Established through a merger of Nippon Steel Trading Corporation’s textile business and Mitsui Bussan I-Fashion Ltd, MN Inter-Fashion is a company that has taken strengths from both of its founding businesses to develop a wide range of solutions and products across manufacturing and retail, including high-performance garments, home linens and textiles.
It is our view that Japan is at a very exciting time for manufacturing. On one hand, we have had major supply chain disruptions in the last three years, caused by the COVID-19 pandemic as well as tension from the China-US decoupling situation. As a result, we are seeing many multinational groups try to diversify their supply chains with a focus on reliability. This is where Japan can enter; a country known for decades of high reliability, trustworthiness, and short lead times when it comes to production. Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of this macroeconomic environment. Do you agree with this premise, and why or why not?
From our company’s point of view, we do have an overall positive view, however, in terms of the weak JPY it depends on how you look at it. For investors, Japan presents a prime market for the acquisition of corporations, real estate properties, and business ventures. From an investment perspective, the potential in Japan is amplified due to concerns associated with the Chinese market. Numerous investors perceive Japan as an alternative to mitigate the uncertainties tied to China, leading to a current inclination towards Japanese assets.
As you might know, the Japanese stock market is quite unique since it’s supported by the government. The investors I talked about feel that it is a stable enough market to invest internationally. There is no fear of sudden collapse, so they see it as a reliable market right now. But, when you look at the global supply chain, the tendency for the past 10-20 years has been to concentrate on certain regions. I believe that the past few years have proven that there is a huge risk in concentrating supply chains in only one region. A lot of companies have now realized that it is more important to diversify their supply chain, so they are going ahead with this diversification, something that our company has always been doing. We have branches in different regions, but we feel that this new trend is an opportunity for us to leverage.
With the weak JPY, there is a lot of volatility. We do have imports and exports, but the JPY has been around 120 to the dollar for a while now. In fact in the 1990s and 2000s it was around 140 to the dollar. We try to strengthen our export and import business depending on the situation; however, our costs don’t change because we do both businesses.
It is known that fashion and textiles have some of the longest supply chains in the world. The raw materials are harvested and it moves through the supply chain until clothes reach stores. In recent years fast fashion has revolutionized how the market is run, and while this is great for consumers, it has a huge environmental burden. How does your company minimize the ecological impact of having such a long supply chain?
Mass production and mass consumption has been a very typical model in the past few years, and this type of model is supported when the economy is good and growing. However, now that the economy is a little sluggish everyone is quite aware of the environmental damage that model has had. This is something that we in the textile industry need to be very mindful of and we need to think about how to minimize our impact on the economy. It is of paramount importance for our enterprise; however, it is a matter of concern for entities across all sectors. Regrettably, the media has disproportionately focused on the textile sector, inadvertently casting it as a representative of the challenges faced by other industries. It is crucial to understand the foundational priorities underpinning our garment manufacturing processes. Foremost among these is the principle of protection. Unlike certain fauna, humans possess limited inherent protective capabilities, necessitating the protective role of clothing. Furthermore, the cultural significance and emotional satisfaction derived from attire cannot be understated. These core tenets consistently guide us as we address environmental concerns.
When we develop materials we try to develop sustainable ones such as recyclable materials that are derived from ocean waste. Those kinds of materials that decompose and degrade are much better for the environment. We also place a lot of importance on traceability, so we feel it is important to be able to track what comes from where, and where it goes. Rather than mass producing a bunch of stuff and crunching it out wherever, we value monozukuri, therefore we only want to produce what is necessary and fits the market. Certainly, such an approach incurs increased expenditures, particularly given our role as both an ODM and OEM. