Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

Below are several recent updates on Japanese retail and consumer markets that, while not meriting in-depth Insights of their own, are important trends impacting retail stocks.
<h2>TPP: profit and loss for Japan</h2>
The Trans-Pacific Partnership trade deal came into effect in late December, immediately cutting import tariffs across much of Southeast Asia. Despite some claims that this will help consumers, the cuts are most likely to benefit trading firms and leading food wholesalers like <a href="https://www.smartkarma.com/entities/19778" target="_blank" data-smartkarma-citation="entities:19778:1">Mitsubishi Shokuhin (7451 JP)</a> and <a href="https://www.smartkarma.com/entities/14985" target="_blank" data-smartkarma-citation="entities:14985:1">Itochu Shokuhin (2692 JP)</a> rather than result in lower retail prices.
<h2>Mash and Jun to start premium online lifestyle mall in October</h2>
Two leading lifestyle and fashion firms, Mash Holdings and Jun, will together launch a new challenger in the fashion and lifestyle online market in October. This is a threat to the premium end of <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO's (3092 JP)</a> marketplace as well as the nascent Stripe Department, a joint venture between <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank (9434 JP)</a> and Stripe International, an unlisted fashion retailer.
<h2>A flat fashion market</h2>
A comprehensive recent survey of fashion industry managers suggests they are less optimistic about the outlook for 2019 compared to a year ago, weighed down with worries about depopulation, global trade, and changing consumer sentiment. More optimistically, many are investing in e-commerce as well as preparing to expand overseas.
<h2>Organic foods growing in popularity</h2>
After something of a false start back in the 1990s, organic fresh food is now moving out of a limited niche and into the mainstream, benefiting <a href="https://www.smartkarma.com/entities/10145" target="_blank" data-smartkarma-citation="entities:10145:1">Oisix Ra Daichi (3182 JP)</a> in particular.
<h2>Muji really is no name in China</h2>
<a href="https://www.smartkarma.com/entities/2765" target="_blank" data-smartkarma-citation="entities:2765:1">Ryohin Keikaku's (7453 JP)</a> Muji is popular in China, but trademark conflicts, easy replication, as well as new emulator brands, all mean the "no brand" brand is not assured of continued success in the market.

Below are several recent updates on Japanese retail and consumer markets that, while not meriting in-depth Insights of their own, are important trends impacting retail stocks.
TPP: profit and loss for Japan
The Trans-Pacific Partnership trade deal came into effect in late December, immediately cutting import tariffs across much of Southeast Asia. Despite some claims that this will help consumers, the cuts are most likely to benefit trading firms and leading food wholesalers like Mitsubishi Shokuhin (7451 JP) and Itochu Shokuhin (2692 JP) rather than result in lower retail prices.
Mash and Jun to start premium online lifestyle mall in October
Two leading lifestyle and fashion firms, Mash Holdings and Jun, will together launch a new challenger in the fashion and lifestyle online market in October. This is a threat to the premium end of ZOZO's (3092 JP) marketplace as well as the nascent Stripe Department, a joint venture between Softbank (9434 JP) and Stripe International, an unlisted fashion retailer.
A flat fashion market
A comprehensive recent survey of fashion industry managers suggests they are less optimistic about the outlook for 2019 compared to a year ago, weighed down with worries about depopulation, global trade, and changing consumer sentiment. More optimistically, many are investing in e-commerce as well as preparing to expand overseas.
Organic foods growing in popularity
After something of a false start back in the 1990s, organic fresh food is now moving out of a limited niche and into the mainstream, benefiting Oisix Ra Daichi (3182 JP) in particular.
Muji really is no name in China
Ryohin Keikaku's (7453 JP) Muji is popular in China, but trademark conflicts, easy replication, as well as new emulator brands, all mean the "no brand" brand is not assured of continued success in the market.

