Turnaround in Japan's apparel imports

From Price Conscious to Quality Conscious

For apparel imports to Japan, a shift has begun from a vigorously pushing the pursuit of volume and low price in the past to one of quality and value. The competition in overall apparel imports has begun to show a change from competition for price to competition for value.

Apparel Imports

Decreasing

The pursuit of volume and low price has begun to give way to the pursuit of quality and value. It is a logical conclusion that apparel imports to Japan in 2002 directly represented consumer's preferences shifting from the low price-oriented position to the value-oriented one.

Because of changes in consumers to the pursuit of value, as well as the stagnant market condition, the volume of Japan's apparel imports in 2002 sank below the preceding year. In the ensuing present situation without any encouraging signs in Japanese domestic business, it is highly likely that apparel imports in 2003 will also remain flat or fall slightly below the year-ago level. Its contributing factors are: (1) the completion of the first stage of shifting to overseas production; (2) changes in consumers fed up with low-priced products; and (3) signs of a shift to competition for value above the mere competition for price.

Priority on sensuousness rather than on prices also characterizes retail sales. Most probably, the industry is experiencing a fatigue arising from long-continued requirements for lower prices. Naturally enough, retailers are also working as hard as they could not to repeat the same items every year. The development of materials for value adding will become increasingly important in the future. Merchandising, which has returned to the basics, will also determine the results in the future.

Shift to Overseas

Production

Approaching Turning

Point

Shifting production overseas has definitely approached the end of the current stage. Overseas production, which has advanced during the past 5-10 years, particularly a shift of production to China, is finally approaching a turning point.

Under the pressure of Japan's deflationary economy, falling unit prices have been remarkable every year during the past three years. To satisfy the requirements for lower prices, retailers have reduced their selling prices. As a result of falling margin rates, apparel manufacturers and trading firms have shifted production overseas in order to cope with this situation. Apparel imports have formed their trend on this vicious cycle of moves. But it now appears that the tide has begun to turn.

The volume of apparel imports in the January-October 2002 period fell by 6% from the preceding year. On a single month basis, these imports continued to dip until October 2002 for eight consecutive months. Looking backward, it is clear that made-ups exerted an overwhelming influence of flood-- like imports until eventually apparel imports exceeded 3 billion units in 2000.

Among typical import items with large volumes, annual imports of sweaters and cardigans continued to keep the levels of slightly less than 0.5 billion units. However, they are estimated to have fallen by 5% in 2002 from the same period of the preceding year. T-shirts, a typical commodity item, began to sag as early as in 2000. Its imports are estimated to have dropped by nearly 20% in 2002. Imports of men's suits increased by more than 30% in 2000 and again 2001. Their growth rate, however, slowed down in 2002 to nearly 15%. (Fig.)

Response to

Individuality

For the past two or three years, unit prices of imported men's suits continued to fall, while increasing the import volume at a rapid pace. Such items, however, have reached a brief pause. This fact suggests that consumers have begun to become weary of cheap sales. This trend is easily understandable from the emerging two-price suit stores as well as increasing personal responsiveness by pattern orders and easy orders under the environment of stagnant men's wear business. Some apparel-related people have pointed out: "Suits are now sold at a unit price of less than 10,000 yen by mass merchandisers. Low prices of casual wear have sparked repercussions in suits. But, we absolutely refused to call this a successful case of suit business." Firms which filed for the application of the Civil Rehabilitation Law are in the process of coming back to the market by shifting their business status to booking pattern orders or easy orders only. We cannot overlook these moves as well.

Even trading firms burdened with the background function for retail firms and apparel firms have found that the supply of good products made from characteristic materials rather than prices has become increasingly imperative. Such requirements were the same whether the final channel is mass merchandisers, department stores or specialty stores. To achieve reasonable prices, retailers had intensified their direct buying from overseas sources, but, now, they have begun to purchase directly from domestic sources as well in order to deal with value-oriented consumers. This kind of rebound faithfully reflects a radical difference from the old days when consumers reacted to prices sensitively.

There is a belief that the import volume dropped as a result of the worsened domestic market in Japan after a shift to overseas production advanced at an accelerating pace. Now, there is a lot of re-thinking that eventually products consumers wanted so much were not made available to them. In the fall/winter 2002-03 season, down wear sold like hot cakes, because of a favorable fashion factor. Fleece wear was favorable as well. As for fleece wear, products in the price zone of one or two higher ranks were better selling items than cheap products. So the sluggishness in consumption is not necessarily responsible for the decline in import volume. A thorough understanding of "market-in" concepts should create a potential demand. This would show a real turning point in apparel imports.

Change to

Competition for Value

Trading firms acting as an intermediary in supplying apparel have worked hard to offer to sellers satisfactory materials at more reasonable prices in both price and value aspects. Nevertheless, their accumulated efforts at cost reduction through OEM (original equipment manufacturer) deals eventually arrived at a point that an efficient physical distribution is the only way to further sharpen costs. Requirements for lower prices have forced all these things. Even so, if the products do not sell at the retail level, there is no choice for stores but to find a way to become value-- oriented. In the future, the development and procurement of materials capable of coping with this situation will become increasingly critical.

In 2002, signs of change were noticeable in apparel imports because a revised tax reduction system for re-imported products after overseas processing on a commission basis came into effect in April 2002. Between trading firms, there are frequently increasing cases of using materials for shipment back to Japan after processing for sweaters in the better zone, for example. One customer has disclosed its stance toward increasing this kind of operation to differentiate itself from others by saying, "At this point, we are not fully taking advantage of the merits of this revised tax reduction system." A trading firm has decided to organize a new division involved exclusively in the development of materials to intensify the digging-up of good-quality materials domestically and abroad. Measures to deal with the final stronghold, an efficient physical distribution in the competition for cost reduction, are presently in the process of being boiled down. The competition being carried on in overall apparel imports has changed the appearance of competition for price to competition for value.

Trading firms involved with many apparel imports face both winds, favorable and unfavorable. Particularly, as for products with many of commodity items in the volume zone such as underwear, dress shirts and suits, the wind is against trading firms because of a direct connection between apparel manufacturers and apparel firms, leaving trading firms behind. In this particular arena, trading firms and apparel firms are certainly competing against each other.

In contrast, department stores and specialty store-affiliated apparel firms have increasingly intensified their dependency upon trading firms for manufacturing because they want to concentrate on planning and sales. Now these firms can depend on imports without anxiety in the quality aspect partly because of the improvement in the technological standards and the QR (quick response) in China.

At the apparel level, major general apparel firms offering new brands have entered the market and gained market acceptance in sportswear and children's wear sectors. There are no longer any traditional industrial barriers between "specialty" and "general" and the industry has plunged into an age of mega competition.