TT-531 -- Selling shopping therapy, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, August 30, 2009 Issue No. 531

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

As we write this, it looks like the Democratic Party of
Japan (DPJ) is headed for a landslide victory. Exit poll
interviews on the news seem to confirm that this is less a
case of the public wanting the DPJ in and more one of
wanting to kick the current bums out. Those people running
businesses will be especially concerned about possible
legislative changes that will ratchet up the costs that
companies will have to bear to operate in Japan. We'll
cover more on this topic in a future Terrie's Take.

For the time being, though, let's get back to business by
looking at a consumer trend that foreign companies
definitely need to respond to...

A company you don't hear much about in the retail sector is
Nitori, Japan's largest home furnishings company. Founded
by one of Japan's richest men, Akio Nitori, this company has
made profits pretty much every year for more than 20 years,
making them a favorite of conservative investors. The
company once again didn't disappoint investors in June,
when it announced FY2009 Q1 (ending May 20, 2009), sales were
JPY76.7bn, up 15% year-on-year, and net earnings were
JPY8.8bn, up 36% over the previous year. On Friday the stock
was not far off its December 2008 high, and compared to
competitors is highly priced at a P/E ratio of 21.8.

So what is Nitori doing right to produce such outstanding
results? Quite simply, the company has discovered what some
of Japan's other leading consumer goods companies have,
companies such as Fast Retailing (Uniqlo), Right-On
(jeans), and Aoyama Trading (ABC shoes) -- that making
consumer goods which are cheap but yet both fashionable and
durable, is a very profitable business model.

In providing low-cost products of obviously quality, Nitori
is tapping into the need for consumers to cut back on
spending while not forcing them to withdraw from the economy
totally. In other words, they are making products that people
could probably do without, but because they are so cheap,
they're easy enough to buy one afternoon out with friends and
family, even in a recession.

In short they are satisfying the need of the Japanese
younger generations to get some shopping therapy.

[Continued below...]

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[...Article continues]

This idea of low-cost shopping therapy is a powerful one in
today's economy -- and we believe it helps stabilize the
mental health of the nation. Staying at home in cramped
quarters has never been a source of satisfaction for the
average young person/family, and with the current financial
woes, staying at home is downright depressing. So going
out, especially on the weekends, is a mental diversion
much the same as people in other countries might head for
parks, beaches, and other open spaces. OK, maybe we all
like hitting the shopping mall, but for young singles and
families in Japan, it's almost the only chance they have to
get some space, some bright lights, and a much needed
emotional escape.

Over the last 50 years, brand-name consumer goods stores
have provided the setting for shopping therapy. Low cost
public transport got friends and family together, and
the mood was set by hundreds of display windows full of
sparkly merchandise, and great air conditioning that
together promised dreams of a better life. As a result, at
least 3 generations of Japanese have acquired the habit
of shopping as a pastime. It is a habit that is hard to break,
even in a recession as bad as this one.

What happens then, when you combine this ingrained habit
with climbing unemployment, now a record 5.7%, as well as
falling incomes and a widespread palpable fear of the
future? The answer is more shopping, but of the low-cost
or almost no-cost kind. The trend started with 100 yen
shops and Don Quijote stores, and has started to become
more sophisticated in the hands of Uniqlo et al. This
escalation of the low-end of the market could be very bad
news for the expensive foreign brands in particular, and
is a trend that the smart players are taking careful note
of or trying to join.

Indeed, you have to admire these low-cost retailers. They
have taken the barrier of cost out of shopping therapy,
most products sell for JPY1,000 to JPY5,000, and have
added in the incentives of discovery, personalization,
and atmosphere (excitement). These are all things that
used to only come from brand shopping or going to
Disneyland.

Looking at Uniqlo or Nitori, we can see that they are
working the psychological angle intensely, by: 1) changing
product lineups monthly or in some cases daily (discovery);
offering basic products with strong in-house fashion flare
(individuality); and are building up their brands with
plenty of advertising and personalized email/web messages
to provide the atmosphere. The in-store music helps, too.
It's really like watching a stage production, where the
furniture and clothes are almost incidental. When will they
install coffee corners we wonder?