Also in the News: Updates from Japanese Retail Markets

Equity Bottom-Up

Mitsubishi has finally given up its hope of convincing Aeon to merge <a href="https://www.smartkarma.com/entities/1043" target="_blank" data-smartkarma-citation="entities:1043:1">Ministop (9946 JP)</a> with Lawson and is selling its stake in the largest retail group.
There will be no change to the extensive supply relationship between the two companies and Mitsubishi's food wholesale arm, <a href="https://www.smartkarma.com/entities/19778" target="_blank" data-smartkarma-citation="entities:19778:1">Mitsubishi Shokuhin (7451 JP)</a>.
While Aeon seems to have spurned Mitsubishi for now, it is hard to see how Aeon will progress in the convenience store sector without Mitsubishi’s help. In the short-term Ministop looks like a poor investment but Aeon may have to sell to Mitsubishi eventually and will want a good price for it.

Mitsubishi has finally given up its hope of convincing Aeon to merge Ministop (9946 JP) with Lawson and is selling its stake in the largest retail group.
There will be no change to the extensive supply relationship between the two companies and Mitsubishi's food wholesale arm, Mitsubishi Shokuhin (7451 JP).
While Aeon seems to have spurned Mitsubishi for now, it is hard to see how Aeon will progress in the convenience store sector without Mitsubishi’s help. In the short-term Ministop looks like a poor investment but Aeon may have to sell to Mitsubishi eventually and will want a good price for it.

Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

<a href="https://discover.decathlon.fr/conception" target="_blank">Decathlon</a> is a category killer sans pareil and will finally open its first store in Japan in March. If Decathlon implements its store roll out well, the French sports retailer will cause a major disruption in Japan's sports market.
Large domestic sports retailers like <a href="https://www.smartkarma.com/entities/13955" target="_blank" data-smartkarma-citation="entities:13955:1">Xebio Holdings (8281 JP)</a> and <a href="https://www.smartkarma.com/entities/17762" target="_blank" data-smartkarma-citation="entities:17762:1">Alpen Co Ltd (3028 JP)</a> will be gearing up to compete in some categories but are far behind in private label development and cost performance, and the major sports brands will have to accelerate their plans for retail stores while reviewing pricing (downwards). Sports firms like <a href="https://www.smartkarma.com/entities/14244" target="_blank" data-smartkarma-citation="entities:14244:1">Mizuno (8022 JP)</a>, with relatively low perceived brand value, could face challenges in the newly polarised market that will emerge from Decathlon's entry.
A major source of competition for Decathlon will come from a more unlikely retailer: the uniforms to outdoor apparel/gear firm, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>. While still small, Workman is already manoeuvring to hinder Decathlon's growth in Japan, and looks like having establishment backing to do so – and echoes the growth of Uniqlo after Gap entered the Japanese market in the 1990s and the rise and rise of <a href="https://www.smartkarma.com/entities/20386" target="_blank" data-smartkarma-citation="entities:20386:1">Nitori (9843 JP)</a> after IKEA's launch in 2006.
Both Gap and IKEA have relatively small operations in Japan today compared to their early potential. Decathlon will need to expand rapidly if it is to gain sufficient share to stop Workman emerging with a clear lead in its market.

Decathlon is a category killer sans pareil and will finally open its first store in Japan in March. If Decathlon implements its store roll out well, the French sports retailer will cause a major disruption in Japan's sports market.
Large domestic sports retailers like Xebio Holdings (8281 JP) and Alpen Co Ltd (3028 JP) will be gearing up to compete in some categories but are far behind in private label development and cost performance, and the major sports brands will have to accelerate their plans for retail stores while reviewing pricing (downwards). Sports firms like Mizuno (8022 JP), with relatively low perceived brand value, could face challenges in the newly polarised market that will emerge from Decathlon's entry.
A major source of competition for Decathlon will come from a more unlikely retailer: the uniforms to outdoor apparel/gear firm, Workman (7564 JP). While still small, Workman is already manoeuvring to hinder Decathlon's growth in Japan, and looks like having establishment backing to do so – and echoes the growth of Uniqlo after Gap entered the Japanese market in the 1990s and the rise and rise of Nitori (9843 JP) after IKEA's launch in 2006.
Both Gap and IKEA have relatively small operations in Japan today compared to their early potential. Decathlon will need to expand rapidly if it is to gain sufficient share to stop Workman emerging with a clear lead in its market. 

Workman Vs. Decathlon: The Upcoming Battle for Japan's Sports Market

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/254/original/2019-01-11_07-07-55.png?1547158094" class="editor-image img-responsive" data-smartkarma-image-id="75254"></figure>
<div style="text-align: center;" class="content-caption">Source: Japan Analytics</div>
ONWARD AND OUT - <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a>, formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last ten trading days after <a href="https://www.smartkarma.com/entities/14502" target="_blank" data-smartkarma-citation="entities:14502:1">Benefit One (2412 JP)</a>, <a href="https://www.smartkarma.com/entities/14750" target="_blank" data-smartkarma-citation="entities:14750:1">Rizap (2928 JP)</a>, <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a>, <a href="https://www.smartkarma.com/entities/7611" target="_blank" data-smartkarma-citation="entities:7611:1">Hoshizaki (6465 JP)</a>, and <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman Co Ltd (7564 JP)</a>. According to Nikkei XTECH, on 25th December apparel maker <a href="https://www.smartkarma.com/entities/11370" target="_blank" data-smartkarma-citation="entities:11370:1">Onward (8016 JP)</a> suspended selling of its products on ZOZOTOWN and will leave the platform altogether. Although Onward products are estimated to account for less than 3% of total transactions on the site, there are concerns that other apparel makers will follow suit as a result of the emerging direct competition on the site from ZOZO's private label. Since reaching our 4.0 'Overbought' threshold on 9th July 2018, ZOZO shares have corrected by 57% - the worst performance of any large cap from that date - as concerns mounted over the private brand strategy and the behaviour of CEO Yusaku Maezawa.  Since bottoming on 4th January, the shares have risen by 18% following positive comments from the CEO about sales over the New Year holiday period.    
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/074/908/original/2019-01-08_11-30-36.png?1546914652" class="editor-image img-responsive" data-smartkarma-image-id="74908"></figure>
PRIVATE-LABEL STRETCH GOALS- The 'teething problems' of ZOZO entering the private-label apparel business have been well-documented by <a href="https://www.smartkarma.com/profiles/2415" target="_blank" data-smartkarma-citation="accounts:2415">Michael Causton</a> in a recent <a href="https://www.smartkarma.com/insights/zozo-teething-problems-for-private-brand-and-signs-of-hubris" target="_blank" data-smartkarma-citation="insights:26266">Insight</a> on Smartkarma. Michael rightly questions the feasibility of the company scaling a ¥200b apparel business within the next three years while targeting an additional incremental ¥400b in e-commerce revenue, particularly as it has taken ZOZO twenty years to reach the first ¥100b in annual revenues. In the DETAIL section below, we shall examine ZOZO's current and possible future financial condition as it strives to become one of the top-ten global fashion retailers. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/261/original/2019-01-11_07-22-02.png?1547158945" class="editor-image img-responsive" data-smartkarma-image-id="75261"></figure>
'ZOSO' &amp; THE STAIRWAY TO HEAVEN - In addition to some notable purchases of modern art at record-breaking prices, CEO Maezawa also last year booked himself on Space X's first flight to the moon. With apologies, the lyrics of the peerless song from Led Zeppelin's untitled fourth album - known by fans as 'Zoso' after the symbol designed by Jimmy Page for the inner sleeve - come to mind:- 
There's a lad(y) who's sure All that glitters is gold And (s)he's buying a stairway to heaven When(s)he gets there (s)he knows If the stores are all closed With a word (s)he can get what (s)he came for.

ZOZO (3092 JP)

Source: Japan Analytics
ONWARD AND OUT - ZOZO (3092 JP), formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last ten trading days after Benefit One (2412 JP), Rizap (2928 JP), Takeda Pharmaceutical (4502 JP), Hoshizaki (6465 JP), and Workman Co Ltd (7564 JP). According to Nikkei XTECH, on 25th December apparel maker Onward (8016 JP) suspended selling of its products on ZOZOTOWN and will leave the platform altogether. Although Onward products are estimated to account for less than 3% of total transactions on the site, there are concerns that other apparel makers will follow suit as a result of the emerging direct competition on the site from ZOZO's private label. Since reaching our 4.0 'Overbought' threshold on 9th July 2018, ZOZO shares have corrected by 57% - the worst performance of any large cap from that date - as concerns mounted over the private brand strategy and the behaviour of CEO Yusaku Maezawa.  Since bottoming on 4th January, the shares have risen by 18% following positive comments from the CEO about sales over the New Year holiday period.    

PRIVATE-LABEL STRETCH GOALS- The 'teething problems' of ZOZO entering the private-label apparel business have been well-documented by Michael Causton in a recent Insight on Smartkarma. Michael rightly questions the feasibility of the company scaling a ¥200b apparel business within the next three years while targeting an additional incremental ¥400b in e-commerce revenue, particularly as it has taken ZOZO twenty years to reach the first ¥100b in annual revenues. In the DETAIL section below, we shall examine ZOZO's current and possible future financial condition as it strives to become one of the top-ten global fashion retailers. 

'ZOSO' &amp; THE STAIRWAY TO HEAVEN - In addition to some notable purchases of modern art at record-breaking prices, CEO Maezawa also last year booked himself on Space X's first flight to the moon. With apologies, the lyrics of the peerless song from Led Zeppelin's untitled fourth album - known by fans as 'Zoso' after the symbol designed by Jimmy Page for the inner sleeve - come to mind:- 
There's a lad(y) who's sure All that glitters is gold And (s)he's buying a stairway to heaven When(s)he gets there (s)he knows If the stores are all closed With a word (s)he can get what (s)he came for.

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (<a href="https://www.smartkarma.com/entities/1041" target="_blank" data-smartkarma-citation="entities:1041:1">Seven &amp; I Holdings (3382 JP)</a>), <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart (8028 JP)</a> and <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson Inc (2651 JP)</a>. Also covered are the smaller firms like <a href="https://www.smartkarma.com/entities/1043" target="_blank" data-smartkarma-citation="entities:1043:1">Ministop Co Ltd (9946 JP)</a>, <a href="https://www.smartkarma.com/entities/5762" target="_blank" data-smartkarma-citation="entities:5762:1">Poplar Co Ltd (7601 JP)</a>, Daily Yamazaki, <a href="https://www.smartkarma.com/entities/19816" target="_blank" data-smartkarma-citation="entities:19816:1">Cvs Bay Area (2687 JP)</a>, <a href="https://www.smartkarma.com/entities/11801" target="_blank" data-smartkarma-citation="entities:11801:1">Three F Co Ltd (7544 JP)</a> and <a href="http://secoma.co.jp" target="_blank">Secoma</a> which are targets for the Big Three.
The key operational and strategic themes relevant to investors in CVS in Japan:
<ul class="">
<li>The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.</li>
<li>At the same time, all are looking at new forms of retailing to expand further:
<ul>
<li>All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.</li>
<li>Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.</li>
</ul>
</li>
<li>While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.</li>
</ul>
This first report reviews the sector overall and the main players, <a href="https://www.smartkarma.com/insights/seven-eleven-familymart-and-lawson-find-new-growth-strategies-in-tighter-market" target="_blank">while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail</a>.

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven &amp; I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.
The key operational and strategic themes relevant to investors in CVS in Japan:

The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
At the same time, all are looking at new forms of retailing to expand further:

All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.


While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.

This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.

Japan Convenience Stores Still Innovating in a Saturated Market

Japan

AEON CO., LTD. operates general merchandise stores, supermarkets, and convenience stores throughout Japan. The Company is also engaged in women's and casual clothing store business, development business of commercial property, and financing service through the subsidiaries.

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Aeon Co Ltd (8267 JP)

Also in the News: Updates from Japanese Retail Markets

Below are several recent updates on Japanese retail and consumer markets that, while not meriting in-depth Insights of their own, are important...

Michael Causton

Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

Mitsubishi has finally given up its hope of convincing Aeon to merge Ministop (9946 JP) with Lawson and is selling its stake in the largest retail...

Michael Causton

Workman Vs. Decathlon: The Upcoming Battle for Japan's Sports Market

Decathlon is a category killer sans pareil and will finally open its first store in Japan in March. If Decathlon implements its store roll out...

Michael Causton

ZOZO - Buying a Stairway to Heaven

ZOZO (3092 JP) ONWARD AND OUT - ZOZO (3092 JP), formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last...

Campbell Gunn

Japan Convenience Stores Still Innovating in a Saturated Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven...

Michael Causton

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