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. 

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media for profligate spending on art and trips to the moon, and for only turning up to work three days a week.
More importantly, its private brand business is off to a bumpy start, a problem when Zozo expects it to account for 30% of sales in three years time.
Analysts have focused on the failure of the Zozosuit, but this was always more of a marketing gimmick and will soon be superseded by mobile-only measuring systems. The real challenge is being able to produce a measured semi-bespoke apparel service on time, of a good quality and at a reasonable price. Given Zozo's supply chain support and early start, it could still lead on this.
Nevertheless building a ¥200 billion apparel business in three years remains highly questionable; Zozo has stumbled at the launch, and no one has built such a large apparel concern so quickly in Japanese retail history.
Zozo will continue to grow in tandem with the growth in apparel e-commerce, but its target of ¥700 billion in revenues in three years remains in doubt leaving us bearish about the short-term.
More important than achieving its targets is whether Zozo can manage to build a solid foundation for a scalable private brand-based business. If Zozo succeeds, then the long-term prospects for Zozo as an integrated apparel brand rather than a merchant mall could be bright.

ZOZO (3092 JP) has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media for profligate spending on art and trips to the moon, and for only turning up to work three days a week.
More importantly, its private brand business is off to a bumpy start, a problem when Zozo expects it to account for 30% of sales in three years time.
Analysts have focused on the failure of the Zozosuit, but this was always more of a marketing gimmick and will soon be superseded by mobile-only measuring systems. The real challenge is being able to produce a measured semi-bespoke apparel service on time, of a good quality and at a reasonable price. Given Zozo's supply chain support and early start, it could still lead on this.
Nevertheless building a ¥200 billion apparel business in three years remains highly questionable; Zozo has stumbled at the launch, and no one has built such a large apparel concern so quickly in Japanese retail history.
Zozo will continue to grow in tandem with the growth in apparel e-commerce, but its target of ¥700 billion in revenues in three years remains in doubt leaving us bearish about the short-term.
More important than achieving its targets is whether Zozo can manage to build a solid foundation for a scalable private brand-based business. If Zozo succeeds, then the long-term prospects for Zozo as an integrated apparel brand rather than a merchant mall could be bright.

Zozo: Teething Problems for Private Brand and Signs of Hubris

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names, or high weight-low float names were getting squeezed by BOJ buying or by a short squeeze on the short basket which had been proposed by a number of sellside brokers after the BOJ dropped its Nikkei 225 buying. The likelihood and nature of the change in Nikkei 225 buying by the BOJ was most recently discussed in the insights below:
<table class="table table-striped">
<tbody>
<tr>
<td colspan="3">
<h2>Insights This Past Summer on BOJ ETF Buying and Nikkei 225</h2>
</td>
</tr>
<tr>
<td>Date</td>
<td>Before/After BOJ</td>
<td>Title of Insight</td>
</tr>
<tr>
<td>19-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a></td>
</tr>
<tr>
<td>23-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-the-nikkei-225-baskets-if-boj-changes" target="_blank" data-smartkarma-citation="insights:22367">JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes</a></td>
</tr>
<tr>
<td>27-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-boj-to-buy-less-nikkei-225-highly-likely" target="_blank" data-smartkarma-citation="insights:22484">JAPAN PASSIVE - BOJ To Buy Less Nikkei 225? Highly Likely</a></td>
</tr>
<tr>
<td>31-Jul-2018</td>
<td>After</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-dovish-meeting-boj-to-buy-less-nikkei-225" target="_blank" data-smartkarma-citation="insights:22617">JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225</a></td>
</tr>
</tbody>
</table>
However, the BOJ and Nikkei 225 story has been a deceased equine I have been belabouring for 2+ years.
Of course, the trigger for many people's suggestions of a trade was the decision by the BOJ on 31 July to lower its annual rate of purchases of ETFs in the grouping of the TOPIX, Nikkei 225, and JPX Nikkei 400 basket which was seeing total buys of ¥3.0trln a year (in addition to the ¥2.7trln on TOPIX alone) to ¥1.5trln, raising and lifting the portion of "only TOPIX" to ¥4.2trln. That meant the total to be bought in Nikkei would drop from about ¥1.3-1.4trln to about half that, and JPX Nikkei 400 saw its portion of BOJ ETF buys drop to very low single digit percentages, with TOPIX taking about 85% of total buys from there on.
As described in numerous insights on Smartkarma dating back a few years, it is to be noted that the "float" on several Japanese stocks in the Nikkei 225 is not really "float" and Real World Float is much smaller. In some cases single digit percentages of the shares outstanding.
Many of us have watched the 70+% performance since end-August for <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a> - one of my favored names to get heavily sold should the Nikkei 225 actually change its weighting methodology as I proposed earlier this year. It has been the avatar for high weight low-float names in the Nikkei 225.
So I tested the idea. The results were somewhat surprising.

