Japanese Retail Industry in Southeast Asia - What you need to know about evolvement of Japanese Retail sector
Japanese Retail’s Early Romance with Southeast Asia
On opening day and several days after, snaking queues formed as hordes rushed to get their first taste of a novel shopping experience. Until Japanese department store Yaohan came along in 1974, Singaporeans had never had a one-stop shop that offered supermarket, shopping and takeaway snacks under one roof. By the first week, almost one million shoppers had walked through Yaohan’s doors, a phenomenal feat considering that the population of Singapore then was only about 2.2 million.
Yaohan’s bakery, the first ever to open in a department store, had a window that gave shoppers tantalising views of bakers making fresh an pan or Japanese bread filled with sweet red bean paste. Crowds would form to both admire the artistry and snap up the plumb, glossy buns dotted with white sesame seeds. There were few shopping malls along Orchard Road then and, as anchor tenant of Plaza Singapura, Yaohan revolutionalised shopping in Singapore. Its immense success also marked the beginning of the Japanese retail wave in Southeast Asia.
Early Japanese retailers in Southeast Asia
The 1970s heralded the beginning of the Japanese retail influx into Asia, with department stores leading the charge. After Yaohan’s foray into Singapore which spawned several branches, it moved to the rest of Asia – Hong Kong in 1984, Malaysia in 1987, Thailand in 1992 and Macau in 1992.
Yaohan may have marked the start of the bountiful years for Japanese retailers in Southeast Asia, but it was not the first to test the waters in this part of the world. Daimaru, a department chain store that traces it roots to 18th century Nagoya, set up shop in Bangkok in 1964 because of an invitation from the Thai King. By 1983, it had opened a store in Singapore. Another early adopter was Isetan which came to Singapore in 1972. It would be nearly two decades before Isetan started up in Kuala Lumpur (1990) and Bangkok (1992).
The 1980s saw some variation in the type of Japanese retailers that came to Southeast Asia. There were still the department stores like Tokyu entering Bangkok in 1985 and then Singapore two years later. In 1986, another department store SOGO made its way to Singapore then spent the 1990s expanding into Indonesia, Malaysia and Thailand. But the decade also saw hypermarket JUSCO (Japan United Stores Company), now renamed AEON, launching in Malaysia and Thailand as well as other parts of Asia like Hong Kong and China. In 1983, bookstore Kinokuniya began operations in Singapore and by the 1990s, its flagship store in Singapore was the largest bookstore in Southeast Asia.
By the 1990s, Takashimaya joined in the fray with a store at Singapore’s Ngee Ann City, one of the country’s largest malls. Since then, Takashimaya has set up other Southeast Asian stores in Vietnam and Thailand but Takashimaya’s Singapore outlet remains its most profitable by far.
Why Japan came to Southeast Asia from the 70s
Before the 1970s, Japanese retailers kept mostly to their home base. Restrictions on investments abroad made moving capital outside of the country prohibitive. More importantly, the 1950s and 1960s were post-war recovery years for Japan. Local consumption was rising and retailers were too busy serving the domestic market to consider going overseas.
When capital liberalisation took place in the early 70s, retailers took tentative steps to venture outside Japan. But Asia was not on their itinerary. Instead, established companies like Mitsukoshi, Takashimaya, Daimaru and Isetan chose Europe and America as their destinations. But they were not able to compete in the mass market of the industrialised countries.
From their few early investments in Southeast Asia, they soon discovered that they were better off serving the niche market of overseas Japanese communities and the growing number of Japanese tourists in the region. That and the optimism that resulted from Japan’s recovery of the 1973 oil crisis gave retailers the impetus to explore the region.
In the 80s, several factors worked together to encourage Japanese retailers to tap the Asian market. Southeast Asia was prospering and there were more middle and upper-middle class shoppers. The strengthening yen lowered the cost of doing business in the region, making investments in Southeast Asia more attractive even as the region welcomed the Japanese with more relaxed entry rules. On the home front, a second oil crisis slowed down consumer demand. The enactment of the Large Scale Retail Stores Law to protect small retailers meant that larger companies faced greater barriers opening new stores in Japan. Going beyond the country’s shores seemed the best option for Japan’s retailers.
Why the early Japanese retailers succeeded
1. A total experience
Japanese retailers gave Southeast Asian shoppers a total shopping experience like they had never enjoyed before. Yaohan Singapore, for example, lived up to its reputation for being a one-stop shopping centre. Apart from a wide variety of products that spanned clothes and food, it offered laundry and shoe-repair services, It also provided an in-store play centre for children with trained child-minders so parents could shop unencumbered knowing their little ones were well taken care of and entertained. It became the first store in Singapore to have night banking services and cashless payment service as well.
2. Impeccable service
Japanese retailers introduced a level of service to Southeast Asia that was unparalleled. At a time when staff training was almost unheard of, Yaohan Singapore put its staff through a course dedicated to Japanese etiquette and customer service. Till today, shoppers remember the polite voice over the PA system that greeted customers and thanked them for shopping at Yaohan Orchard.
3. Presentation of goods
Japanese products are known for their expert packaging and presentation. Japanese retailers gave the region not only a stylish ambience that was a marked contrast to the bazaar-like shopping experiences offered by local retailers, they also taught local retailers the importance of displaying products in special groups to attract customers.
