TOKYO, Japan — Although overall apparel sales grew an incremental 0.4 percent in Japan in fiscal year 2012, the top 100 retailers averaged a strong growth rate of 5.2 percent, helping the leaders garner more than 60 percent share of the total apparel market. Specialty chains continued to deliver most of the growth, but e-commerce businesses also rose to the fore.
Biggest apparel retailers take more share
Fiscal year 2012 was a solid year for Japanese apparel retailing — while the market grew less than the 2.3 percent of the year before, it still grew, and for only the second time since 2003. There were many examples of success, particularly among the top 100, including overseas brands, with a significant disparity in performance. As a result of this higher level of growth, the top 100 retailers now account for 63 percent of total apparel sales and provide a good barometer of the state of Japanese apparel retailing overall, with the following highlights:
- Sales growth among the top 100 averaged 5.2 percent year on year, up a significant 2.0 points on fiscal year 2011, greatly outperforming the market as a whole.
- All of the real growth came from two channels: direct (mostly e-commerce), up nearly 7.2 percent, and specialty retailing, up 10 percent. Both GMS (general merchandise stores)/supermarkets and department stores declined less than 1 percent on average — an indication of greater stability in these channels.
- Unlike fiscal year 2011, most of the top 10 apparel retailers saw sales rise, let down only by GMS giants Aeon Retail and Ito-Yokado, and department store group Sogo & Seibu.
- The 10 retailers with the highest growth were all specialty chains, other than direct marketers Start Today and Jupiter Shop Channel.
- The share of the top 100 exceeded 63 percent of the apparel market and 48 percent of the apparel, accessories and footwear market.
- Even accounting for mergers, the consistently higher performance of the top 100 over the last decade or more has helped the market consolidate rapidly.
- In fiscal year 2006, the top 100 had 53 percent share of the apparel market — in just six years, their share has risen 10 points.
- This increasing dominance of the apparel market by corporate retailing is more clearly demonstrated by the share of the top 50, top 20 and top 10; the top 50 enjoyed share of a huge 52 percent of the apparel market and the top 20, 38 percent. The top 10 alone now own more than 26 percent of the entire market and 41 percent of the sales of the top 100.
Specialty chains dominate but e-commerce growing fast too
The rapid increase in market share is testament to the success of the specialty chain as a vendor of apparel in the last 15 years. The sector is constantly being replenished and infused with new growth, ideas and innovation from new entrants. Just as firms like Point reach maturity, new competitors emerge and enter the top 100 rankings, such as Mash Style Lab, Trinity Arts and F.O. International, not to mention the multi-national chains, with H&M alone up 53 percent in 2012.
Apart from specialty chains, two direct marketers made it into the top 10 fastest growing businesses, Start Today and Jupiter Shop Channel. Start Today is growing more slowly than in the past as it matures and new forms of competition emerge, but it continued to add new members last year. It faced the threat from free shipping rivals by launching its own free service, and is buying in new businesses to generate new forms of growth such as Stores.jp, as well as launching new ventures such as its new shopping portal for young women, La Boo.
Jupiter Shop Channel, the TV shopping network owned by Sumitomo Shoji, had a stellar year; while overall sales were up 5 percent to ¥127.1 billion (about $1.2 billion) in fiscal year 2012, Jupiter says apparel sales did even better, particularly high ticket fashion and accessories such as cashmere knitwear, helping raise per customer transaction values. As a result fashion accounted for 40 percent of total sales, up from 35 percent for the year before.
Department Stores: format decline but leaders revive
While there is still too much department store capacity for the current population, let alone the shrinking future population, on a company by company basis, and indeed branch by branch, significant changes to management and business models have transformed the sector. The growing gap between the wealthy and the rest in Japan, boosting the fortunes of the former to an extent that is unprecedented in modern Japanese history, has also helped – although the long-term social impact may be negative. Sales are also being boosted by consumers buying before the increase in consumption tax to 8 percent in April 2014 and 10 percent in April 2015.
Overall, while department store apparel sales may have fallen 0.9 percent in fiscal year 2012, excluding Tenmaya’s 9.4 percent decline due to store closures, Tsuruya and Maruhiro, sales would have been flat. Considering the number of underperforming stores contained within these businesses, this is a very respectable result. With much work now being done to reconfigure regional stores, and store branded apparel programmes gathering both pace and sophistication, there is every reason to expect department store apparel sales to hold steady. Apparel market share within the top 100 may have fallen sharply from 38 percent to 25 percent since 2006, but it is likely that, on a same store basis, share will stabilise over the next few years.