A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names, or high weight-low float names were getting squeezed by BOJ buying or by a short squeeze on the short basket which had been proposed by a number of sellside brokers after the BOJ dropped its Nikkei 225 buying. The likelihood and nature of the change in Nikkei 225 buying by the BOJ was most recently discussed in the insights below:




Insights This Past Summer on BOJ ETF Buying and Nikkei 225



Date
Before/After BOJ
Title of Insight


19-Jul-2018
Before
JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225


23-Jul-2018
Before
JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes


27-Jul-2018
Before
JAPAN PASSIVE - BOJ To Buy Less Nikkei 225? Highly Likely


31-Jul-2018
After
JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225



However, the BOJ and Nikkei 225 story has been a deceased equine I have been belabouring for 2+ years.
Of course, the trigger for many people's suggestions of a trade was the decision by the BOJ on 31 July to lower its annual rate of purchases of ETFs in the grouping of the TOPIX, Nikkei 225, and JPX Nikkei 400 basket which was seeing total buys of ¥3.0trln a year (in addition to the ¥2.7trln on TOPIX alone) to ¥1.5trln, raising and lifting the portion of "only TOPIX" to ¥4.2trln. That meant the total to be bought in Nikkei would drop from about ¥1.3-1.4trln to about half that, and JPX Nikkei 400 saw its portion of BOJ ETF buys drop to very low single digit percentages, with TOPIX taking about 85% of total buys from there on.
As described in numerous insights on Smartkarma dating back a few years, it is to be noted that the "float" on several Japanese stocks in the Nikkei 225 is not really "float" and Real World Float is much smaller. In some cases single digit percentages of the shares outstanding.
Many of us have watched the 70+% performance since end-August for Familymart Uny Holdings (8028 JP) - one of my favored names to get heavily sold should the Nikkei 225 actually change its weighting methodology as I proposed earlier this year. It has been the avatar for high weight low-float names in the Nikkei 225.
So I tested the idea. The results were somewhat surprising.

Is It a Nikkei BOJ Squeeze on Nikkei 225 Low Float Names? Or Just FamilyMart Being FamilyMart?

Pan Pacific International Holdings / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote (7532 JP)</a> (Donki) will change its name to Pan Pacific International Holdings in February, reflecting both its growing number of brands now that it has bought Uny, and to emphasise its plans to become a retailer with substantial operations across the Pacific Rim, including the US.
At home, though, its recent acquisition of Uny, and the related relationship with Itochu Corp. means it now has access to entirely new and larger supply routes for food. As the most successful discount retailer in Japan’s history, and one that has been dabbling with food for several years, this presents the tantalising possibility that it will develop the first true FMCG (Fast Moving Consumer Goods) discount format for Japan modelled on the German chains, Aldi and Lidl.
For now, if Donki can convert Uny stores successfully, the acquisition of Uny could add another ¥30 billion to Donki's operating profit, compared to ¥51 billion in the year to June.
This is likely. Donki has a great record to date, both in converting six Uny stores on a trial basis, and its very successful revitalisation of a much less promising GMS retailer it acquired in 2006 called Nagasakiya.
By buying Uny, Donki has become the fourth biggest retailer behind <a href="https://www.smartkarma.com/entities/3" target="_blank" data-smartkarma-citation="entities:3:1">Aeon (8267 JP)</a>, <a href="https://www.smartkarma.com/entities/1041" target="_blank" data-smartkarma-citation="entities:1041:1">Seven &amp; I (3382 JP)</a> and <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a>, but its potential for growth and its highly disciplined management team could give Aeon and Seven &amp; I cause for concern.
Above all, the Uny purchase reflects the growing concentration of market share in Japanese retailing among fewer players, and will catalyse consolidation in food retailing which has, until now, been the only remaining sector where regional fiefdoms have stood their ground.