Then came the fall
From the late 1990s, the fortunes of the Japanese retail giants began to tumble, ushering in an era of decline and stagnation that would last nearly two decades. Yaohan shuttered all its stores in 1997. Daimaru closed down its Singapore operation in 2003 due to falling profits. Tokyu no longer has a presence in Singapore or Thailand. SOGO exited Singapore in 2000. All of JUSCO stores in Thailand have closed down except two in Bangkok.
Lessons for Japanese retailers today
1. Keep up with the competition
In the 1990s, Japanese retailers began to face fierce competition in the region as more retailers both local and Japanese came on the scene. In Singapore, Takashimaya entered the retail market, selling a lifestyle concept rather than merchandise that quickly diverted Yaohan’s shoppers to its stores.
2. Stay fresh
Japanese retailers’ fresh approach of providing a complete shopping experience was easily mimicked by other retailers. That made them lose their distinctive edge over their competitors.
Takashimaya bucked the trend by being adaptable. Instead of selling only apparel, something that has less demand for a country like Singapore where the tropical temperatures make layering of clothing unnecessary, it added a wider range of products to complement the clothes – bags, shoes, accessories and undergarments.
3. Manage finances
As Southeast Asia became more industrialised, its economies prospered. This strengthened their currencies against the yen, causing operating costs to rise. Yaohan fell victim to this in a most spectacular manner. Because it did not construct its own shopping malls, it was particularly vulnerable to rising rental prices.
The initial wave of Japanese retailers may have ebbed, but they have whetted the appetite of the Asian shopper for Japanese products and a Japanese shopping experience, and this has paved the way for the new wave of retailers now hitting Asia’s shores.
Top 5 Reasons Southeast Asia is an Attractive Destination for Japanese Retailers
The Japanese shopping experience is back in Southeast Asia. After an almost mass exodus in the 1990s, retailers from the Land of the Rising Sun are returning to the region.
AEON , a mainstay in Malaysia for over three decades, has expanded into Vietnam, Cambodia and Indonesia. Takashimaya which already has a presence in Singapore, Vietnam and Thailand hopes to open stores in Malaysia, Indonesia and the Philippines.
New entrants have made their way to the region as well. Japanese retailer and fashion mall operator LUMINE began its Southeast Asian campaign with a store in Singapore in 2017. Discount store Don Quijote made its debut in the Republic in the same year and in Thailand in 2019. Both have made clear their plans to take on the rest of Southeast Asia. Adding to the mix are casual clothing chain UNIQLO and lifestyle brand MUJI amongst many others.
In a Nikkei survey, 1 in 5 companies that wanted to expand overseas had its eye on Southeast Asia, particularly Thailand, Singapore, the Philippines, Vietnam and Indonesia. Southeast Asia is back in favour with Japanese retailers and here are the reasons why.
1. Large market
Southeast Asia has over 600 million people. This presents a tantalising market to any business. Indonesia alone has a population of some 240 million which is almost double that of Japan, prompting AEON to open its first outlet there in 2015.
What makes the region’s large population even more attractive is the fact that Japan’s domestic market is stagnating. Its society is ageing and shrinking, drastically reducing the consumer pool. Meanwhile, more than half of Southeast Asia’s population is under 30. Young, tech-savvy and willing to try new things, they are a potential market that can be tapped on.
The Japanese customers’ penchant for online shopping has also severely affected department stores in Japan. In 2017, a Mizuho Bank Ltd report estimated that total domestic sales of Japanese department stores would slide to ¥5.3 trillion by 2022, down from ¥5.9 trillion in 2018. Going overseas presents an opportunity for growth the local market with its weak GDP growth rates cannot provide.
2. Rising incomes
Southeast Asia is enjoying rising wealth. Per capita GDP across ASEAN is forecast to rise by threefold to more than US$9,000 by 2030. This may seem modest compared to what industrialised nations like the US and UK enjoy, but the increase means the number of middle-class consumers in the region is set to grow. According to consulting firm McKinsey, the number of middle-class households will double by 2025 to reach 120 million.
This newly rich will have greater buying power. Experts note that once per capita GDP crosses US$3,000, people begin to buy cars and consumer electronics. This trend is bearing out in Indonesia and another reason why AEON moved into the country.
Not only are Japanese retailers going to where the money is in terms of countries, they are also going to where the money is in terms of areas in a country. In Vietnam, although the per capita GDP is less than US$2,000, the per capita GDP of Ho Chi Minh City itself is nearly thrice that, which is why Takashimaya opened a store there.
When Tokyu opened a store in Bangkok after several years of absence, it chose the Thai suburbs because the area had an average annual household income 2.7 times that of Bangkok as a whole.
3. Welcoming of Japan
Compared to China with over a billion potential shoppers, Southeast Asia’s over 600 million does not seem as attractive, which was why Japan gravitated towards the former in the beginning. But rising wages, a bearish Chinese economy and deteriorating relations with the country since the Senkaku Islands dispute in 2012 have since made China less appealing. According to survey results compiled by Teikoku Databank on Japanese companies in China, over 1,000 firms exited the country within less than three years, leaving just 13,256 companies by May 2015.
