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

<ul>
<li>Subscription usage continues to rise in Japan and a new survey suggests just under 50% of teens and 20s plan to use a subscription service this year.</li>
<li>Daimaru-Matsuzakaya’s luxury and designer brand rental business has been so successful that the company had to turn away new members for a while.</li>
<li>The department store's owner, <a href="https://www.smartkarma.com/entities/j-front-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:8947:1" rel="noopener">J Front Retailing (3086 JP),</a> sees subscriptions as a third pillar to its business in the future.</li>
</ul>


Subscription usage continues to rise in Japan and a new survey suggests just under 50% of teens and 20s plan to use a subscription service this year.
Daimaru-Matsuzakaya’s luxury and designer brand rental business has been so successful that the company had to turn away new members for a while.
The department store's owner, J Front Retailing (3086 JP), sees subscriptions as a third pillar to its business in the future.


Subscriptions Provide Growth Model for J Front's Daimaru-Matsuzakaya

Event-Driven

<ul>
<li>Numerous reports indicate that Seven &amp; I is preparing its Sogo Seibu department store subsidiary for sale. </li>
<li>This follows years of calls from major investors to dispose of underperforming assets at Japan’s second largest retail conglomerate.</li>
<li>Seven &amp; I still has many problems to solve in its domestic business. Ito-Yokado remains the biggest problem but perhaps won't be disposed of while the company's 98-year old founder lives.</li>
</ul>


Numerous reports indicate that Seven &amp; I is preparing its Sogo Seibu department store subsidiary for sale. 
This follows years of calls from major investors to dispose of underperforming assets at Japan’s second largest retail conglomerate.
Seven &amp; I still has many problems to solve in its domestic business. Ito-Yokado remains the biggest problem but perhaps won't be disposed of while the company's 98-year old founder lives.


Seven & I: Selling Sogo Seibu Is Just the Start

Thematic (Sector/Industry)

Last month’s confirmation that Sogo Seibu is closing five more stores ends a terrible six months for department store chains.
Things started to look bad for the sector well before the lockdown as falling tourist numbers from South Korea, the impact of the consumption tax hike, and cautious consumers at home stole the gains made in the previous year.
A survey of 10,000 consumers earlier this year between the ages of 20 and 70 and 65% replied that they rarely visited department stores, if at all. This is up from 53.4% in 2011.
That the sector is in trouble is well-known but the shake out will be both accelerated and intensified by the current crisis, meaning that even fewer stores will survive, leaving just 100 or so true department stores, 50% less than now.
The good news is that the survivors will likely thrive, particularly <a href="https://www.smartkarma.com/entities/j-front-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:8947:1" rel="noopener">J Front Retailing (3086 JP)</a> and <a href="https://www.smartkarma.com/entities/takashimaya-co-ltd" target="_blank" data-smartkarma-citation="entities:370:1" rel="noopener">Takashimaya (8233 JP)</a>. While the entire sector is currently a sell, investors looking at the long-term may see value in a few of the leading firms.
The following is an in-depth review of the sector with the following sections:
<ol>
<li>Summary of key trends</li>
<li>Overview of Sales and analysis of strong and weak categories now and in the future</li>
<li>Rankings of chains and stores by category sales</li>
<li>Analysis of regional differences</li>
<li>Ranking of Top 30 firms by Sales and OPM and analysis of strong vs weak chains</li>
<li>Ranking of Top 50 stores and analysis of sales density performance</li>
<li>Review of solutions to decline and which firms will survive and thrive.</li>
</ol>
This insight is labelled bearish because the sector will continue to decline but a small number of firms will have a sustained future and see higher growth in operating margins once the current crisis is over.

Last month’s confirmation that Sogo Seibu is closing five more stores ends a terrible six months for department store chains.
Things started to look bad for the sector well before the lockdown as falling tourist numbers from South Korea, the impact of the consumption tax hike, and cautious consumers at home stole the gains made in the previous year.
A survey of 10,000 consumers earlier this year between the ages of 20 and 70 and 65% replied that they rarely visited department stores, if at all. This is up from 53.4% in 2011.
That the sector is in trouble is well-known but the shake out will be both accelerated and intensified by the current crisis, meaning that even fewer stores will survive, leaving just 100 or so true department stores, 50% less than now.
The good news is that the survivors will likely thrive, particularly J Front Retailing (3086 JP) and Takashimaya (8233 JP). While the entire sector is currently a sell, investors looking at the long-term may see value in a few of the leading firms.
The following is an in-depth review of the sector with the following sections:

Summary of key trends
Overview of Sales and analysis of strong and weak categories now and in the future
Rankings of chains and stores by category sales
Analysis of regional differences
Ranking of Top 30 firms by Sales and OPM and analysis of strong vs weak chains
Ranking of Top 50 stores and analysis of sales density performance
Review of solutions to decline and which firms will survive and thrive.

This insight is labelled bearish because the sector will continue to decline but a small number of firms will have a sustained future and see higher growth in operating margins once the current crisis is over.

Japan's Department Stores in 2020: The Biggest Crisis Since World War II

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have improved in the past 20 years and, in the past five, the big players have poured investment into more modernisation. This has brought some success to the top firms, especially from wealthy consumers, but no one could have seen the virus crisis coming.A major cull of stores was already expected, but those cuts are now likely to go much deeper. A sector that once had 313 stores and is now already down to 205 may only have capacity for 100.A few chains will survive and thrive, however.

