Japanese Fashion Market Pre-studyFashion seminar 13/1/2016. Marko Salonen, Finpro Japan

Summary of the study report on August, 2015, by Tsuyoshi Ichikawa, Michio Akutsu and Seiichi Yamanaka (Finpro evaluated consultants) and Masahiro Kimura, Finpro Japan

Special characteristics of the market

Japanese Fashion Market is one of the largest market in the world and offers great possibilities and opportunities for Finnish SMEs. However to succeed in the market, companies must realize the following unique features of the market.

– The market is mature i.e. very well supplied and extremely competitive.

– All known brands can be found there and the remaining are about entering:

• Importance of awareness creation and positioning

• branding : story telling and being proudly something (not everything)

– Consumers are sensitive to trend cycle in the international fashion market andsignificantly influenced by fashion magazines and famous persons’ blogs.

– Japanese fashion trend is generally following the trends in Europe and USA, with some exception of peculiar fashion trend born out of fashion sensitivity of streets and Japanese culture as a source.

– Japan enjoys clear four seasons and items in demands vary according to season.

– The Japanese are very loyal to foreign prestigious brands.

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Special characteristics of the market

• Unique consumers

– Consumers demand high quality.

– Japanese fashion market is led by middle classes called ”sophisticated middle classes”as they buy luxury items as well as low cost items.

• Unique values for fashion

– Japanese are the people with unique values in fashion. Japanese values pretty, lovely and youthful.

• Unique commercial environments

– Japanese fashion are segmented into small groups. Fashion groups in Shibuya and Harajuku are the example of groups.

– Value chain of Select shops and fashion stores is an unique environment of Japanese fashion market.

• Unique commercial terms

– The suppliers are asked for small lots with short delivery cycles.

– Lots of the Japanese retail business stands on consignment basis.

• Unique media (magazines)

– There is no other countries where so many fashion magazines are published. Men, Women, Young, Middle age, even in the Internet era, there are still so many fashion magazines. These magazines are the proponets of new fashion in the marekt.

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Special characteristics of the market

• Age of 67-72, so called ”Baby Boomer”

generation play a role of aging society

now. It is said that they were not playing

an important role in the fashion market.

However, people in this generation have

grandchildren and they give a lot of gift

to the grandchildren. Therefore, it is said these

people are now important for kids apparel

market.

•The age of 57 - 61, Designer brands generation, they were

in some way pioneer in developing styles in Japanese fashion

market and enjoyed foreign brands. Because their children are around adulthood, this generation have

purchasing power for foreign brands. They value individuality in general for the fashion goods as well. (Ref. Golf wear)

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Special characteristics of the market

•The age 50-55, they are highly consumption

oriented ages, since they spent buble time

at the age of 30s. Therefore in general

the people in this generation are interested

in famous foreign brands.

• The age 39-44 are called ”second baby boomers”.

They are in general very individual persons’ group

who have strong likes and dislikes, since they were

surrounded by various living conditions

since birth. It is said they are not so

active in consumption compared with

other generation and they have strong

likes and dislikes. Not only in fashion but

also in life, they are casual oriented.

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Market size

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• Apparel retail sales including accessories of 2013 was JPY 9.3 Trillion (approx. € 65bln) making it the third largest consumer apparel market after USA and China.

• The Japanese fashion market is large enough for Finish SMEs and even niche items are interesting and attractive for SMEs in terms of sales amount.

• Global recession had great negative impact on apparel market in 2009 and 2010. • In 2011, the economy as well as the apparel market was still slow because of the Great East Japan

Earthquake.

• Import ratio of apparel products has been higher than 90% since 2003.– Sales amount of apparel manufactured in China and ASEAN countries accounts for more than 90% of overall

import sales but these countries products usually do not carry their own brands. The total sales of EU countries amounts to 4,7%.

*Apparel market here includes fashion accessories such as ties, socks, gloves, hats, scarves and handkerchiefs.

Data source: Yano Research Institute

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Market size: Men’s apparel

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• Men’s apparel retail market occupied 27.4% of overall apparel market and men’s retail sales showed 1.2% increase in 2013 compared to the previous year.

• SPAs, specialty store retailer of private label apparel, such as Uniqlo and Ryohin-Keikaku(apparel div.), as well as select shops chains such as BEAMS and United Arrows are expanding their sales.

• Men’s apparel market consisted of suit:33.4%, jacket/blazer and coat:20.6%, slacks and pants:15.9%, and shirts: 30.1% in FY2012.