In contrast, Southeast Asia welcomes Japan. Made in Japan products are often associated with quality, precision and sophistication. The region’s romance with the country, fuelled by the flood of Japanese culture thanks to J-drama and J-pop, has never abated.
Southeast Asia is also an easy place to do business. Singapore, for example, has a lower value-added tax (7%) than South Korea (10%), Australia (10%) and New Zealand (15%). This makes the country an attractive springboard from which to launch into the rest of Southeast Asia. That is why both Don Quijote and LUMINE chose the Republic as the first stop in their bid to break into Southeast Asia.
Japanese investments have, therefore, shifted to the region. According to the Japan External Trade Organization (JETRO), Japanese businesses invested about US$22.8 billion in Vietnam, the Philippines, Singapore, Thailand, Malaysia and Indonesia in 2013, double the amount the year before. In the same period, Japanese investments in China fell 18%.
4. Infrastructural support
Several countries in Southeast Asia, chief among them Singapore, offer infrastructural support that makes it easier for businesses to operate. The island nation has the best infrastructure in the world, beating more than 200 cities in consulting firm Mercer’s 2017 ranking. It is also politically stable and has a world class transport system, reliable electricity, top-notch education and excellent connectivity.
There are also high expectations of the region’s infrastructure development, particularly the Greater Mekong Sub-region (GMS) programme. Supported by the Asian Development Bank to connect Cambodia, Laos, Myanmar and Vietnam, all the North-South, East-West, and Southern economic corridors will be fully paved by 2020. A high-speed train will be opened as well to link Kunming to Singapore. This makes the region’s market more connected and accessible.
Even Myanmar, currently one of the lesser developed Southeast Asian countries, is set to improve. Its state-owned enterprise Myanmar Posts and Telecommunication launched its 4G/LTE mobile data service in 2017 and the country’s mobile penetration was nearly 90% by 2016. That is why AEON opened its first hypermarket in Myanmar in 2019.
5. Partnership potential
The emergence of local retailers in the 1990s posed serious competition to Japanese retailers in the region and was one the reasons why the earlier wave of retailers dropped out of Southeast Asia. The recent clutch of Japanese retailers flooding the region, however, has a different approach to these local companies. They are partnering them.
AEON began working with Indonesian ride-hailing start-up Go-Jek in digital payment and home delivery in 2018. This was so the retail store could gain a foothold in Indonesia’s online shopping business to add to its 1,300 shopping centers, general merchandise stores and convenience stores in Southeast Asia.
When MUJI opened its flagship store in Singapore in 2017, it carved a space called Open MUJI that encouraged collaborations between local designers and customers through exhibitions, talks and workshops on their products.
Takashimaya’s store in Bangkok is a joint venture with Thai developer Siam Piwat and conglomerate Charoen Pokphand Group. ICONSIAM bucks the trend of traditional department stores by offering a comprehensive shopping experience to draw shoppers. Alongside the usual shops, it has a museum and a whole section of Thai handicrafts and products.
In Singapore, Takashimaya’s partnership with shopping centre Ngee Ann City was one of the factors contributing to its success. It was able to work with tenants’ requests instead of competing with them, resulting in complementary offerings that benefited it.
Some countries in Southeast Asia also make excellent Asian bases from which to reach the wider regional market. Singapore is one of them. The nation with its diverse and cosmopolitan population is an ideal place for Japanese retailers to understand the region and test their products. Sinapore’s educated workforce provides valuable expertise and knowledge. Its fair legal system and resources also make it an excellent venue for dispute resolution.
Southeast Asia presents Japanese retailers with other opportunities for collaboration as well. ViSenze is a Singapore deep tech start-up that builds visual search and image recognition software for retail websites. The company is responsible for the technology behind some of Japan’s largest retail firms – UNIQLO Japan and Rakuten. It is the first to launch a search by image service with the two companies in Japan.
Japanese Retailers Return to Southeast Asia
Yaohan’s first overseas store in Singapore in 1974 marked the start of Japanese retailers’ sojourn into Southeast Asia. Throughout that decade and into the 80s and even 90s, store after Japanese store opened in the region with department stores, supermarkets and lifestyle stores taking the lead.
By the late 90s, however, the golden era began to lose its shine. Faced with competition from local retailers and mired in financial losses, many of these Japanese retailers retreated.
Today, Japan retail is flourishing in Southeast Asia once more. We look at the traditional sectors within retail that they have dominated – department stores, supermarkets and lifestyle stores – to see what has changed, what is new and what has remained the same.
Department Stores
Japanese department stores have centuries of history with origins that trace back to the 17th century. Little wonder then that the earliest retailers to venture into Southeast Asia were department stores. They remain the largest and most visible Japanese retailers in the region.
Isetan has had mixed success in the region. When it opened a store in Singapore in 1972, it was one the earliest Japanese retailers to set foot in the country. At its height, it had several branches in Singapore including in the country’s renowned shopping district Orchard Road. In 2013, it was even the anchor tenant of Westgate, CapitaMalls Asia’s lifestyle mall designed to offer city shopping in the suburbs.
But in 2015, Isetan closed down one of its Orchard Road stores at the Wisma Atria mall. In 2019, it revealed that its Westgate store was making losses and it would not renew its lease at the end of the year. Despite some major failures in Singapore, Isetan continues to have other overseas branches in Thailand, Malaysia and China.
Tokyu has struggled to make it in Southeast Asia. Its international debut took place in Bangkok in 1985. Two years later, it opened an outlet in Singapore. The store was the sole agent of Jim Thompson Thai silk products and boasted a Japanese coffee shop, the popular Café Saint Germain.
The stores did not survive the 90s, though. In 1993, its first Singapore outlet at Marina Square closed. In 1998, a second Singapore branch and its Bangkok store, just five years old, shut down as well.
Undaunted, Tokyu tried again in 2015, opening a store in Bangkok’s Paradise Park. It was a historical moment because it was the first Japanese department store to open in Thailand in about two decade. That endeavour did not last. In 2019, it closed, too.
There are, however, success stories and one of them is AEON. Beginning its foray abroad with a store in Malaysia in 1985 under the JUSCO name, this supermarket chain has since gone from strength to strength in the country. In 2012, AEON acquired all the Carrefour hypermarkets in Malaysia and there are now 33 AEON stores in the nation, making it the second largest retailer there.
Apart from Malaysia, AEON has other stores outside of Japan in Hong Kong, Taiwan, China, Thailand, and Indonesia. In recent times, its Indonesian stores have also started something new. In 2018, AEON partnered Indonesia’s ride-hailing start-up Go-Jek on digital payment and home delivery. AEON boasts some 1,300 stores in Southeast Asia alone. Together, they registered an operating profit of US$1.98 billion in 2017.
When most department stores exited Southeast Asia in the 1990s, Takashimaya stayed and thrived. Its Singapore branch is its most successful, earning more than US$27.2 million annually. Takashimaya also opened stores in Ho Chi Minh City and Bangkok along with it store in Shanghai. In 2019, it announced its intention to open stores in the Philippines, Malaysia and Indonesia.
Perhaps inspired by these, Japanese mall LUMINE has moved into Southeast Asia. Hoping to replicate its success in Japan, it opened a LUMINE in Singapore in 2017, its first international store. It followed this with a store in Indonesia the next year. Instead of a mega mall, LUMINE Singapore is branded as a concept store and sits within a shopping centre – Clarke Quay Central. The plan is to plug the gap for mid-priced Japanese fashion and introduce new labels such as Tomorrowland and Fray I.D.
Supermarkets
A distinction must be made between supermarkets run by Japanese companies and specialty Japanese supermarkets. The former are supermarkets owned by Japanese companies. To customers, they are like any other supermarkets, offering a range of products both local and international. The latter are branded as specifically Japanese in nature, with a strong emphasis on providing Japanese products not found in other supermarkets.
Southeast Asia has always had both. In Malaysia, for example, because of the success of AEON, Japanese-run supermarkets are quite the norm. In Singapore, affluence and an appetite for Japanese cuisine has given rise to specialty Japanese supermarkets. Isetan’s supermarket is one such example. It is the place local shoppers and Japanese expatriates can count on for uniquely Japanese products and produce. Meidi-Ya in Singapore is another specialty Japanese supermarket that has long been known for premium Japanese food, products and fresh food like seafood imported directly from Japan.
Perhaps the most noteworthy of such Japanese specialty stores is discount store Don Quijote. Famous for its chaotic aisles of all things Japanese, it opened its first Southeast Asian outlet in Singapore in 2017. The flagship shop in Orchard Road was ear-marked to be the company’s development centre for its expansion into the region. Today, it has six stores in the country and plans to add four more by 2020. With its array of Japanese snacks not found in other shops, and knick-knacks and curios, its stores have drawn long lines since day one.
Don Quijote has since moved to other Southeast Asian countries. In 2019, it opened a store in Bangkok. Another in Hong Kong is due in the same year. Stores in the Philippines, Malaysia and Taiwan are in the pipeline. In the next five years, another 150 or so stores outside of Japan are expected to be opened to bring the number to 200.
Not all specialty supermarkets offering uniquely Japanese food and products are set up by retailers from Japan. Singapore has a significant number of Japanese specialty supermarkets that import Japanese goods for sale but do not have parent companies in Japan. Kuriya Japanese Market known for its fresh seafood is one such example. There are also Iroha Mart and ShiokJapan which sells Japanese snacks, Nippon-Ya which specialises in Japanese sweet treats, Japanese restaurant-cum-supermarket Sakuraya Fish Mart and grocery store J-mart.
Lifestyle / Specialty Stores
While Japanese department stores and supermarkets were making headlines in the region with their highs and lows, lifestyle stores were quietly succeeding. Yamaha has been in Singapore since 1966. Synonymous with music lessons and musical instruments, it has grown generations of musicians in the country. Since then, Yamaha has opened up stores selling musical instruments, books and scores as well as offering music courses worldwide including Southeast Asian countries like Malaysia, Indonesia, Thailand and Vietnam.