The trend of using low-end retail shopping as a shopping
experience rather than a cheap way to buy dowdy
necessities probably started in Japan with Don Quijote
and Uniglo. However, it's interesting to see an established
player learn the same tricks by putting in some effort. We
expect this trend to move more powerfully into other
consumer product sectors, such as: autos (car sharing?),
education (especially English schools and vocational
colleges), and pretty much most other areas of the
consumer experience. Perhaps even health care, if the
government would loosen the alternative health regulations
a bit...

The point here is that the major foreign brands that sell
for high prices may still have an audience, but in an
economic environment that looks like it may start to get
worse again (at least for consumers), you can almost
guarantee that the number of well-heeled shoppers is
going to shrink dramatically over the next 1-2 years.
Perhaps because they run out of money, or perhaps because
it just won't be fashionable to splash your cash any more.
We believe that those brands which wish to survive will have
to do a "Toyota" and create a second brand that caters to
the thrifty market segment. This will be a tough balancing
act, but for those who can execute well, even though they
are late, it could be very profitable.

In the meantime, one wonders if doing your laundry will go
out of fashion? After all, buying 5 x JPY800 t-shirts
every week is now quite feasible, and a lot more fun!

**************

Lastly, do you fancy yourself as an editor-in-chief of
Japan's only commercially available business magazine? If
you're a writer or editor now, and have career aspirations
as well as business savvy, then we want to hear from you.
Check out the VACANCIES section below for details then
contact us at michael@japaninc.com.

**************

Terrie's Take is proud to be a supporter of The Japan
Helpline. To get help 24 hours assistance with any
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go to www.jhelp.com and click `help`.

To donate:
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Your support keeps The Japan Helpline going.

...The information janitors/

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+++ NEWS

- Nova President goes to jail
- Jobless rate hits record 5.7%
- 760,000 potential flu cases daily in October
- Discount funerals from Aeon
- Global market for solar cells to hit JPY10trn

-> Nova President goes to jail

It appears that jail terms for white collar crime is
defined less by what you did and more by how vilified you
were in the media. We say this because ex-Nova President
Sahashi received a harsh 3 1/2 year prison term from the
Osaka District Court this week, for his decision to use an
employee benefit fund to refund students who had canceled
courses. Sahashi's defense was that he was backed into a
corner financially and the company did not have the cash to
pay the student refunds, which would have opened it up to
law suits and put it out of business. Thus he drew the cash
from internal employee reserves instead. ***Ed: Although
Sahashi is reviled in the press and by those who worked for
him, we can't help feeling some sympathy for his dilemma.
Regardless of his own lifestyle and competence to run a
business, in the end he was faced with a tough choice --
should the customers or the employees come first? The law
says it should have been the employees, but we wouldn't
ever want to be in his shoes.** (Source: TT commentary from
japantimes.co.jp, Aug 27, 2009)

http://search.japantimes.co.jp/cgi-bin/nn20090827a1.html

-> Jobless rate hits record 5.7%

Unemployment in Japan jumped to a record high of 5.7%,
exceeding the previous high of 5.5% recorded in 2003. The
unemployment situation appears to be worsening, increasing
from 5.4% in June. At the same time, deflation is still
ravaging company profits and subsequently consumer prices
fell 2.2% month-on-month. Household spending also fell 2%
last month. ***Ed: Clearly Japanese firms believe this is a
double-dip recession and not a recovery. Although not
normally pessimists, we'd have to agree with this
sentiment.** (Source: TT commentary from guardian.co.uk,
Aug 28, 2009)

