Japanese Retailers Study U.S. Marketing : Discounting and Mail Order Gain in Popularity

Hiromi Ishikawa’s New York shopping jaunt to Bloomingdale’s, Talbots, Banana Republic and the Limited was typical for a Japanese tourist. But the 26-year-old was unusually critical.

“The department stores weren’t that appealing. There was a whole lot of merchandise, but it wasn’t kept very nicely in the stores,” said the retail analyst for S. G. Warburg Securities Japan in Tokyo.

“I thought the specialty stores were much nicer. The people were more willing to help,” said Ishikawa, who recently visited Warburg’s U.S. clients to tell them about Japan’s changing retail picture.

Many Japanese retailers are looking to the United States for new merchandising and marketing ideas. Jusco Co., for example, one of Japan’s largest retailers, recently agreed to buy Talbots, the preppy clothier of the suburban set, from General Mills for $325 million. Two years ago, Kashiyama & Co. bought J. Press Inc., a three-store chain that is a favorite clothier of Harvard and Yale graduates.

More Price Sensitive

Increasingly finicky and demanding Japanese consumers are creating new challenges for the nation’s retailers. It’s no longer a matter of simply putting goods out for sale. Changing spending habits and an increasing disparity between the rich and poor are making Japanese shoppers more sophisticated and price sensitive, according to Ishikawa.

Department stores, general merchandise and specialty stores account for 15% of Japan’s 109.9 trillion yen ($886.6 billion) in annual retail sales. Mom-and-pop stores account for the rest of the sales. The big merchants, however, are diversifying into new selling techniques such as mail order and discount stores.

As one of the emerging Japanese career women who Japanese stores are trying to reach through mail order, Ishikawa herself is part of that changing retail picture. She is one of only four women among the eight analysts at the Tokyo office of S. G. Warburg, a London merchant bank that was one of the first six foreign firms listed on the Tokyo Stock Exchange.

Fluent in English, having lived in Queens, N.Y., from age 4 through 10 while her father was assigned to the New York office of the Marubeni trading company, Ishikawa joined the information group of the international division of New Japan Securities after graduating from Sophia University in Japan. She wanted to do retail stock research, so she switched to Warburg.

She says Japanese consumers, long lauded for their high savings rate, are beginning to spend more of their disposable income. The average Japanese household spends about 77% of the money left over after such living necessities as rent, food and transportation. In households headed by a person under age 28, an estimated 90% of the disposable income is now spent, Ishikawa said.

“Among the younger generation, the propensity to spend is great and savings are down,” Ishikawa explained. She said a university student in Tokyo receives about 100,000 yen, or about $806 a month, from parents for living expenses; the student typically augments that with earnings from part-time work. It’s not unusual, she added, to see young shoppers pay 10,000 yen for a designer T-shirt.

“Those under age 18 are big spenders. The second Japanese boom generation is now 11 to 12 years old. They are expected to have a significant impact on expenditures in five to six years.”

The sharp rise in the value of property in Japan has accelerated the income division between rich and poor. “Some feel they can’t ever afford a house so they’ve stopped saving for it,” she said, leaving them more to spend.

Japan’s big retailers and general merchandise stores will have to narrow their targets from their current broad middle-class focus to attract these emerging groups of shoppers.

“More people will think of themselves at the high end and the low end. Those catering to the high end like Mitsukoshi and Takashimaya will be OK. Those discount chains like D-Mart will cater to lower end. Discount store sales are growing 20% a year.”

She added that more stores will aim for consumers by age group. She said the Marui chain, for example, has a product mix that appeals to shoppers under 22.

So far, it’s unclear how these changes might translate into new opportunities for U.S. retailers in Japan. A few American stores are in joint ventures with Japanese chains, mostly to provide U.S. expertise on store operations, according to the Japan External Trade Organization in Los Angeles.

Williams-Sonoma, for example, an upscale kitchenware retailer with headquarters in San Francisco, entered into a joint venture last week with Tokyu Department Stores Co., one of Japan’s largest retailers. Tokyu will assist in operation and finance while Williams-Sonoma will provide specialty retailing and mail-order marketing expertise.

Specialty Boutiques

Sears, Roebuck & Co. provides Seibu with mail-order and display know-how. Matsuzakaya has a special agreement for Bloomingdale’s to provide the Japanese department store with management expertise. Ito-Yokado opened a Robinson’s store in a Tokyo suburb three years ago under a licensing agreement with the Southern California chain.

American specialty boutiques such as Brooks Bros. and Ralph Lauren can be found in some major Japanese department stores, according to Jetro.

Ishikawa said the Talbots acquisition will enable Jusco to learn about U.S. specialty store operations, which the company would be able to apply to the Japanese market in the future.

Meanwhile, the yen’s high value against the dollar now puts American goods “in the range that Japanese can spend on,” she explained. “Buyers are constantly coming to the States and Europe looking more broadly for merchandise.”