Electronics store Best Denki has been in Singapore for so long that it is easy to forget that it is a Japanese store. Opened in 1982, its Singapore branch was the first outside of Japan. There are now 12 Best Denki stores in the Republic and even the ones in Malaysia and Indonesia are franchises and subsidiaries of the Singapore office.
The largest bookstore chain in Japan Kinokuniya has been in Singapore for over three decades. Elsewhere in the region, there are Kinokuniya bookstores in Malaysia, Thailand, Indonesia, Myanmar and Cambodia. At a time when going digital is the norm leading to the closure of major bookstores, the fact that Kinokuniya is still surviving is a testament to the brand’s popularity.
Eyewear retailer Paris Miki is another Japanese brand that has been in Singapore so long, many do not even realise it is from Japan. Singapore is the only Southeast Asian country the brand has stores in although it has over 1.200 stores in the world. There are nine Paris Miki outlets in Singapore.
Even new entrants are doing well. Japanese eyewear store Owndays came to Singapore only in 2013, the first of its overseas shops. It now has 28 shops in the country with branches into Australia, Asia and Southeast Asia – Thailand, the Philippines, Malaysia, Vietnam and Cambodia – as well. What has lent to its success is its unique formula of extensive product range, affordable prices and super-fast service. Most of its customers can collect their spectacles within 20 minutes. Traditional spectacles shops usually require days to deliver their product.
Pokemon Centre is the latest Japanese retailer to expand into the region. It opened its first overseas store in Singapore in 2019 and the lines have not stopped forming.
The region is so attractive that Japanese retailer Nojima, which began its Southeast Asian expansion with two stores in Cambodia, bought over Courts Asia in June 2019. Nojima has 850 stores in its home country. With the recent acquisition, it now has more than 80 stores in the region as well.
Japanese Retailers Introduce New Sectors to Southeast Asia
Uniqlo opened its largest store in Southeast Asia in Manila, Philippines. Don Don Donki chose Singapore for its foray into the region as did Muji. Tokyu Hands tested Malaysian waters by setting up a pop-up store in Kula Lumpur, Malaysia. Southeast Asia is once again a magnet for Japanese retailers keen to expand into the region.
This new wave of retailers, however, are specialising in areas different from their predecessors in the 70s and 80s. Instead of department stores and supermarkets, they are offering convenience, minimalist fashion and specialty snacks.
Convenience Stores
Japan has over 50,000 convenience stores. With an increasingly ageing population that may not always have access to department stores and a growing number of one-person households (almost 35% in 2015) with little need for anything more than basic groceries, convenience stores have grown in popularity. Naturally, the next group of retailers to attempt to make it mark abroad is convenience stores.
Asia is particularly welcoming of Japanese convenience stores because of their innovation, creative products and first-class service which stand in start contrast to standards in most of the countries.
The top three Japanese convenience stores are 7-Eleven, Lawson and FamilyMart. The one that has been most successful in Southeast Asia is 7-Eleven. It has the strongest presence in Thailand. With 11,000 stores, Thailand has the second largest number of convenience stores in the world after Japan. In 2017, 7-Eleven opened its first outlet in Vietnam’s Ho Chi Minh City. 7-Eleven’s expansion into Indonesia, however, has had less stellar results. In the same year, it closed all its 116 stores in the country due to stiff local competition.
FamilyMart has more than 1,000 stores in Thailand, the third largest number outside Japan, after Taiwan and China. FamilyMart has nearly 400 stores in Indonesia, Malaysia, Vietnam and the Philippines as well. It plans to open more in Vietnam because the country is expected to be the fastest-growing convenience store market in Asia by 2021, with a growth rate of over 37% according to international grocery research organisation IGD. The Philippines and Indonesia are second and third.
Lawson ventured into Indonesia in 2011. It now has stores in Thailand and the Philippines. There are plans to open 500 stores in the Philippines by 2020.
Fashion
While Japanese department stores, convenience stores and even supermarkets often bear a uniquely Japanese branding, Japanese fashion retailers are less distinctive though no less successful.
Perhaps the most outstanding is UNIQLO. The Japanese brand is the world’s third largest clothing retailer behind only Zara and H&M and its country’s top. Found in over 20 countries across Europe, the US and Asia, the company came to Southeast Asia in 2009, starting with Singapore.
The region is an important part of UNIQLO’s growth. It opened its largest store in Southeast Asia in the Philippines in 2018 and plans are afoot to double the number of stores in the region from 175 to 400 by 2022. This will triple its revenue from Southeast Asia. Moving further ahead in the region, UNIQLO intends to start more standalone stores like the one it opened in Bangkok in 2018. Such stores are designed to extend the brand’s reach beyond shopping malls and are part of the firm’s core domestic strategy.
MUJI which offers household products, furniture, consumer goods as well as clothing is the other latest Japanese fashion label familiar to the region although less than 10% of its over 500 stores worldwide are in Southeast Asia. What the region loves about this brand is its minimalist style that features in all its products.
Joining these fashion retailers are Japanese used clothes stores. Several – Komehyo, Treasure Factory and Geo Holdings – are eyeing the Philippines, Malaysia and China. Consumers there are keen to buy pre-owned quality Japanese brand products at bargain prices.
