sioner, based in Osaka, briefed Westfield World Retail Study Tour participants in Tokyo on the state of Japanese retailing. Salsberg estimated there has been “more change in last two years in Japanese consumer behaviour than in the last 10 to 15 years”. Yet Rees exhorted Australian retailers and manufacturers to seriously consider the Japanese market, despite the tumult; identifying five key demographic groups to be targeted, (refer to the boxed story). For 20 years Japan has failed to post economic growth, largely due to an ongoing population decline. Where nations like Australia have addressed the ageing population trend with positive migration policies, Japan’s borders have remained almost hermetically sealed. The result, an annual retail sales decline of around one per cent. And a cup of coffee which cost $A5 at the famous Ginza coffee shop in 1984 still costs about the same today. Combine that ongoing trend with the shock of last year’s recession and you have the perfect recipe for retail shock. Of 14,000 consumers in a recent poll quoted by Salsberg, 37 per cent said they were spending less and 40 per cent about the same amount. That means just 23 per cent of consumers increased their spend in 2009. Value trumps convenience. Japan used to have one of the lowest penetrations of private label in the world. But that’s all changed post recession. In the last two to three years, supermarket chains have reported their fastest ever growth in private label sales. While spending on health, sports, internet and mobile phones remains strong, dining, fashion, digital audio equipment have been hit hard. Half of consumers say they’re indulging in ‘sugomori’ – the nesting phenomena; they’re spending more time at home. But Salsberg says while Japan’s retail landscape is flat on the surface, underneath there is “a dynamic retail landscape”. The biggest impact is being driven by the serial decline in department store shopping. Specialty stores, crowded outlet malls and the internet are chipping away at what for hundreds of years have been the backbone of Japanese shopping behaviour. It’s almost bizarre listening to a Japanese department store executive boast during a presentation that his flagship store’s sales fell just 6.5 per cent last year. Until you compare it with rivals: one fell 30.9 per cent, another, the well-known Isetan in Shinjuku, was down 11.3 per cent. Overall, it was 7.7 per cent. “The department store decline has been under way for 10 years, but in the last year it’s been a disaster,” explains Salsberg. Haruyoshi Fujino of the merged Daimaru Matsuzakaya department store operator says total Japanese department store sales in 1988 were A$100 billion. In 1998 they reached $114.8 billion, but by 2008 were down to just $92.3 billion. It’s hard to see how Australian department stores could manage such a decline. Fujino sums it up: “Department stores have less influence on consumers than before.” Mergers are rife as stores compete for a smaller piece of the retail pie. There are as many as 24 department stores in central Tokyo – far more than in similar-sized cities such as New York, London and Paris. Mitsukoshi has joined with Isetan, Daimaru with Matsuzakaya, Sogo with Seibu. Salsberg says every month department stores are closing. There are 285 in Japan now and he predicts that will fall to 175, maybe even 150, eventually. Just about everyone agrees department stores have done “a horrible, horrible job” of countering the decline, he says. The only bright spots for these Goliaths is specialty food where they seem to have found a niche no other retailers can match, and a move to adopt more of a shopping mall model, leasing space to new generation fast fashion retailers like Forever XXI and Gap (see previous story). Some are driving customer relationship marketing and exploring new categories like youth-oriented precincts, trying to attract a younger demographic in store to replace those literally dying off at the other end. Isetan is testing ‘Isetan Girl’ trying to project a fun, lively destination. The success stories in Japanese retailing are at the value end – fast fashion chains like Forever XXI, planning to roll out 10 stores a year in Japan, H&M (which only launched in 2008), Zara and local hero Uniqlo, itself in a massive global roll-out which will include Australia in the near future. McKinsey research shows 70-80 per cent of Japanese consumers shopped at a Uniqlo within the last 12 months. ABC-Mart, a 523-strong chain of specialty shoe stores with a price and promotion focus and feel (think JB Hi-Fi), is a Japanese-Korean success story. Its goal is to have a 45 per cent pseudo private label – either shoes under its own brands, or products made exclusively for the chain but makes like Vans, for which it has the exclusive Japanese licence. Yamada Denki boasts 30 per cent of the Japanese consumer electronics market and is still building new stores. Part of its success