Japan Marketing News

U.S. intimates leader said to weigh Japan entry

With so many Japanese outfitted in brands like Levi's, Gap, Ralph Lauren, Calvin Klein, Coach, Nike, Tiffany and Timberland, it's easy to assume that most major American fashion labels have already successfully entered the Japanese market—but it just ain't so.

Nevertheless, word is out that one of the most conspicuously absent companies may be on the way.

Last month Victoria's Secret revealed that it is now actively considering whether to boost flagging U.S. sales by expanding to international markets such as Russian and Japan, and talks are apparently underway with potential local partners in each market. The company is said to be checking out possible locations as well.

A number of complications are involved with bringing intimates lines to Japan, but Victoria's Secret may already be well on the way to learning the hard lessons early. Japanese women have been able to purchase product through the U.S. website for some time, and some quality and size issues have probably already come to light through Japan-side customer feedback.

H&M openings in Tokyo fast approaching

It's been nearly 2 years since trendy discount clothing retailer H&M announced that it would enter the Japanese market, and on this Saturday (9/13), the Ginza flagship will finally open its doors. The store is located on Chuo-Doori, almost exactly half way between Ginza and Shinbashi, on what might be considered the outermost edge of the area's fashion core. There has been a fair bit of buzz regarding the opening in the Japanese press, since everybody is waiting to see whether or not the brand will be compelling enough to engage Japan's fashion-conscious consumers.

Disney Mobile: a Cinderella start, but. . .

You may recall that last November I mentioned that Disney had announced its intention to enter the Japanese cell phone market with branded handsets and content, piggybacking on services provided by Softbank.

Well, Disney Mobile launched a couple of weeks ago with an approach that is, at least in some respects, nicely thought out. Recognizing that Japanese female consumers often combine class with cute, the company took the high road with handset design, opting for an exterior that at first glance recalls the logo patterns of luxury handbags, but up close reveals the silhouette of the world's most famous mouse. At the same time, on the software side, the company has provided loads of free content that allows hard-core aficionados to Disney-fy their screens (and outgoing mail) to their heart's content.

Nonetheless, it's not immediately clear how well Disney Mobile will do in the long run. According to an article in the Nikkei Ryutsu Shinbun, the handsets flew off shelves during the first week, but sales have fallen off considerably in recent days.

The problem?

Japan-only products: "neguse" sprays

Take a guess.

What do you suppose the two products at left are? (You're wrong if you guessed "window cleaner" or any other type of cleaning agent!)

Don't fret if you have no idea. Sometimes the customs of a country result in the development of entire product categories you've never heard of.

In this case, the products are related to Japan's bathing culture.

Let me explain.

Customarily, the daily bath is an evening ritual which involves taking a long soak in a deep tub (after one has scrubbed up and rinsed off). It's prototypically Japanese. After all, why would anyone want to get into their futon with any trace of dirt on their bodies? Moreover, the evening bath is a wonderful way to relieve stress at the end of the day. For many people, this is the only time they bathe or shower.

But this addiction to evening cleaning does not come without its costs. One of these is known as neguse, which literally means something like "sleep propensity." It refers to those goofy kinks some people discover in their hair each morning (a.k.a. "bedhead").

Thankfully, Japanese consumer companies have come to the rescue. The above spray bottles are used to relieve bedhead. Just spray them on your hair and run a comb through to straighten it back out.

Kanebo's "Morning Set Water" and "Neguse and Softening Water" from Gatsby do this and more. They set, soften and enrich hair to make it beautiful as well as straight.

The lesson is that entering Japan sometimes provides unexpected opportunities. Oftentimes, some of your products may not go over as well as they do at home. But thanks to specifics of the local culture, you may have the chance to add a completely new product to your portfolio (which may even work in other markets).

No need to let the market drown you! Adjust, and you may clean up!

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H&M in Japan: Hit or Miss?

The big news in apparel retailing this month was H&M's announcement that it intends to open its first store in Japan in autumn, 2008. Reports are that it will be a 1,500 sq. meter shop, located in Harajuku, and that additional locations will be opened in Tokyo and other major Japanese cities thereafter (my guess is that the first shop will reside in the building that's currently under construction behind ZARA on Omotesando).

Unlike most international fashion brands which have found it advantageous to enter the market through joint ventures with established Japanese apparel manufacturers, H&M appears to want to go it alone in Japan and has established a 100%-owned local subsidiary (as a rule, H&M does not do JVs in international markets).

I, for one, will be watching keenly as this story develops. When it comes to fashion, most international brands face several hurdles when entering the Japanese market. Primary amongst these are product quality and channel issues, both of which are more effectively addressed when a local partner is involved.

On the channel front, the big problem is the dearth of available real estate in Japan's best retail areas. Competition is fierce for the very limited space that does become available and this means land prices and rents are sky high. For brands like H&M—whose business models rely on the ability to deliver goods at very low prices—this can be fatal. Careful consideration needs to be paid to profitability over the long run since the cost of initially establishing a presence can be very, very high. Most brands hedge their bets by involving local partners who are both willing to front the huge investment costs and, perhaps just as important, are able to provide key real estate deal connections or better yet, existing facilities that can be converted to launch the new brand's first shops. To go it alone from the start in Japan, international brands are usually either extremely knowledgeable and well funded, or naively overconfident.

The other big issue is product quality.