GMS still scrabbling for momentum
Seiyu and Aeon have been trying the hardest to prove that GMS chains can regain some of the ground lost in apparel over the last two decades. Seiyu has Walmart’s global supply chain to work with, and continues to expand distribution of both the Asda George range, and other apparel lines developed specifically for Japan, such as men’s suits. Aeon too is expanding own branded apparel lines, increasing the ratio to close to 40 percent in fiscal year 2012, but worryingly, this did not stop sales falling 1.2 percent overall, and 2.1 percent on a like for like basis — after an increase in fiscal year 2011.
Part of the reason is Aeon’s adjustment of retail prices as it introduces new own branded merchandise, bringing them into line with specialty competitors, and so reducing unit values. On the other hand, the upsurge expected from better planning and marketing has not yet happened, and much more needs to be done to brighten up sales floors, improve staff training, and further work on merchandise if Aeon’s stores are to compete with specialty chains.
On the bright side, gross margins are finally improving, and this is almost all down to expansion of own brand programmes. Daiei saw gross margins on apparel jump 1.5 points to 36.2 percent despite like for like sales falling 3 percent, and Ito-Yokado 0.9 points, now just behind the leader Aeon, which fell 0.1 points to 37.7 percent.
This year Aeon is hoping both sales and gross margins will improve further thanks to absorption of Daiei, providing greater economies of scale for its new apparel lines and shop in shop concepts for women and children. It will also expand own branded apparel to 50 percent — as will rival Ito-Yokado — and increase the number of shop-in-shops to improve sales floor design and create more dynamism. Overall Aeon remains a powerful retailer of apparel; include its subsidiaries like Aeon Kyushu, Taka Q, Cox, and Laura Ashley, and its apparel sales exceed ¥600 billion, making it similar in size to Uniqlo’s Japan sales.
Uniqlo: a bit more fashionable
By company on a non-consolidated basis, Uniqlo remains the largest single apparel specialty chain for the seventh year running with sales of ¥620 billion. Sales climbed 3.3 percent after falling 2.4 percent the year before, and is expected to rise again in fiscal year 2013. While its sales performance has historically varied dramatically, there are some signs that the reasons for this are being resolved, in particular its focus on a small number of hit products which cannot be replaced fast enough to avoid sharp falls in sales. Uniqlo’s advantage in creating compelling new products based on fabric innovations are significant and it will continue to focus on this area, but it is now diversifying merchandising, incorporating a host of seasonal mini-collections, often in collaboration with designers or magazines. This is helping improve store freshness and driving more repeat footfall, particularly from women. There is a way to go before its dependence on slow-to-market fabric-based innovations shrinks, but there are encouraging signs that it may have begun to solve the problem of market saturation at home.
Stability and profitability: Japan, a haven in an uncertain world
It is clear from this brief overview that corporate retailing is relentlessly absorbing more and more apparel market share in Japan, and there is nothing in its way to stop this. The top 100 retailer of apparel will only increase their already large 63 percent share. Until recently, this expanding share occurred at the same time as the apparel market shrank in value, largely because of falling retail prices. It now looks this two decades long contraction is over, with the market expanding in both fiscal 2011 and 2012, and very likely to expand again in 2013.
The principle reason is that the great price readjustment of the last two decades has now completed and prices are rising. This is supported by a low Yen, higher raw material prices, and either higher labour costs or the bigger margins from new cheaper production sources being retained rather than passed on to the consumer. Stabilising prices and improving corporate efficiency alone suggest the apparel market will grow in value in the years ahead. The only remaining question is that of consumer demand.
And in this area there is more doubt. Wages have been declining in real terms in Japan for many years but prices are rising faster recently due to government policies. Unfortunately at the same time, corporations are failing to obey government requests and raise salaries, meaning consumer purchasing power is likely to decline. The rich will get richer under the current regime, but the mass of consumers may get poorer if more is not done to boost incomes. These twin trends will benefit premium retailers and low-cost mass market vendors alike, but Japan as a whole will be the poorer for it. The good news though for all overseas vendors of fashion is that, in an unstable world, Japan remains a huge fashion market that is profitable, stable, with high levels of trust, and plenty of unmet demand and new markets to provide growth for years to come.
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