http://tinyurl.com/nc7xv2

-> 760,000 potential flu cases daily in October

One wonders if the Japanese government really thinks the
swine flu is so serious, given that it has done very little
to contain the infection to date. However, the Ministry of
Health has finally come to the conclusion that there is an
epidemic on the way after the change of season this fall.
It has announced that it estimates that at the peak if the
epidemic does eventuate, swine flu will hit about 760,000
new people a day. This is a worst case scenario, where 20%
of the population would have contracted the disease.
Apparently at this rate, hospitals will be flooded with
46,400 new patients daily. ***Ed: While the swine flu may
be an indicator of worse epidemics to come, the fact is
that the mortality rate is the same as any other strain --
around 0.1% or less. But no thanks to media hype, the fear
factor is definitely there. This is great news for drug
companies who are receiving massive orders from the
Japanese government.** (Source: TT commentary from
mainichi.jp, Aug 29, 2009)

http://mdn.mainichi.jp/mdnnews/news/20090829p2a00m0na001000c.html

-> Discount funerals from Aeon

It took a foreigner, John Kamm, to start the discount
funeral business in Japan, but some potential players have
finally caught on that death can be a good business. From
September, Japan's second largest retail group, Aeon, will
start offering discount funerals, and the company reckons
it should get about 20,000 services in its first year of
operations. Aeon says it will cut funeral costs by about
40%, mainly by buying in bulk supplies, and that this is
likely to increase sales to a high of 100,000 services a
year by 2012. (Source: TT commentary from bloomberg.net,
Aug 22, 2009)

http://www.bloomberg.com/apps/news?pid=20601101&sid=aZIJMW_b3TUk

-> Global market for solar cells to hit JPY10trn

Research firm Fuji Keizai has issued a report saying that
the global market for photovoltaic cells will hit JPY10trn
(US$106bn) in the next ten years, through to 2020 -- a
500% increase over current demand. The global market size
in 2008 was JPY2.11trn (US$22.44bn), and although the
growth rate for this year has slowed because of the
economic slowdown, Fuji Keizai is predicting a strong
recovery in 2001. (Source: TT commentary from nikkei.co.jp,
Aug 28, 2009)

http://www.nni.nikkei.co.jp/e/ac/tnks/Nni20090827D27JFN01.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
bilinguals.

** HIGHLIGHTED POSITION(S)

BiOS is now accepting applications for skilled engineers
with experience using IBM FileNet for placement as an
Applications Support Technician with a large European
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The ideal candidate for this role will firstly have good
experience in the relevant areas, specifically FileNet and
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in the operation, maintenance and management of databases,
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you have server management experience relating to Linux
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Remuneration is JPY5m – JPY5.5m, based on your experience

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website. J@pan Inc is the nation's leading English-language
business magazine.

The applicant should have experience in business reporting and
possess strong writing and editing skills and news sense.
But, this is not a normal editor's position.
The business of print and web-based publications is changing
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This editor will direct the teams in terms of the publication's
content and the business itself.
Business management experience and a passion to undertake
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The successful applicant will also need to work closely with
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direction of the sales staff are in sync.

- Position: Mid career
- Education: Undergraduate degree or equivalent journalistic
training
- Experience: at least 3-5 years' journalistic experience,
experience in business management.
- Language: Native English, strong Japanese preferable but not
necessary.
- Skills: Basic computer skills and a good knowledge of web
publication processes and print publishing.

To apply, please send your resume, cover letter and any
relevant clippings to: michael@japaninc.com

-----------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------- Japanese Tax Seminar by CCH -----------------

Theme: 'Multinational corporations face tax Issues
- The authorities are always watching you'

This economic crisis has influenced the interpretation of
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- Consumption tax
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Please register at the following URL:
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Number of seats: 50 seats
Language: English
Speaker: Specialists from Ernst & Young:
Business Tax Service Group

For more details, please contact us at: support@cch.co.jp,
or 03-3265-1161, www.cch-japan.jp
-----------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

No feedback this week. We guess that everyone was satisfied
with the iPhone commentary!

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-----------------------------------------------------------

***********************************************************
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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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------------ Japan Inc is worth every penny! --------------

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trends in Japan, each beautifully designed full-color issue
brings you in-depth analysis of business, people and
technology in the world's second largest economy.

Visit www.japaninc.com for more information
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