*Apparel here includes fashion accessories such as ties, socks, gloves, hats, scarves and handkerchiefs.

Data source: Yano Research Institute

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Market size: Ladies’ apparel

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Trends & Analysis• Ladies’ apparel occupied 62.7% of overall apparel market and showed 1.4% increase in 2013 compared to 2012.• SPA: specialty store retailer of private label apparel, such as Uniqlo and Ryohin-Keikaku(apparel div.), as well as Select

shops chains such as BEAMS and United Arrows are expanding their sales in this sector.• Ladies’ dress retail sales was JP.Yen890Bil. In 2013, 12.8% increase from 2012, with imported dress showed 14.4%

increase in import unit price while 1.5% increase in volume.• Ladies’ coat retail market expanded 25.7%, with 23.5% increase in import unit price caused by the hike of labor charge

in China as well as JP. Yen depreciation to a US Dollar, and 3.8% increase in volume.

Data source: Yano Research Institute

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Market size: Children’s apparel

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Trends & Analysis

• Baby/children’s apparel occupied 9.9% of overall apparel market and retail sales of this segment showed 2.2% increase in 2013 compared to 2012.

– Share of department store and GMS is becoming smaller, 20.1% and 17.5% – Sales through specialty stores and select shops chains selling ladies’ and casual wears for adults increased to

39.3%, – Other: on-line and mail order sales, etc, up to 23.1%.

• Exhibitions have expressed their interest in reserving more space for children wear due to incresing demand for newbrands.

Data source: Yano Research Institute

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Trends: Men’s apparel

- ”COOL BIZ / WARM BIZ”

- Suits and jackets for business and office work are becoming more casual and sporty style suiting “COOL BIZ”

- Business wears especially designed for “COOL BIZ” are gaining popularity using functional materials with cool thermal contact. (E.g. high-breathable material and moisture absorption with quick drying function, “Air Jacket” of Onward Holdings, “Water Clean Linen” of Sanyo Shokai, “Cool Max” of Sanyo Shokai.

- Sales of jumpers and jackets recorded highest growth in 2013 as men’s wear, due to rising demand for “WARM BIZ”.

- The synthetic fiber material that keeps warmth and produce heat, such as “HEATTECH” of Uniqlo, has become the basic functional materials for the winter.

- Many buyers of leading Japanese apparel companies visit fashion trade fairs and exhibitions held in Europe such as “pret-a-porter” Paris, “Pitti” Italy, those held in Berlin, Copenhagen and “Corterie” New York, in order to catch the latest trend, and find potential makers or suppliers fashion products (Not only for men’s wear)

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Cool Max

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Trends: Men’s apparel

- Denim/ jeans wear is coming back to be in fashion for the first time since last 10 years.

- Employing stretch fabric material which was not so popular before, the shape of jeans is becoming more lean and slim, but without sacrificing wearing comfort

- Trendy shape of pants is made tapered down toward the bottom in order to make it look slim and fit, while keeping enough allowance around waist.

- Shortened pants is in fashion now, from “one-cushion” leaving a twist at the bottom of the pants to “half-cushion” that makes only a slight half-twist or even to “no-cushion” not touching the instep of shoes without leaving a twist.

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no-cushion

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Trends: Ladies’ apparel

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- Ladies’ fashion trend can be predicted only for a short period. The changing speed of trend of ladies’ fashion is faster than that of men’s, and that of tops and outer wear is faster than that of bottoms and pants.

- Denim wear and jeans are coming back to the fashion market as in “denim on denim” shown in the right.

- In addition to high quality natural materials, and synthetic Cupro fabric is appreciated for its chilly and cool texture lately.

- The leading role of trend setting is in the hands of young married woman of 30s-40s.

- Individually expressing vivid impression by combining basic, standard, simple and quality fashion items which can be worn both at work and in private is preferred.

- Many buyers of leading Japanese apparel companies visit fashion trade fairs and exhibitions held in Europe in order to catch the latest trend. Foreign fashion trends penetrate quickly to Japanese fashion scene through TV, newspapers, magazines and the internet.

- However, the characteristics of the Japanese fashion trend differ from that of Europe and America. “The trends are born as a mutation, the high fashion sensitivity of streets and culture as a source. Though it is said to be the phenomenon is not predictable and unique to Japan. This often brings overseas fashion designers to Japan to check this unique trend. “

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Trends: Ladies’ apparel

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- “Effortless”: free, relaxed, comfortable, light weight, stretching materials not binding the body, easy-care: washable at home/ less likely to get wrinkled. One of the typical example of “effortless” is Gaucho Pants, look like a skirt which came back to the market recently first time in 10 years after thin pants from top to bottom flourished for some years.