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have improved in the past 20 years and, in the past five, the big players have poured investment into more modernisation. This has brought some success to the top firms, especially from wealthy consumers, but no one could have seen the virus crisis coming.A major cull of stores was already expected, but those cuts are now likely to go much deeper. A sector that once had 313 stores and is now already down to 205 may only have capacity for 100.A few chains will survive and thrive, however.

Japan's Department Stores: The Most to Lose but Also the Hardest Hit

'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/121/977/original/2020-03-09_14-29-36.png?1583731808" class="editor-image img-responsive" data-smartkarma-image-id="121977"></figure><div class="content-caption">Source • Stoxx.com</div>ALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy which built on the work of William Beaver and R.A. Fisher. Altman's original article (attached below) was published in the September 1968 issue of the Journal of Finance when he was an assistant professor of finance at NYU Stern.  The 'classic' Z-Score sampled publically-traded manufacturing companies. Later versions were formulated for private companies, non-manufacturing companies and emerging markets.  The model is between 80% and 90% accurate in predicting bankruptcy one year ahead of the event, while the rate of false positives has been between 15% and 20%.APPLICATION TO JAPAN - We have been using Altman Z-Scores in Japan since the mid-1980s. We have found the Scores to be reasonably predictive, as has been confirmed by several academic papers, including  <a href="https://www.semanticscholar.org/paper/A-Model-of-Bankruptcy-Prediction%3A-Calibration-of/5565168f75b578ba28115ef314acbdd387f82483" target="_blank" rel="noopener">Gurau (2013)</a>. The persistence of a large number of 'zombie' companies supported by banks or keiretsu 'relatives' has, however, reduced the overall 'hit' rate for larger listed companies. The following charts show a timeline of the Altman Z-Score and Market Capitalisation for several memorable Japanese corporate bankruptcies. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/005/original/2020-03-09_15-53-11.png?1583736804" class="editor-image img-responsive" data-smartkarma-image-id="122005"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/006/original/2020-03-09_15-54-52.png?1583736903" class="editor-image img-responsive" data-smartkarma-image-id="122006"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/007/original/2020-03-09_15-56-58.png?1583737032" class="editor-image img-responsive" data-smartkarma-image-id="122007"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/009/original/2020-03-09_15-59-08.png?1583737161" class="editor-image img-responsive" data-smartkarma-image-id="122009"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/011/original/2020-03-09_16-03-28.png?1583737425" class="editor-image img-responsive" data-smartkarma-image-id="122011"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-highlight">This Insight is the second part of a three-part series attempting to highlight those Japanese companies that at the highest risk from the 2020 Covid-19 recession. The first focused on the<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-1-audit-score" target="_blank" data-smartkarma-citation="insights:37265" rel="noopener">Audit Score</a>, while a forthcoming Insight will look at Cumulative Cash Flows.</div>

Source • Stoxx.comALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy which built on the work of William Beaver and R.A. Fisher. Altman's original article (attached below) was published in the September 1968 issue of the Journal of Finance when he was an assistant professor of finance at NYU Stern.  The 'classic' Z-Score sampled publically-traded manufacturing companies. Later versions were formulated for private companies, non-manufacturing companies and emerging markets.  The model is between 80% and 90% accurate in predicting bankruptcy one year ahead of the event, while the rate of false positives has been between 15% and 20%.APPLICATION TO JAPAN - We have been using Altman Z-Scores in Japan since the mid-1980s. We have found the Scores to be reasonably predictive, as has been confirmed by several academic papers, including  Gurau (2013). The persistence of a large number of 'zombie' companies supported by banks or keiretsu 'relatives' has, however, reduced the overall 'hit' rate for larger listed companies. The following charts show a timeline of the Altman Z-Score and Market Capitalisation for several memorable Japanese corporate bankruptcies. Source • Japan AnalyticsThis Insight is the second part of a three-part series attempting to highlight those Japanese companies that at the highest risk from the 2020 Covid-19 recession. The first focused on theAudit Score, while a forthcoming Insight will look at Cumulative Cash Flows.

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 2: Altman Z-Score

Japan

PARCO CO., LTD. operates shopping centers specializing in fashion shops in Kanto, Chubu, Kansai, Hokkaido, and Kyushu area.  The Company also operates playhouses and theaters.

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Parco Co Ltd (8251 JP)

Subscriptions Provide Growth Model for J Front's Daimaru-Matsuzakaya

Subscription retailing is on the up in Japan including at the luxury end, providing a way for J Front to not only add new revenue streams but also...

Michael Causton

Seven & I: Selling Sogo Seibu Is Just the Start

Seven & I could be one of Japan's most profitable retailers – in part because one if its parts already is. The problem is the rest of the group but...

Michael Causton

Japan's Department Stores in 2020: The Biggest Crisis Since World War II

Japan's department store sector will continue to contract so it is right to be bearish on the sector. However, the clear out will allow some firms...

Michael Causton

Japan's Department Stores: The Most to Lose but Also the Hardest Hit

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have...

Michael Causton

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 2: Altman Z-Score

ALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy...

Campbell Gunn

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