Westfield Retail Study Tour 2010 - Part 1 (Japan)

16 days, 5 cities, over 50 presentations, travelling with 48 retail savvy participants, lots to hear and see, plenty of laughs, a bit too much to drink and not enough sleep! That’s my 30 second summary of this year’s retail study tour. To our tour leader, Westfield’s Jack Hanrahan, congratulations and thankyou for another fantastic experience.

First stop Tokyo, the hub of Japan - a country with a population of 128 million people but an economy that hasn’t seen growth for more than 20 years.   Tokyo is a fascinating city which blends the old and the new, the fast and the calm and the most modern store design you will find. It is here in Japan where you’ll find the richest man is a retailer, where Louis Vuitton have their greatest global penetration (nearly 4 times that of 2nd placed France) and where you’ll find Rakuten -  the worlds first “on-line shopping mall” with 32,000 merchants, 8.5 million buyers and year on year growth of 19.4%. You’ll also find there the “Gaisho” – an out of store shopping service that passes from generation to generation. The Gaisho is a highly respected sales assistant who calls on customers on a regular basis at their homes to sell goods.  Finally, Japan is one of the few places where there is a still a culture within many major retailers that customer service should come before profit.

Although Japanese retail is full of history and tradition (for example one of the major department stores – Matsuzakaya, has been trading for over 400 years) it is now at a cross roads which is impacting on retail practises.  Historically 44% of the world’s luxury brand sales were bought by Japanese - with a culture that isn’t big on entertaining at home, or driving a car. Carrying your Prada and wearing your Chanel was how you show the world you’d made it. However, this trend is changing, and together with a shift in demographics, the economy continues to be sluggish – a condition that follows an economy that had already been struggling for more than 20 years. 

One of the recurring themes throughout the presentations was the aging population. With the world’s longest life expectancy (men at 82, women at 86) a decreasing birth-rate and little immigration, the number of consumers is declining rapidly. On current trends, the population will halve to 64 million by the end of this century. The 2nd contributor to the struggling retailer is the recent shift from high-end luxury to “my values” – a trend that we saw throughout the trip. For example, Louis Vuitton saw a sales decrease of 30.5% on the previous year, while international specialty brands such as Zara and H & M have had to enforce crowd control at peak times. The Ginza district Matsuzakaya department store (renowned for premium brands) has replaced their Gucci concession with American Forever 21 (a type of cross between Supré and Sportsgirl).  With a large corner spot in a prime ground level location, the change has been such a huge success, they are about to convert 10 more stores.  Another example of push to value was Costco, who first arrived in Japan a decade ago (like in Australia many wondered if it would take off). There are now 9 stores with 2 million members and turnover of A$1billion. 

Add to all of the above, the ever increasing emergence of online and multichannel shopping and it is clear that the biggest losers have been the department stores. The last decade has seen their national store numbers fall from 400 to 285 with the market predicting future closures will see numbers stabilise at 150. Some chains have lost money year after year for the last decade, with last year’s average decline at 11%, and a further 7% forecast for this year.

So what are they doing to prevent their demise? In some cases it would appear not a real lot!  One major group whose flagship store turns over US$2.7billion per year and has 100,000 customers walk through their doors on a daily basis said their primary focus was not on sales figures, but on customer satisfaction.  They go to great lengths to survey a high proportion of customers on 1) service experience 2) product quality and 3) the store environment. Their goal: that the customer will trust us more than any other store and shop with us first.  It’s certainly an honourable aim, but should it be the main priority in such an unprofitable market place?

Other chains are however trying a number of things to stop the demise.  A trend by many of the larger format stores is to push their suppliers even further to “staff their stores”. Yamada Denki, Japan’s major consumer electrical store (with a 30% market share) now has 90% of their store staff “employed” by manufacturers such as Sony. A 2nd strategy is to entice  Generation Y back into department stores through sexy advertising campaigns and bringing in value for money youth brands such as Forever 21 and Gap as concessions.  Loyalty programmes and CRM programs are high on the list of everyone’s strategy with investment in technology seen as a must have. Finally a number of chains are expanding into China and India where the future looks brighter.

So what are the trends of the retail winners? The middle market continues to be squeezed out. Vertical integration is a big success and those with multi-channel strategies and practises in place are gaining market share. The aging retired population has created an interest in home renovation and the well run specialty stores (especially those at the fast moving, value for money but good quality end) are seeing strong sales growth. However the most profitable retail company in Japan owes its title to the old adage ‘location, location, location’. J.R.East is in fact a railway company and therefore has all its stores around the countries numerous railway stations. With an average household of only 1.9, ready to go meals (pictured left), fresh produce and smaller take home product sizes are favoured, with many commuters shopping daily, leaving the fridge almost empty.

Their attitude towards green? More details in the next instalment, however a survey showed that while most will not pay more for a greener product, 68% will select it if it’s at a similar price. An interesting case is the introduction by Coca Cola of a lighter more recyclable plastic bottle for water which was at the same price but easily identified with a green cap – it became number 1 in less than 12 months.

Finally, I must mention the Gaisho sales service offered by giant J.Front Retailing (75% of their A$16billion turnover is from department stores).  The Gaisho contributes 16% of total store sales and has been going for centuries. They also support personal shopping when their key customers visit the store. The key is the relationship between the customer and the Gaisho. In some cases this relationship has gone on for over 3 generations as the Gaisho introduces his own children to the customer household. They provide a highly concentrated service around the knowledge of the customers’ tastes, their family structures (including birthdays and anniversaries) as well as changing household needs. Again, I’m not sure how profitable it is but the idea of having someone I have known for years come over a week before my wife’s birthday and reminding me of the things/brands she said she really likes, seems an ideal way of keeping me out of the doghouse! However, I don’t think we’ll see it here anytime soon in Australia.