- “sporty”: sporty taste is the trend of all generations.

- E.g. feminine spiced military look, rider’s jacket, functional outer wear easy to move around. Pants with tapered thin bottom while keeping space around hip gives easy yet beautiful silhouette to active women. Pants slim at the bottom are cut short not touching the instep of shoes, make it look nice when wearing sneakers or plimsolls.

- “elegant”: some designers are expressing their elegance with 1970s fashion, which was derived from the Victorian taste; sensual, long and lean with more emphasis on vertical line, folklore/ bohemian, fluffy materials rather than thin. For the dresses used at occasions such as wedding ceremony/party, entrance/ graduate ceremonies of kindergarten or elementary school, Japanese traditional seven-five-three years old festivals and so on, are made more often without collar. Long cardigan and long coat are also gaining attention.

Trends: Children’s apparel

- Baby’s wear market is growing due to buying power of so called “six pockets

- Purchase of children’s wear by grandparents and relatives as gifts (especially 50-95cm) occupies large portion in this segment.

- The demand of relatively expensive products for smaller number of babies and kids per a couple.

- Gift package and wrapping become necessary for this gift demand.

- ”First” sizing for quality and fancy clothing. - More parents have started going out with a newborn baby. This

creates the demand for the size of newborn baby, which is called “first” in the apparel industry, of high quality and good appearance with higher price.

- Sleeper good for 0-3 years old in one size sells well.- Famous fashion brands for 90cm+ and when diaper is removed.

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Trends: Children’s apparel

Popular right now- Denim jeans wear is reviving in this baby/children’s segment. - Organic plain white material without dyeing was dominant for baby’s

wear, but colored and patterned baby’s wear is gaining popularity in the market recently.

- Occasional dress of kids and junior for ceremonies, neat and simple style is favored.

Bipolarization- Many consumers are still much concerned about the reasonable price

with the balance of fashionableness and quality, thus the bipolarization of the prices is observed in this category.

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Distribution channels

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• Increasing sales in specialty stores of basic casual, such as Uniqlo and Ryohin-Keikaku, as well as select shops chains such as BEAMS and United Arrows

– Sales through this sector was 51.3% of the market.– 2.5% increase compared to the previous year.

• Department stores consisted 23.4% of the total market in 2013.– Total apparel sales of department stores has slightly decreased, although sales in flagship

department stores in large cities showed increase. – Chinese tourists one important reason for growth of leading department stores.

• Web on-line sales, mail-order and telephone-shopping sales and others in 2013 represent 14.2% of the total market.

– Web sales increased 14% and is expected to benefit from 10% annual growth in coming years.

• Apparel sales of GMS in 2013 was JP.Yen1.026Tril. 3.8% less than in 2012, not succeeding in getting customers of next younger generations.

– GMS occupied 11% of the market.

Data source: Yano Research Institute

Distribution channels

Fashion brand stores

- Fashion brand stores have been dominant in the Japanese fashion market as sales channels.

- Foreign companies could enjoy substantial profit by controllingbusiness on their own, though brand stores in prime locations in major cities, great initial investment is needed.marketing. Also, in order to be sucessful there is a need for marketing knowledge, design novelty as well as low labor and material cost.

- Some brands consider own fashion store a ”marketing cost” due to importance of having it even if not profitable.

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Distribution channels

Select Shops

• In 1990, there emerged category of select shops like BEAMS, SHIPS, and UNITED ARROWS who are highly segemented into the mid-to-high end market target very fashion-conscious consumers selecting a few brands from all over the world that fit their own store concept. Other major include e.g. Journal Standard, Urban Research, Restir, Via Bus Stop followed by a big number of smaller size of companies.

• Tend to expand out of their mainstay of American casual and to cover wide scope of styles their collection of top-notch imported and domestic brands. In recent years, major select shops have come to hold their original store-brand items.

• Select shops are often the only realistic channel optrion for SME for market entry. Still possible success model for SME, if combined with active own marketing to create brand awareness and loyalty.

• Some of the select shops have transformed to a new style retail shop named Concept Stores. They do not merely sell products but appeal to a general sense of lifestyle by offering shoes, perfume, accessories, interior items and even electronics items all they are established brands.

