A New Growth Brand for Japan’s Onward Holdings: Charles & Keith

In Japan, the arrival of powerful fashion retailers from Asia has been a theme this Spring. Korean retailer E-Land began opening stores in March, but last month saw the unveiling of the first stores for Charles & Keith, the Singapore retailer which does for shoes and accessories what H&M and Zara do for apparel. Japanese market intelligence provider JapanConsuming investigates.

Source: Charles & Keith

TOKYO, Japan — Onward Holdings is one of Japan’s largest apparel groups, but hasn’t made the same progress in switching to a retail-led business as peers like World and TSI Holdings. It is catching up however, recently launching several new chains. The most promising is a joint venture with Singapore-based Charles & Keith, a rapidly growing fast fashion footwear and accessories retailer.

Since opening its first store in Singapore in 1996, Charles & Keith has grown into a 300 store chain with shops across Asia and the Middle East, targeting 25-35 year old women with fashionable, low priced shoes and accessories. The business is vertically integrated including supply from its own factories, delivering reasonable levels of quality. Variety is key; the business reportedly produces more than 1,000 new designs of footwear and bags each year.

Since 2011, and investment by L Capital Asia, the private equity arm of LVMH, Charles & Keith has begun expanding into more markets including Japan, establishing a joint venture company with Onward late last year in which Charles & Keith has a 49 percent stake. Charles & Keith will be a critical test for Onward in strengthening its retail business and retail skills. The first store opened in March in Lalaport Yokohama followed by the opening last month of a flagship store in Harajuku opposite H&M and Forever 21. A third store opened in the new OPA Umeda in Osaka in late April.

Around 60 percent of merchandise in a Charles & Keith store is footwear, 35 percent bags, and the remainder accessories such as sunglasses, belts and bracelets. Speed to market of new designs is key with around 15-20 new SKUs introduced each week. The stores cleverly combine a luxury feel in the store design, fashionable merchandise, but prices at a very reasonable ¥5,500 for shoes, ¥7,000 for bags and ¥3,000-4,000 for other accessories. The stores also sell two higher end lines including the real leather line Charles & Keith Signature Label with prices of ¥15,000-30,000. Onward plans 40 stores over the next three years, an unprecedented rapid roll out for the apparel firm. Five stores will be opened this year.

There is every reason to expect Charles & Keith to be a success here. The strong line up of fresh new designs each season and reasonable prices are important, but the real potential lies in the fact that there are so few competitors. While H&M, Zara and Forever 21 have done well in Japan from the demand for good value apparel, and also sell bags and shoes, there is a gap in the market for dedicated mass market fashion footwear and accessories chains, and few local firms have responded. ABC Mart is tinkering with its Nuovo chain in shoes, and Point has launched a couple of test concepts in accessories but there are few other dedicated fashion footwear and accessory chains for the mass market. Samantha Thavasa is often mentioned in bags but its price points are much higher and merchandise largely leather based. Wa’s Oriental Traffic chain comes closest in terms of price points and now has 40 stores since launching in 2002, and with Charles & Keith’s arrival now looks like an acquisition target.

That there is demand for Charles & Keith is clear from the queue of SC developers besieging Onward with offers. Onward is, however, the weak point in the chain’s potential given its lack of mass market fashion retail skills. Some other traditional apparel groups have tried and failed to operate mass market retail chains such as Renown’s failed venture with French Connection. On the other hand, if Onward can keep the joint venture on track over the next five years and not lose its partner, the likely success of the chain will pay dividends in both sales growth and new skills in shopping centre retailing, that could feed back into its core business.

JapanConsuming is a leading provider of intelligence on Japanese retail and consumer markets. Their new 330 page report, Japan Apparel & Fashion Market 2013, is now available from their website.