General Stores
Bargain stores are nothing new to Southeast Asia. Singapore saw a slew of them in the 90s, the most notable being local chain the One.99 Shop. The fad soon died away as did such shops until Daiso came along in 2002 and revived the country’s obsession with single-price budget stores. Everything at $2 – the nation snapped up the offer. There are now 16 Daiso stores in the country. Daiso has presence in several other Southeast Asia countries as well – Malaysia has eight Daiso stores, the Philippines has nearly 90 while Cambodia saw its first Daiso open in 2019. The region is big on Daiso’s expansion plans. It even has distribution centres in Malaysia and Thailand.
Since the resounding success of Daiso, other similar shops have followed, ushering in a new wave of Japanese retailers. If the 70s and 80s were the era of the Japanese department store, the 2000s is the era of the Japanese household and general goods store.
A good example of this is Tokyu Hands. While Tokyu department store may have faded from the region, its sister store Tokyu Hands, part of the same Tokyu Group, is forging ahead with its plans to grow in Southeast Asia. In 2014, the general store opened a branch in Singapore, its first in this part of Asia. There are now four Tokyu Hands shops in the nation.
Other household-cum-general goods stores include MINISO. This company has been mired in some controversy. With over 1,000 branches in China and only four in Japan, many have wondered if the company is indeed Japanese at all. Added to this is the fact that its name sounds like a poor imitation of Daiso and its logo seems like a replica of UNIQLO’s. The reality is that MINISO is a collaborative effort between a Japanese and a Chinese entrepreneur, and founded was in Japan. It is as Japanese as they come.
None of the queries about its origins has dampened MINISO’s expansion plans. There are 3,600 MINISO stores in 86 countries and regions. In Southeast Asia, MINISO shops can be found in Singapore, Malaysia, Indonesia, the Philippines and Vietnam. It intends to have 10,000 stores worldwide by 2022, including 200 in Indonesia, 300 in Singapore and 400 in the Philippines. This is no small ambition since the company was only launched in 2013.
Recent failures
The Southeast Asian market, while welcoming, is not always an easy one. Quite a few Japanese retailers can attest to this. Supermarket Seiyu’s Singapore stores were bought over by China’s Beijing Hualian Group (BHG) in 2005.
More recently, only three years after entering Singapore, fashion label Lowrys Farm closed all eight of its outlets in 2015. Japanese furniture store Francfranc pulled out of Singapore in 2014 after just two years.
Why Southeast Asia Loves Japanese Retail and How Japan Should Respond
Japanese cuisine, Japanese cosmetics, Japanese collectibles – Southeast Asia is lapping it all up. What started in the 1980s as a love of J-pop and J-drama has blossomed into a full-fledged romance. Such is the Kawaii craze that whenever McDonald’s in Singapore gives out Japanese cartoon Hello Kitty toys, maddeningly long queues would form. Police have even been known to be called to control the swelling crowds.
Southeast Asia’s love of all things Japanese has made it welcome the country’s retailers with open arms. But why does the region love Japanese things and what can retailers do to leverage this?
1. Early exposure
The first wave of Japanese retailers in Southeast Asia in the 1970s and 1980s rode in on the rising popularity of J-pop and J-drama. Since then, Japanese culture has continued to pave the way for its country’s retailers.
K-pop and K-drama may have overtaken Japanese entertainment in the region but other aspects of Japanese culture have not waned. The latest wave of Japanese retailers, gaining prominence since the 2000s, are finding traction with a generation that grew up on Japanese cartoons like Doraemon and Sailor Moon, and video games like Pokémon.
The early introduction to Japanese things has piqued interest and made it easier for these consumers to embrace Japanese retail.
2. Good quality
In the region, “Made in Japan” is synonymous with quality products that can be trusted. In fact, post-war Japan has built a reputation, in this part of the world, on offering innovation, sleek design and user-friendliness that last, particularly when it comes to electronic goods.
That is why Japanese consumer electronic products have sold so well in Asia. Even though prices have not exactly been low, customers have been willing to pay because Japanese means premium. From televisions to refrigerators, washing machines, air-conditioners, calculators, cameras, home entertainment systems and, later, game consoles and handphones, Japanese brands have dominated the region since the 1970s.
Admittedly, Japanese electronics have lost some of its shine, outstripped and outpaced by Korean and US brands like Samsung and Apple, respectively. But the goodwill garnered from years of delivering reliable products have extended to other Japanese goods as well. This has helped to open doors for other Japanese-made items to enter the Southeast Asian market.
In Indonesia, for example, 1 in 3 in major cities surveyed by the Japan External Trade Organization (JETRO) said they had recently bought Japanese products. In Vietnam, several Japanese supermarkets and convenience stores – AEON, Ministop, FamilyMart, Tokyo Deli, Gyu-Kaku and Osaka Ohsho – have sprung up with great speed in the last few years. The sale of vegetables at these supermarkets have grown more than 200% annually because they are considered safe and of better quality than local produce.
3. Innovation & novel
Japan is known for its innovation. This is the country that gave the world the Sony Walkman and PlayStation, VHS, Nintendo Wii, karaoke and robots. Japanese retailers have not disappointed. They can always be counted on to surprise, if not with innovative products, then with innovative experiences.