Don Quijote (7532 JP) (Donki) will change its name to Pan Pacific International Holdings in February, reflecting both its growing number of brands now that it has bought Uny, and to emphasise its plans to become a retailer with substantial operations across the Pacific Rim, including the US.
At home, though, its recent acquisition of Uny, and the related relationship with Itochu Corp. means it now has access to entirely new and larger supply routes for food. As the most successful discount retailer in Japan’s history, and one that has been dabbling with food for several years, this presents the tantalising possibility that it will develop the first true FMCG (Fast Moving Consumer Goods) discount format for Japan modelled on the German chains, Aldi and Lidl.
For now, if Donki can convert Uny stores successfully, the acquisition of Uny could add another ¥30 billion to Donki's operating profit, compared to ¥51 billion in the year to June.
This is likely. Donki has a great record to date, both in converting six Uny stores on a trial basis, and its very successful revitalisation of a much less promising GMS retailer it acquired in 2006 called Nagasakiya.
By buying Uny, Donki has become the fourth biggest retailer behind Aeon (8267 JP), Seven &amp; I (3382 JP) and Fast Retailing (9983 JP), but its potential for growth and its highly disciplined management team could give Aeon and Seven &amp; I cause for concern.
Above all, the Uny purchase reflects the growing concentration of market share in Japanese retailing among fewer players, and will catalyse consolidation in food retailing which has, until now, been the only remaining sector where regional fiefdoms have stood their ground.

Don Quijote: The Future Aldi of Japan Fomenting a Revolution in Japanese Food Retailing

'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-<ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul>THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>.


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

Thematic (Sector/Industry)

Fashion retailers had a much better year in 2017-18 as the apparel and accessories market expanded 2.2% after two years of market contraction.
Recent growth has mostly benefited the speciality store and online sectors, but last year department stores also improved, and even the odd GMS chain enjoyed the balmier climate.
As a result, department store market share among the top 100 apparel retailers – which account for 70% of the market – rose for the first time in 15 years.
The market share of the top 100 fell due to better sales at small retailers and independents.
Trading is still tough, however, and retailers are cautious about consumer sentiment going forward.
The winners though are clear to see, with companies like <a href="https://www.smartkarma.com/entities/2765" target="_blank" data-smartkarma-citation="entities:2765:1">Ryohin Keikaku (7453 JP)</a>, <a href="https://www.smartkarma.com/entities/23991" target="_blank" data-smartkarma-citation="entities:23991:1">Tokyo Base (3415 JP)</a>, Mash Holdings and <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO Inc (3092 JP)</a> pushing well ahead of the sector year after year.
The following is a comprehensive review of the Japanese apparel/fashion market in FY2017, and the winners within it.

Fashion retailers had a much better year in 2017-18 as the apparel and accessories market expanded 2.2% after two years of market contraction.
Recent growth has mostly benefited the speciality store and online sectors, but last year department stores also improved, and even the odd GMS chain enjoyed the balmier climate.
As a result, department store market share among the top 100 apparel retailers – which account for 70% of the market – rose for the first time in 15 years.
The market share of the top 100 fell due to better sales at small retailers and independents.
Trading is still tough, however, and retailers are cautious about consumer sentiment going forward.
The winners though are clear to see, with companies like Ryohin Keikaku (7453 JP), Tokyo Base (3415 JP), Mash Holdings and ZOZO Inc (3092 JP) pushing well ahead of the sector year after year.
The following is a comprehensive review of the Japanese apparel/fashion market in FY2017, and the winners within it.

The Winners in Japanese Fashion Retailing

Japan

FAST RETAILING CO., LTD. operates a chain of clothing stores, UNIQLO, throughout Japan and in other markets overseas including UK, China, Hong Kong, South Korea, US, France, Singapore and Russia.  The Company designs, manufactures, and retails its own line of casual clothing.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Fast Retailing (9983 JP)

Zozo: Teething Problems for Private Brand and Signs of Hubris

ZOZO (3092 JP) has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media...

Michael Causton

Is It a Nikkei BOJ Squeeze on Nikkei 225 Low Float Names? Or Just FamilyMart Being FamilyMart?

A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names,...

Travis Lundy

Don Quijote: The Future Aldi of Japan Fomenting a Revolution in Japanese Food Retailing

Don Quijote (7532 JP) (Donki) will change its name to Pan Pacific International Holdings in February, reflecting both its growing number of brands...

Michael Causton

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

The Winners in Japanese Fashion Retailing

Fashion retailers had a much better year in 2017-18 as the apparel and accessories market expanded 2.2% after two years of market...

Michael Causton

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)