• Since distribution channels of SMEs need to be less complicated to keep competitive pricing structures, some of successful import brands have entered into Japanese market through SELECT SHOP, who purchase directly from the overseas manufactures by selecting new brands on their own through exhibitions held overseas as well as domestic or visits to manufacturer’s showroom in their countries.

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Distribution channels

• Department stores

• Sales at the department stores have been declining over 15 years from 9 trillion yen to 6 trillion yen due to several reasons such as unnecessarily broader assortment items and excessive employment, out-of-dated business practices like contract purchasing or consignment purchasing etc.

• To cope with the declining sales, they have closed unprofittable stores or sections and have reduced workforce.

• At the same time, they have merged each other to achieve more effective buying making advantage of combined purchasing.

• Although some of leading Department Stores are in good shape, it is hard for new comers from import brands to enter into business relationship with them direct, due to the Japanese traditional business customs such as consignment purchasing, invoicing pricing system etc.

• Major department stores continue to make an important role for sales of luxury imported brands.

• They also put a stress on development of their PB brand such as ’ONLY EYE’ in Isetan and ’ CUSTOMER’S VIEW’ in Daimaru.

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Distribution channels

General Merchandising Stores (GMS)

• The sales of GMS has been declining since there arose harsh competition between other types of retailers who sell quality goods with affordable prices.

• The margin rate of apparel is rather favorable, the GMS have developed their PB casual and daily apparel brands such as ‘Jeaning Garage’ and ‘Good Day’ in Ito-Yokado, ‘Top Valu’ ㏌ Aeon, and also developed a Jeans brand in Seiyu.

• Sales mainly made up of basic and conventional design manufactured in Asian countries.

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Online shops – Market size and trends

- The number of Internet users in Japan is nearly 100 million, and the sales through E-Commerce and M-Commerce is about 10 trillion Yen. The online fashion sales continues to grow, accounting for nearly 50% of ladies consumers who have experienced purchasing.

- Internet retailing increases in value by 14% in 2013, rising to ¥14.5 trillion

- Internet retailing is expected to grow by 10% CAGR over forecasted period.

- Especially sales for the younger generation items shows high growth rate

- Rising smartphone and tablet penetration contributes to the rapid growth in internet retailing

- Non-media products including apparel and footwear and food and drink lead growth in internet retailing

- Japanese consumers are becoming more prices sensitive and therefore, they tend to do more research by comparing prices and checking reviews online, which gives the internet an advantage over other retailing channels.

- E-commerce penetration rate in fashion industry is only accountable for 9%.

- Some select shops have reached over 20% penetration rate (Major ones e.g. United Arrows 10%, Baycrews 11.5%, Urban Research 19.3% and Ships 15%).

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Online shops

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maker

Online Malls (eg Rakuten, zozotown)

consumer

Online site with warehouse operation (eg Amazon)

Specialized E-commerce site (eg Shopserver, color-me)

Website of retail stores

Website of makers

Auction site (online C2C site)

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Online shops – possibilities for foreign companies

- Shopping sites outside Japan in other languages like English has little possibility to increase direct sales from Japan because of language barrier.

- The original shop of a brand with Japanese language can be opened in Japan and also in Finland however there are some problems like payment arrangements, delivery arrangements.

- Also sizing and quality concerns and return of goods cause a barrier for cross-border purchases.

- BUYMA is a unique platform for small foreign brands to enter Japan.

- BUYMA’s buyers (sellers) are buying items from foreign online shops directly and selling those items through BUYMA platform. A foreign company needs a partner for BUYMA to sell the items. If a companyhave a partner to sell your items at BUYMA, it is easy to make test sales pilots in Japan without any major risk for you and your partner in Japan.

- A partner for the online shop is not necessary be a company in the fashion industry. If Finish company has nice website including active SNSs like Facebook and so one, anyone or company who know online shop business can be a potential partner, since the partner should create an online shop and create some SNS translating original SNSs into Japanese theoretically.

- Select shops who sell foreign brands are actively looking for new items through internet search, so impressivewebsites, blogs and SNSs are very important asset for foreign fashion companies to attract these retailers.

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Online shops – CASE STUDY

ZOZOTOWN - No.1 online platform in the fashion

- In 2014, the sales of Zozotown was about 41 billion yen and increasing steadily.

- ZOZOTOWN HAS ALREADY 4.5 million members registered

- The web pages were made pages considering segmentation, targeting and positioning of each brand.

- United Arrows, BEAMS, SHIPS and some large brands contributed the growth of ZOZOTOWN. According to SHIPS, their EC ration is about 15% and more than 90% of EC sales comes from ZOZOTOWN, although SHIPS has their own online shopping site.