One of the reasons why Don Quijote has been so popular both at home and abroad is because the brand is creative and unique. Part supermarket, part discount store, part novelty shop, its chaotic, colourful, chock-a-block shopping experience defies convention.
Novelty was also the reason behind Yaohan’s success in the region in the 1970s and 1980s. Until the department store came along, Southeast Asia had not experienced one-stop shopping where childcare, banks and ready-to-eat foods are housed under one roof.
Today, MUJI is attempting to bring back that total shopping experience. Its outlet at Singapore’s Jewel Changi Airport which sells everything from stationery to clothes and footwear, health and beauty products, travel items, furniture, home appliances, bedding, dining and kitchen ware, and even snacks also has a café. Adding to all this is an interior design service that is available free of charge without any purchase required.
Such innovation resonates with the young consumers in Southeast Asia who are constantly looking for new experiences. Under 30s make up half of the more than 600 million in the region. Some countries have an even younger population. 60% of Vietnam is under 35.
How should Japanese retailers respond?
1. Localise & adapt
While it is true that the region welcomes Japanese retail, adapting to the local market is still necessary for long-term survival. Don Quijote’s store managers and staff are always studying customer habits so that it can understand and adapt to them.
In Singapore, for example, banking on Singaporean’s desire for a speciality store to satisfy their love of Japanese products, 80% of the store’s food products are Japanese classics such as sushi and donburi. Back home, these Japanese staples only make up 30% of the stores’ offerings. Noting also that Singapore does not observe eating of seasonal foods because it is a tropical country, the Don Quijote stores in the island-nation sell their highly popular baked sweet potatoes all year round even though it is traditionally only eaten during the cold months in Japan.
Japanese retailers entering Vietnam have done the same thing. According to the JETRO Office in Ho Chi Minh City, Japanese companies consider each step before bringing goods to Vietnam. Surveys are conducted to see which products should be sold and how to persuade the locals to buy them. The information gleaned has helped convenience stores like FamilyMart decide to enter Vietnam to fill the retail gap there.
2. Complete experience
With online shopping encroaching into the space traditionally dominated by brick-and-mortar stores, retailers have to re-think how they can draw consumers. In a survey by AsiaMalls Management which manages some malls in Singapore, millennials revealed that they prefer specialty stores while the older generation indicated they liked anchor tenants that provided something for everyone in the family. With such diverse needs, malls have to go beyond being a place to buy something to a place for community events and gatherings. LUMINE is taking a leaf from that book by offering craft workshops in its Singapore store.
3. Use social media & Internet
To extend the complete experience, retailers should tap on social media. Shoppers these days inhabit the digital world as much as they do the real one. When the shopping experience includes social media and the Internet, it brings the experience full circle and helps to draw customers to the physical stores. MUJI, for example, uses Facebook and Instagram as marketing platforms to keep shoppers informed of each product’s function as well as of campaigns and promotions.
4. Give reason to spend
The region’s shoppers already love Japanese products. Rising GDPs have allowed them to indulge that obsession by travelling to the Land of the Rising Sun. Every year, millions of Southeast Asian travellers go to Japan for a taste of Nippon’s treasures. In 2018, Thai tourists alone numbered over one million. Southeast Asia as a whole saw a sharp increase in visitors to Japan as well with Vietnam taking the lead.
When they cannot be in Japan, buying Japanese at home is their next option. All they need is a good reason to spend. Beyond high-end luxury items, there is an appetite for mid-priced, even budget ones. Japanese convenience stores in Vietnam understand this and have priced almost 90% of their products at less than US$1. This has helped the stores to attract the local crowd.
Future of Japanese Retail in Southeast Asia
As much as Southeast Asia loves Japanese retail, Japanese retail also needs the region. With China falling out of favour due to rising costs in the mainland and souring relations, this part of Asia has become more important to a Japan looking to develop overseas.
The numbers bear witness to this. According to the Japan External Trade Organization (JETRO), direct investment in the region by Japanese companies amounted to US$22 billion in 2017, a 100% increase from five years before. Overall, at least 58% of Japan’s FDI is in the four largest ASEAN economies, making Japan the largest source of foreign capital for Thailand and Indonesia and the second largest in the Philippines and Malaysia. In contrast, Japanese investment in China dropped by 30% in the same period to total just US$9.6 billion.
Moving forward, what are the things Japanese retailers looking to Southeast Asia can expect and what are the challenges they are likely to face?
What can Japanese retailers expect?
1. Strong relations
Since Prime Minister Shinzo Abe came to power in 2012, Japan-ASEAN relations have grown from strength to strength due, in no small part, to his strategy of using the region as a bulwark against China.
The feeling is mutual. In a survey conducted by Japan’s Ministry of Foreign Affairs in 2014, 96% of those in ASEAN felt it was important to have friendly relations with Japan. More than 90% believed that Japan played an active role in the development of the region. Japan also topped the poll as the country that was most reliable and most important as an ASEAN partner.
Such goodwill makes investing in the region much easier. One example of how good relations make for good business is the recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Enforced in December 2018, the agreement which includes Japan, Vietnam, Malaysia, Singapore and Brunei provides mutual trade and investment benefits to the members such as reduction of tariff and non-tariff trade barriers.
