Ahead of the 2020 Olympic and Paralympic Games in Tokyo, Drapers explores how international retailers can enter this dynamic market.
Tokyo has risen up the ranks of the most attractive cities globally for retail. Ahead of the 2020 Olympic and Paralympic Games, which will take place in the Japanese capital this summer, Tokyo has climbed five positions to claim its position as the third-best retail city in the world in the Hot Retail Cities report published in October by global fashion business journal MDS. New York and Los Angeles came in first and second place, respectively.
The city is bolstered by cutting-edge technology, is known as a cultural trendsetter and is sheltered by the robustness of the overall Japanese economy. Research company GlobalData predicts that overall retail expenditure in Japan will grow by 11.5% to reach £825bn between now and 2023. Clothing and footwear expenditure is forecast to grow by 6.2% to £82bn, up until 2023.
International retailers are setting their sights on Japan’s capital. Ben Sherman, the official outfitter of Team GB Olympic and Paralympic teams, will debut in Tokyo with a pop-up experiential retail location for the duration of the event. It will open to coincide with the Olympics, which start on 24 July, but further details are yet to be revealed.
Other international retailers are building up a strong presence in the booming Japanese market, including AllSaints, Burberry, Skechers, John Smedley, Supreme, Off-White, Paul Smith, Nigel Cabourn, Margaret Howell and Tricker’s.
Several factors make Tokyo an appealing destination for international brands and retailers, says independent retail analyst Mark Pilkington: “Tokyo has always been a very innovative retail market and is currently stepping up the pace in the run-up to the Olympics. Many new concepts are being trialled, including mixed-use spaces [that offer] retail, food stands, coffee shops, art, cultural events and product launches.
“There is a strong emphasis on new technology: virtual reality rollercoasters, mini-radio stations and windows that convert to shoppable screens when the store is closed.”
Peter Wood, CEO of AllSaints, which opened its first Japanese store in 2016 and now has a total of 17 stores, concessions and outlets in the market, says: “Japan is the world’s third-largest economy, so I believe [Tokyo] is a market that needs to be given serious consideration by any aspiring British brands looking to have international reach.”
Demand is growing. Revenue and Customs states that UK clothing exports to Japan reached £67m in the year to 31 December 2018 – an increase of 12.4% from 2016.
Luxury apparel continues to be the leading source of spending for Japanese shoppers – totalling more than a quarter of all spending, says UK country manager at international payments provider Planet, David Perrotta: “It therefore represents a major opportunity for European [and other international] brands to tap into.”
Japanese consumers’ appreciation for high-quality products and services makes Tokyo a prime market for international heritage, premium and luxury brands.
Martin Mason, managing director of Northampton-based footwear brand Tricker’s, which first entered the Tokyo market more than 30 years ago, says: “The Japanese love authentic, quality and original products. They’ve hunted down ‘the best’ in every category, for instance John Smedley with the best knitwear, Paul Smith shirts, Burberry raincoats and Ralph Lauren for casual sporting styles.”
Bill Leach, global sales director at knitwear brand John Smedley, which has been trading in Japan for more than half a century, agrees: “The Japanese have an inherent appreciation of the build and quality of a product.
“This is not saying that more generic value or mid-market western brands cannot be successful, but consumers are so different. They are not looking for a bargain: they’re interested in the right spec, right colour, etc. They will look at every single detail, spending five to six times longer before purchasing. Everything is important in the buying decision.”
Japan represents 20%-25% of John Smedley’s total sales.
A helping hand
Retailers and brands seeking to enter Tokyo for the first time are advised to find a franchise partner, agent or distributor.
“You cannot simply run a copy-and-paste model in this market,” Leach explains. “To try to start this journey in Tokyo without the guidance and support of a Japanese partner would be fraught with danger. It is highly advisable to secure a partner in this market, who can work together with you to come up with the right products for Japanese customers and also recruit specially trained, Japanese-fluent staff.”
Mason agrees: “You can’t go straight into concessions or stores unless you’ve established yourself first. You need to find a partner and distributor, which you can do by showing at the big trade shows, such as Première Vision in Paris or Pitti Uomo in Florence. The Japanese still visit the shows and walk through them properly and carefully.”