- They have good interlocking connection with TWITTER (more than 300,000 followers), facebook, Instagram and LINE. Also they have their own SNS, ZOZO People.

- There are some similar website like Fashionwalker (http://fashionwalker.com/), trying to follow the success of ZOZOTOWN.

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Online shops – CASE STUDY

BUYMA http://www.buyma.com/

• An unique platform. Buyers (can say sellers) registered in BUYMA (everyone can be a buyer) buys fashion items, mainly brand items in the real shops in foreign countries or internet online shops outside Japan and sells those items at BUYMA giving some price advantages (discount) to the end-users in Japan. It is a kind of C2C platform. They are now growing in the fashion market.

• They have now around 1.3 million registered users and around 60,000 buyers. These buyers sell items which they bought or can buy through their network ( real shops or internet shops. It is not necessary to have stock in advance and many buyers buy the items when it is sold) and give price advantages to end users.

• Words of mouth increased their popularity.

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Observed opportunities and recommendations

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For small and medium-sized apparel fashion maker from abroad who wish to newly penetrate into Japanese market, it is not easy to identify and attract right importer/distributor or agent to start with.

• Importance of understandable brand with visual introduction material

• Positioning and story telling, design from Finland

• Japanese import market has segmented into two price zone; high-priced and medium-priced ranges. Even in the medium-priced range, Japanese consumers demand high quality products which should show fine craftsmanship with quality materials.

• To achieve reasonable prices keeping high quality, distribution channels need to be less complicated. Most promising sales channes for SME are SELECT SHOPS who are seeking unique and quality collection of apparel for small-lot production from wide range of products.

Possibility to contact select shop buyers who are always on the lookout for something new designs and brands by visiting international exhibitions being held in major cities in the world. Also, the foreign exporters are requested to seek a chance to exhibit at the suitable shows in Japan specializing in fashion apparels. Or seek the opportunity to hold individual exhibitions to be held in major cities e.g. in cooperating other Nordic countries.

Japanese buyers put a stress on the long-lasting and mutually beneficial relationship with suppliers. Suppliers are encouraged to have a chance to show their products at least twice a year and need to communicate frequently with the buyers.

Systematic channel development and active own marketing effort are often needed to get wide channels to reach targetsegments in major cities and in order to build awareness and interesting brand image.

Own fashion brand stores have been dominant in the Japanese fashion market, but to enter into this field, great amount of initial investment and marketing knowledge are needed. Some medium size companies though are considering unprofitableown brand store a marketing cost to rationale its presence.

Observed opportunities and recommendations

It seems doubtful for foreign suppliers to succeed in establishing e-commerce business without aid from Japanese companies since Japanese consumers are still very cautious to be involved in the B to C business and are not matured in terms of intercultural communication.

If possibility to start business with a select shop, their established online channels are the best option.

Opening a kind of a joint online shop together with other fashion items companies in Finland, in cooperation with online shop operating company in Japan might be a possibility for Finnish company.

BUYMA could be a way to sell items without Japanese companies for Finish SMEs if they can collaborate with the buyer in BUYMA.

To sell through online shops, the partner company is not necessary be a company in the fashion industry but the compay who have experiences in online shopping sales in other fields might be OK.

• Nordic and Finland hype in Japan makes it easier to introduce new brands and attract partner candidates

• Trend in both, men’s and ladies wear is appreciating clothing easier and more comfortable to wear, and coming closer to casual fashion. Better match with the essence of Finnish design.

• Children’s wear trends and growth of the market are opening opportunities.

– Colored and patterned children’s wear is gaining popularity. Scandinavian design often represent these features in Japaneseconsumers’ mind.

– Products having reasonable price with the balance of fashionable and quality become more popular.

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Coming Trade Fairs and Exhibitions

There are number of trade fairs and exhibitions in this field, following two trade fairs are relevant:

• FASHION WORLD TOKYO (http://www.fashion-tokyo.jp/en/)

–FASHION WORLD TOKYO is the largest trade show for the fashion industry in Japan, gathering all kinds of fashion wear, bags, shoes, fashion accessories, fashion jewellery, men's fashion, textile and OEM/ODM products from around the world.

- April 6-8 2016

• JFW-IFF JFW International Fashion Fair(http://www.senken-ex.com/iff/en/index.html)

–Leading trade-show organized by Senken Shinbun Co., Ltd., a major publisher in the fashion business industry. IFF covers all kinds of fashion items.

– April 26-28 2016

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