s “lost decade” after the burst of the bubble economy.
Indeed, the direct approach of foreign brands has been weighing heavily on the business strategy of department stores, which have depended on foreign fashion brands to attract customers.
In response to the expansion of foreign brands, for example, Seibu Department Stores Ltd. has increased since autumn the percentage of products under its original brand, including umbrellas and handkerchiefs, company spokesman Kimiyoshi Yamaguchi said.
It would be difficult, however, for Japanese apparel businesses to create a brand that can compete with foreign rivals in terms of brand recognition, analyst Ikeuchi said.
Yamaguchi acknowledges that these are uncharted waters: “It will probably take a whole year before we can tell whether our attempt is a success. Then we can see what problems lie ahead.”
Other department stores are still apparently trying to attract customers with the help of foreign brands. Louis Vuitton’s Ginza store, for example, is on a lot rented from Matsuya Co., a Tokyo-based department store chain.
Consumers get choosy
The start of the market contraction coincided with the consumption tax increase in 1997 from 3 percent to 5 percent. The economic downturn that followed has hit demand for luxury brands.
“Unlike consumers’ behavior during the spend-happy bubble economy a decade ago, a majority of consumers of luxury apparel — young women,that is — have become more selective,” Ikeuchi said.
Hiromi Nishida, a Tokyo office worker in her 30s, agrees. She used to “spend a lot” on foreign fashion goods when the economy was robust.
“Back then, I used to try to catch up with the trend and buy whatever clothes and bags that fashion magazines played up,” Nishida said. “But now I choose something durable that won’t be affected by changing trends.”
Nishida said it has become difficult for an office worker like herself to afford various luxury brands due to stagnant income.
Ikeuchi pointed out that three key words — prestige, comfort and trend — represent the current consumption pattern of Japanese women for fashion products.
“Hermes symbolizes prestige and Louis Vuitton stands for comfort, while those pursuing trends go for Gucci and Prada,” he said. “Only top brands in each category may stand a chance of surviving intensifying competition.”
In fact, an increasing number of consumers seem to be choosing lower-price casual brands, such as Uniqlo.
Aki Konishi, a 30-year-old pharmacist from Yokohama who was enthusiastic about luxury apparel during the bubble era, said, “If we want luxury brands, we can save up for them by buying Uniqlo for everyday use.”
According to the corporate earnings ranking in the first half of fiscal 2000 compiled recently by corporate credit research firm Teikoku Databank, Fast Retailing Co., which runs Uniqlo, came in second with a declared income that quadrupled year-on-year to 58.5 billion yen.
“As consumers’ behavior changes in line with the current economic slump, there will be a sharp contrast between winners and losers among various brands,” Ikeuchi said.
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