October 2005 - Japan Up Close

Knowing what products will sell well in Japan begins with examining the market from the inside-out. From the demographic landscape to the retail climate, there’s no such thing as over-thinking the market in Japan.

By Harry Hill and Sven Tapp

Several years ago, a U.S. golf ball manufacturer wanting to capitalize on the booming Japanese market launched a marketing campaign that offered a free fourth ball in the traditional three-pack. The campaign bombed, as the pronunciation for four, “shi” in Japanese, is a homonym for the word for death—something consumers assiduously avoid. This was a marketing disaster that could have been averted had the company been more astute in Japanese culture.

With a population of over 120 million people in 47 million households, the second largest GDP in the world, the highest personal savings rate in the world and the highest monthly average individual disposable income at ¥452,501 (approximately $4,300 U.S.), Japan is potentially the most profitable market outside of the United States for suppliers of products that are looking to expand internationally. But along with the promise of riches, one must consider the Japanese consumer, who is one of the most brand and quality cognizant in the world. Furthermore, due to economic pressures, the Japanese consumer has learned to become price-conscious.

Contrary to the spendthrift images that reached America during the bubble economy of the ’80s and early ’90s, today’s consumer takes pride in not only owning the popular brand names but also at having acquired them for a bargain. There is no shame in bargain hunting. Thus, the challenges to do business, particularly to enter the market, are some of the most difficult in the world, making Japan a market both rich with opportunity and fraught with risk.

Before entering into a discussion about the direct marketing environment in Japan and products that sell through direct marketing channels, it is worthwhile to look at consumption trends both in the traditional retail market as well as the direct marketing industry. The recessionary years of the early 2000s have hit the retail outlets hardest. Department stores have experienced year-on-year declines in revenue in almost all product categories. A 2003 survey by Nikkei Keizai Shimbun of the top 20 department stores showed that 12 of the 20 stores posted a 3.8-percent decline in revenues from 2002 to 2003. While pundits and economists optimistically predict the end of the Japanese economic malaise whenever there is even a modest year-on-year increase in overall retail sales, full recovery has been slow to come.

In general, the trends in Japanese retailing have been moving away from general merchandise stores (GMS) and department stores and moving more toward convenience stores and specialty stores, such as sports outlet stores and electronics retailers. While GMS floor space has increased over the last five years, annual turnover has decreased for both GMS and the venerable department stores (see chart on the right). However, in contrast to the gloomy retail picture, discount stores, wholesalers and direct marketers have experienced growing revenues in spite of the recessionary economy.

Discount stores and wholesalers are winning over customers with lower prices; however, direct marketers are appealing to customers on a different level.

Direct marketing sales have been growing year-on-year, while retail sales have fallen. A recent JADMA (The Japan Direct Marketing Association) survey of 104 member companies showed combined sales in fiscal year 2004 of ¥126.7 billion (or about $1.15 billion U.S.), a 4.6-percent increase over 2003. This compares sharply with the 3.2-percent drop for department stores in the same period.

Much of the growth in direct marketing can be attributed to new technology such as the Internet, as well as the changing attitudes and acceptance of direct marketing channels. The prevalent direct marketing channel remains catalog shopping. In a 2004 JADMA survey of consumers, 48.5 percent of respondents had experience with catalog shopping. This proportion was 47.5 percent in 2003. In comparison, TV shopping and Internet have penetrated the market considerably. In 2003, 19.7 percent had shopped via TV, which increased to 22.8 percent in 2004. Internet shows the greatest penetration with 30.3 percent in 2003 and 35.3 percent in 2004 (see table on page 36).

Yet, it is important for anyone developing an Internet strategy in Japan to realize that the ubiquitous Internet has a very different form in Japan from the Western world. There are 77.3 million Internet users in Japan, and one in three have broadband connection. In other words, one in five of Japan’s 120 million citizens are connected to broadband, which has amazing implications for e-commerce. Furthermore, mobile phone penetration is a staggering 89.5 percent, with virtually all phones connected to the Internet, according to a 2004 white paper from Japan Ministry of Public Management, Home Affairs, Posts and Telecommunications. Mobile commerce is a key component of Internet business. One in four respondents to a JADMA survey reported to have used their cellular telephone for mobile commerce. By gender, 29.3 percent of women use their mobile phones for Internet commerce, compared with 20.6 percent of men. However, Japanese men tend to have a greater interest in using PCs, and as a whole men dominate Internet commerce. Furthermore, mobile consumers are quite young, with 80.1 percent of respondents under the age of 40.

Understanding the differing channels is important to developing strategies to promote your company’s products.

Respondents’ Usage Rate Within Past Year (by media)
(Unit: %) 2004 2003
Catalog 48.5 47.5
Internet 35.3 30.3
TV shopping 22.8 19.7
Direct mail 22.3 22.1
Newspaper flyer 21 20
Newspaper advertisement 17.8 15.5
Magazine advertisement 17.4 20.5
Credit company promotion 10.6 12.2
Source: JADMA (The Japan Direct Marketing Association)

According to a 2005 JADMA survey, the most popular product category for direct marketing is apparel. In addition, 36.6 percent of respondents had purchased clothing through direct marketing. Following apparel is food items and health products/supplements, at 30.3 percent and 23.1 percent, respectively. In terms of sales, however, the top product categories are apparel and household products, which accounted for 22.4 percent and 17.6 percent of sales for the 104 companies in the 2004 JADMA survey.

The buying trends of Japanese consumers are very different than in the U.S. In particular, the year-end and New Year in Japan is a traditional cleaning season, with over 60 percent of the retail purchases of cleaning products occurring in the last three months of the year. Other than cleaning products, however, December is not especially a strong month for most retail products.

Another characteristic of the Japanese consumer trend are the two “new years.” Like the West, Japan recognizes January 1 as a beginning of a new year. However, while the West is enjoying countdown parties, the Japanese contemplate the past year and prepare for the new year by cleaning house and throwing out the old, replacing it with the new. The “second new year” is April 1, which is not only the beginning of the corporate fiscal year, marked by reassignment and mass recruitment, but also the beginning of the school year and the beginning of spring. New clothes, new homes and new beginnings mark these two new years.

Another characteristic is the Japanese salary system, which pays out retained salaries twice a year as a bonus, usually in July and December. As a result, consumer spending usually spikes in these two seasons.

Like retail, there is a strong seasonality for direct marketing products that is somewhat different from the U.S. Moreover, direct marketing seasonality also differs from that of the retail industry. First, there are no sales spikes in retail’s key seasons. Instead, there are two marked dips, one during the summer as Japanese become active and spend less time inside the home, and one at the start of the New Year, immediately following the spending spree of December. While these valleys are consistent for most product categories, there are exceptions. Food products tend to remain flat until December, at which time sales increase by about 50 percent over the average month.

Moreover, the summer for most direct marketers has proven a boom for exercise and fitness-related products. Naturally, in developing a strategy you must not only look at the seasonality of the industry but also the most suitable season in which to introduce your product. It also shows that as the methods of direct marketing have changed, the types of products that sell are also changing.

The information provided is to help the marketers and suppliers of products to better understand the Japanese market. By understanding the trends of what sales sectors is growing, including the direct marketing sectors, what types of products are selling and how seasonality affects the Japanese consumer, perhaps marketers will have a better grasp for this market and a clear understanding of the opportunities that await them.

Harry Hill is COO of Oak Lawn Marketing Inc. of Japan. Sven Tapp is the company’s analyst. We would appreciate your feedback. To submit comments, point your browser to japanoct.marketing-era.com.


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