Apparel Industry in Japan

There might be many justified reasons for apparel business to be attracted to the Japanese market. With a population of almost 130 million, Japan is among the top 10 largest countries in the world. For many years, Japan’s apparel market has been known for its consumer’s high purchasing power. This might have to do with the fact that Japan’s economy is ranked as the 3rd economy with a GDP of almost 5 million (US$). The populations consequent high level of per capita gives consumers high purchasing power and makes Japan’s retail market very attractive to outside investors.

However, it is very important that Japan is going through major shifts in its purchasing patterns. Between the 1980s and early 2000s, Japan’s retail industry was seen as one of the world’s top destination markets. However, this sentiment has been fading and is quickly getting replaced by a feeling of uncertainty that is shifting the purchasing pattern in the Japanese retail market. Consumers in the Japanese market who were willing to pay a high price for the highest quality products are now very price sensitive. Overall, spending in the apparel industry has been steadily decreasing. In the analysis below, we will expose how certain factors, ranging from the country’s macroeconomic elements to the channel of distribution, are shifting Japanese consumers spending patterns in the apparel industry.

Macroeconomic Factors

Abenomics, the economics policies advocated by Japan’s prime minister Shinzō Abe, Japan raised its sales tax from 5% to a record high of 8%. This increase in taxes caused a surge in  consumer prices. Predictably, this raise in sales tax also caused a sharp fall in  Japan’s GDP. This resulted in a visible polarization of consumer preferences . Japanese consumers  became really cost conscious and had to readjust their purchasing habits.This situation resulted in a rise in popularity of off-prices stores which demonstrated an important departure from luxury brand with luxury prices to an openness of paying lower prices.

Demographic decline and aging population

A report by the Japanese National Institute of Population and Social Security Research suggests that Japan has entered in a extensive period of population decline dropping from 128 million in 2010 to 86,7 million in 2060.  Besides the decline in population, Japan’s population is increasing again . Based on a projection of the PSSR, the working age population in japan will decrease up to 44.10 million in 2060. This shrinking in population is expected to endure a significant economic burden by having the responsibility to take care of and financially support the aging population. As the future outlook seems negative due to the decline in overall population as well as ageing population Japanese consumers are becoming more conscious of their spendings.

Income Level (Disposable Income)

Japan has seen a decline in disposable income from 751.54 JPY Thousand in December of 2015 to 355.70 JPY Thousand in January 2016. Disposable personal income averaged 337.07 JPY Thousand from 1963 to 2016.  It is important to point out that in Japan, there is a considerable gap between the richest and poorest. The top 20 % of the Japanese population earns more than 6 times as much as the bottom 20%.

This decline in disposable income can directly be linked to Japan’s tax hike. In fact, a higher sales tax in Japan coupled with the central bank’s record easing drove up living costs and inversely affected Japanese household budgets  and consumption. Since data has been recorded back in 1955, Japanese savings has seen its first negative reading by declining to a low of minus 1.3% back in March 2014. According to the labor ministry, real earnings fell 4.3 % in November of 2014 and constituted a 17th straight steep decline since 2009.

Consequence on the Apparel industry

Overall, Japanese consumer apparel spending has been greatly affected by the above mentioned factors. For many years, Japanese consumers who have been credited with high purchasing power and discriminating tastes are now very price sensitive. This increase in price sensitivity caused a shift in purchasing pattern that has greatly affected the apparel industry in Japan. One of the most visible consequences is that the Japanese preference for off-price stores and internet purchases has increased exponentially. More than ever, Japanese consumer are purchasing more apparels that are on sale. Some of the consumers contribute to push for high quality, but they do not necessarily associate quality with high prices.

In conclusion, any investors who are still willing to go to Japan should understand that the playing field has changed. Japanese consumers’ new attraction to a value oriented retailer at a lower prices results in a decline in average apparel prices and has changed the Japanese apparel shopping culture. Any new firms venturing into Japan should be armed with the goal of offering quality clothing at value prices. This new growing approach in the apparel industry is to meet the Japanese demand for high quality products by selling them at a lower price than usual.

Jethro Celestin

MBA Candidate 2016