2. Growing market
Southeast Asia is a huge market that is growing in potential. Its over 600 million population is larger than the European Union and makes up 8.8% of the world’s population.
3. Increasing prosperity & spending
Not only is it large, it is increasing in spending power as well. ASEAN is the 6th largest economy in the world and OECD forecasts that growth will average 5.6% a year.
The region’s middle class will make up half or more of the global middle income by 2020. Total consumer spending will hit US$2 trillion by then as households with annual disposable incomes over US$10,000 rise to 63.9 million. By 2030, this growing Asian middle class will account for nearly 60% of global middle-class consumption, a 23% increase from 2009.
4. Singapore an ideal springboard
Southeast Asia is diverse. There are eight main languages and countless other dialects, at least 10 main religions, and ethnic groups that number in the hundreds. This makes the region that much harder to understand and penetrate, particularly for a homogeneous society like Japan.
Here is where Singapore comes in. The island-state is a diverse, cosmopolitan city that is a microcosm of Asia. It is also ASEAN’s most advanced, stable and wealthy nation. All these make it an ideal testbed for any business looking to grow in the region.
Singapore is also a wonderful place for work and play. In the World Bank Doing Business 2019 report which ranks 190 countries, the Republic came in second, unchanged from the 2017 ranking. Its location at the crossroad of Asia, pro-business practices, tax laws, flexible immigration policies, and highly educated and skilled workforce make it inviting to foreign businesses. The nation also came in second as the best destination for expatriates to live in according to HSBC’s Expat’s Annual League Table of Places to Live and Work 2019.
Japanese companies can continue to count on Singapore as a reliable base from which to launch their Southeast Asian expansions. Already, the city is Japan’s preferred destination for investments. In 2013, half of the US$120 billion Japanese investment was in Singapore.
5. Acquisition as a growth strategy
To make up for the almost two-decade long absence from the region, Japanese retailers can count on mergers and acquisition to catch up instead of building a business from scratch. This was the analysis of Japan Bank for International Cooperation (JBIC).
This was precisely the strategy of Japanese electronics retailer Nojima. It bought over Courts Asia in April 2019.
6. Omni-channel is the future
Omni-channel shopping experiences is what retail of the future will look like thanks to the rise of online sales. Even as early as 2014, Singapore ranked as top online shoppers in Southeast Asia in a Visa survey. In addition, a Google and Temasek Holdings forecast estimates that the Lion City’s e-commerce industry is likely to grow to S$7.5 billion by 2026. In the Asia- Pacific, between 2018 and 2020, 70% of retail growth came from online sales.
While shoppers do begin their retail experience online, brick-and-mortar stores will not be abandoned. In fact, a study by the Singapore Management University’s Institute of Service Excellence found that department store customers who shop at both physical and online stores are more satisfied, loyal and willing to spend compared to customers who shop only at physical stores.
Japanese retail will do well to take into account this total experience when moving into the region. They may have to overcome the inertia they exhibit at home where online presence of stores is woefully behind that of their international counterparts’. Creating digital platforms, using augmented reality (AR) and tech-enabled product personalisation to engage are the ways forward.
What challenges will Japanese retailers face?
1. Cost
As the economies of Southeast Asia grow, making it an attractive market, the cost of doing business in the region will also increase. In a 2016, JETRO survey on Japanese companies in Asia and Oceania, more than 70% of firms reported that wage increases and the quality of local employees were some of the major issues they faced.
Traditionally cost-competitive countries are fast losing their price edge. Indonesia saw a 17% increase in wages two years in a row. Vietnam had a wage growth of nearly 11%.
2. Difficulty hiring
Japanese companies also find it difficult to hire and retain local talents in Southeast Asia. Cultural differences working with a Japanese company and the general lack of local talents are some of the reasons for this.
3. Lack of infrastructure for now
Southeast Asia is developing but not often fast enough. While underdeveloped infrastructure in countries like Myanmar, Laos, Cambodia, Vietnam, Indonesia and the Philippines are potential for construction, infrastructure and finance firms, it is a major deterrent to retailers.
4. Poor governance
Poor corporate governance is another challenge. Corruption and fraud are serious risks. The magnitude and political blowback of the 1MDB scandal in Malaysia is a case in point.
5. Politics in flux
Southeast Asia is set for political change. The US-China trade war and war of words will impact the region. National elections in several countries are expected. Already, Thailand held its general election in March 2019. Indonesia went to the polls in April where presidential and general elections were held on the same day for the first time. The Philippines had their election in May. Malaysia may see a change of Prime Minister in three years.
Japanese retailers will have to navigate these changes and their impact on business.
6. Retail declining
Where Southeast Asia is the richest is where the threat to retail is the greatest. Once a shopper’s paradise, Singapore’s retail has been seeing a decline in recent years. Retail sales fell 10% year-on-year in February 2019 compared to 2018 to register at S$3.3 billion according to the Department of Statistics.
International brands like Carrefour, Gap and Banana Republic have already beaten a retreat from the city. This echoes the situation in Japan and around the world. Business Insider has already estimated that more than 7,100 stores globally are expected to close in 2019 in what has been dubbed a “retail apocalypse”.