H&M employs a "Fast Fashion" approach in which it quickly identifies emerging fashion trends, cranks out knock-off designs and variations using 100 in-house designers, and then puts in manufacturing orders with 700 collaborating firms in low-cost markets like Bangladesh. The whole process takes only a few weeks, and H&M's traditional European and North American customers, who are trendy teens and twenty-somethings, are very happy with the results: affordable, up-to-the-minute products of less-than-stellar quality.

But Japanese consumers are a different species.

Manufacturing standards are so uniformly high in Japan that sub-par merchandise stands out like a sore thumb. Japanese consumers are notoriously good at spotting poor stitching, loose buttons and inferior fabrics and they reject products for reasons that would be considered "nit-picking" in most other cultures. Since Japan already has its share of brands that offer high quality, high fashionablity and reasonable prices, the game cannot be won on design and bargain pricing alone. As a result, many international brands have had to develop special approaches for dealing with quality issues. In large measure, H&M's survival in Japan will depend on its ability to follow suit.

Naturally, a number of other hurdles also await. In addition to channel and quality issues, close attention has to be paid to product sizing and merchandise selection. Store environment, visual merchandising, seasonality and customer service are common challenges as well, to say nothing of Japan's special needs when it comes to advertising and PR. If it takes these issues lightly during preparatory stages, H&M may very well find itself putting out fires in Japan instead setting the market ablaze.

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Krispy Kreme: Nuts to go for dough in Japan?

Attention doughnut junkies: Krispy Kreme is on its way to Japan.

On June 26, Krispy Kreme Japan was launched with investment from fast-food giant Lotte Japan and management consulting firm, Revamp Corporation. The partners contributed 70% and 30% respectively.

Krispy Kreme's first shop is expected to open in Tokyo sometime this autumn, and the chain hopes to open 30 to 50 additional locations in the metropolitan area over the next five years. Krispy Kreme Japan will be headed up by Shinji Kosaka, a former McDonald's executive.

The brand has grown remarkably in the US over the past decade, and the Japan team is setting ambitious goals. But can a new doughnut franchise make it in Japan?

Krispy Kreme's ultimate success will depend on many factors, but from the marketing perspective, I think it's important to consider three things.

1) Is there a demand for doughnuts in Japan?
2) Can Krispy Kreme attract Japanese consumer interest?
3) Does the brand have long-term potential?

First things first. Japanese consumers are no strangers to doughnuts—both Dunkin' Donuts and Mister Donuts launched in Japan in the early 70's, so the Japanese have been consuming chain-store doughnuts for over 35 years. Moreover, basic doughnut varieties (plain, sugared, glazed) are now widely available at supermarkets, conveniences stores—and even at fast food restaurants like Wendy's (where they are offered on the breakfast menu). So basic product familiarity is not going to be a problem.

That being said, entering the Japanese market with a new doughnut franchise can hardly be considered a "no brainer." Dunkin' Donuts—which is the largest doughnut chain in the United States, failed in Japan in 1998 after 30 years of operations.

Generally speaking, overseas food franchises can take several measures to vastly improve their long-term chances for success in Japan. Among these, the product should be unique, since Japanese consumers are often willing to try new items, plus there should be few existing competitors along with some barriers to entry. These are critical because if the brand is successful the market will be soon flooded with local competitors. Additionally, Japanese consumers—who are notoriously fickle—will begin to stray as they look for the next "new" thing. Thus brands breaking into Japan must make a pile of money immediately as they simultaneously open new shops, introduce new products, and effectively manage ongoing operations. This is not always easy, as Burger King, Arby's, Taco Bell, and many other Japan failures have discovered.

In the case of Japan's doughnut market, international chains like Dunkin' Donuts, did NOT face competition from home-grown Japanese doughnut franchises. Rather, the brand's demise followed the European-style bakery and café boom that hit Japan in the 1990's. These new shops not only offered a range of products that covered more eating occasions (in Japan, doughnuts are consumed primarily as snacks and desserts—rarely as breakfast food), they also offered broader variety, more sophisticated dining areas, superior European-style coffees and products that could be used for gift occasions.

By the late 90's, consumers had lots of options when it came to cake-type desserts and coffee. The market could probably only sustain one national doughnut chain, and that turned out to be Mister Donuts.

Given that doughnuts are now widely available, consumers have alternative products to choose from, and only one chain survives, does Krispy Kreme have a chance in Japan?

It depends.

Krispy Kreme must begin by getting people to try the product. In Japan this is often achieved by generating early buzz. Not every brand can do this, but Krispy Kreme has a several things on its side. First, core to the Krispy Kreme proposition is their custom of for preparing products in full view of customers and offering them up fresh several times daily. The Japanese greatly admire freshness and craftsmanship—and these aspects alone—if properly leveraged, can spur trial and cultivate loyalty. Moreover, the brand has an interesting heritage—which appeals to both the press and the general public. If the company's marketers use the brand history effectively, they'll create an even greater frenzy.

On the other hand, getting consumers to try the product is only the first hurdle. If Krispy Kreme fails in any of the following, no amount of press buzz will help.

Krispy Kreme must:

- Secure optimal locations
- Offer a selection of products that appeals to Japanese tastes while keeping production costs under control
- Continually introduce new items to prevent consumer-side boredom
- Create an appealing in-store atmosphere
- Excel in product and service quality
- Invest heavily in advertising and PR

We'll have to wait and see how the brand chooses to execute. If Krispy Kreme puts together a competent team and get their 4P's right, they might be able to get the brand off to a good start. But by the time they've reached critical mass, the LOHAS and health booms that are gripping Japan's food opinion leaders today may have penetrated to the masses—and doughnuts—may in the end, go the way of the Dodo.

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