was a loyalty program which is now accepted by other retailers. Most of its employees work for the brands they’re selling. “They make the manufacturers staff their store, which is part of their success,” says Salsberg. Book-Off is another winner: a second hand bookshop chain, it’s now expanding into other used goods categories, including apparel. Yes, Japanese consumers are buying into the ‘vintage’ clothing concept just like Britons and Americans. Ikea entered Japan years ago and failed spectacularly. But four years ago, on its second attempt, it found the format a winner. “They timed it right and changed their strategy and they’re a huge success. They only have five stores but they’re the number two brand furniture retailer in Japan with 20 million customers.” In May, Ikea announced Japan would be the first market globally to trial its planned online offer, largely because of the nation’s strong distribution network. Salsberg nominates several other successful retailers and concepts in Japan: Costco, which debuted in 1989 and confounded the sceptics. Few expected the format to work in Japan, or that locals would embrace the Kirkland home brand. But it now boasts 2 million members there and annual sales exceed A$1.3 billion from just nine stores. More are planned. Japanese consumers make ‘a day of it’ spending as long as three hours there a visit, not the 30 or 40 minutes as in the US or Australia. The 100 Yen stores – similar to Australia’s dollar store concepts, where locals enjoy the ‘treasure hunt’ feel. Daiso – a chain of stores selling private branded homewares and ‘living wares’ with 1300 stores and still growing. Don Quijote Discount Amusement (nicknamed Donki). A discounter of general merchandise, food apparel and games, with 123 stores Japanwide. Salsberg describes them as the most “random, strange, crowded, messy, entertaining but annoying stores you’ve ever seen”. Browse products as weird as a giant 150kg fish, or fresh food and hardware. Eataly is a new format highend grocery store, restaurant and cafe combined. “It’s become a hip place. People would prefer to go somewhere like this than a department store – you’d think department stores would recognise that trend, but change happens very slowly here.” McDonald’s. The US fast food giant has now opened seven new generation stores which Salsberg describes as “high end”. There’s none of the garish red of old, it’s all black and yellow. They’re also technologically advanced: half the customers there will use their mobile phones to cash in a coupon. McDonald’s has 17 million registered customers in Japan who pay in part for their meals this way. It allows the chain to execute instant, effectively cost-free marketing to get customers in-store. Japan has the world’s third highest concentration of convenience stores in the world (behind Taiwan and the Thai capital, Bangkok). But the ultimate form of convenience is the vending machine of which there are almost six million in Japan, selling products as diverse as hot or cold coffee, ice cream, flowers, soft porn, t-shirts, eggs, umbrellas and beverages. Coca-Cola says 25 per cent of its sales are through vending machines. Further reading: The changing face of Japanese retail – www.mckinsey.com/asianconsumers   Australia, venture forth… Rees identifies five key demographic groups for Australian goods and services providers to target: 1. The silver generation, aged 65+. Now numbering some 28 million, they’re cashed up, have no financial worries and will account for 30 per cent of the population by 2025. “In Japan, old people are revered, so they can do anything they like. They’ll pay $10,000 for a high end turntable to play their old records on. In Australia my kids would look at me like I had two heads if I did that. In Japan, the kids say you’ve earned the right to that. The silver generation are seriously wealthy people.” 2. The Dankai generation. Post Second World War baby boomers now aged 60 to 62. They’ve started to retire and like the silver generation have assets. 3. The Dankai juniors, aged 35 to 38 and now about 7.7 million consumers. They’re looking for unique products and experiences. 4. The ‘parasite singles’ – younger generation Japanese working, but still living at home to save overheads. Rees estimates there are about 8.3 million of these consumers now. They travel a lot and they like luxury. “They’ll travel with a Louis Vuitton overnight bag that clearly cost more than the trip they’re on.” 5 The most wealthy of all, the Ruyu-so. There are about 1.5 million of these people, each with at least A$1.3 million in the bank. They’re used to over abundance and status. For a long time, it’s been a status symbol in Japan to drive a left hand drive car, even if it’s a Lexus. “There are now so many left hand drive cars in Japan, toll booths have coin cages on both sides of the lane.” This feature first appeared in Inside Retailing Magazine. Click here to subscribe.