He adds: “The department stores, such as Ginza Six, are very much run with close relationships with distributors, agents and trading companies, so getting in somewhere like that is hugely important for your brand.”
Wood emphasises the importance of having the right team on the ground: “Japan is a long way away, so you need to make sure you have great people on the ground aligned with your brand vision and culture. And you need to have a clear medium-to-long-term goal that can be articulated to business partners in the country such as department stores and landlords.
“But fundamentally, like anywhere, you need to ensure you have strong product, great local marketing, and a distribution strategy that makes it as easy as possible for your Japanese audience to find and shop your brand.”
However, Pilkington warns traditional franchising can be expensive “because there are two margins involved, rather than one”. “In terms of distribution channels, direct investment is seen as very risky, given the vast differences in the business culture and regulatory environment. In terms of partnering, classical franchising – with its multiple mark-ups – is seen as expensive by local distributors, and they are more inclined to want to do joint ventures to keep costs down.”
Under the joint venture model, the brand and local partner create a separate company. The brand supplies the product at cost to the joint venture company, which then sells it in the export market. The net profit is then shared between the two partners.
“This arrangement creates lower prices, as there is only one margin involved,” explains Pilkington.
Once you have the right partner in place, there can be further challenges for retailers in the Tokyo market. It is competitive, and brands and retailers must make an impact to stand out.
“There are strong [Japanese-owned] brands in Tokyo with very loyal followings [such as Uniqlo, Comme des Garçons and Issey Miyake],” says Wood. “Although I welcome this, as it’s important to have competitive tension in any market, it’s important to find ways through product, marketing and store environments to stand out and demonstrate your brand DNA clearly.”
Another test is limited store space. At £959/sq ft/year, real estate in the high-fashion Ginza district is the sixth most expensive in the world, and Tokyo’s dense urban planning and crowded buildings mean large stores are often not available.
Wood says: “Our concessions and stores operate on much smaller square footage than we do in other parts of the world, simply because it is much more difficult to get. This puts pressure on range productivity and means it is very important that the right options are selected because they will have to work very hard to keep the space productive.”
Retail store design experts agree that “tight” building plots and the hefty investment needed to create innovative store experiences make Tokyo a difficult market to enter.
Jenny Hillier, managing director at retail design agency Briggs Hillier, says that physically attractive and experiential retail stores are a “must” in Tokyo. She says “Instagrammable” places are top of the agenda for retail stores, alongside photobooths and ensuring places and spaces are “immaculate”.
Antony Parham, creative director at global store experience company Imagination, says a cookie-cutter approach to store design does not work there: “Japanese consumers demand unique, digitally enhanced experiences. Hybridisation, or merging retail with lifestyle and entertainment, is vital. There has been a domino effect of outstanding creations that urges the next to be more future-thinking, more complex, or more thoughtful.
“The Japanese are always pushing the boundaries when it comes to technology and era-defining architectural statements. Great examples include the Prada store in [wealthy neighbourhood] Aoyama, designed by architectural practice Herzog De Meuron, and the eight-storey Samsung Galaxy store [in trendy Harajuku], which has a facade decorated with 1,000 smartphones.”
Another aspect to consider is the move towards cashless payment methods in Japan. Although Japan is known for its high-tech environment, cash payments are still the overall preferred payment method, not-for-profit organisation Export To Japan reports.
However, Perrotta says retailers “need to get on the front foot with cashless payments” to ensure they are fit for the future: “In Japan, only 20% of payments are cashless, but it’s an objective of the Japanese government to increase that.
“Tokyo itself wants to double the ratio of cashless settlements to 40% by 2025 and to 80% eventually to spur labour productivity”. [This is according to a report by Reuters, entitled Japan wants to go cashless, but elderly aren’t so keen.]
Like any dynamic market, Tokyo has its challenges. It is difficult for retailers to enter without a partner, there is tough competition from domestic brands and heavy investment is needed to keep up with ever-changing trends and innovations. However, these can be overcome by finding the right partner and investing in technology and store design. A burgeoning appetite for international brands and a growing consumer base should place the market firmly in the sights of UK and European brands and retailers seeking to expand.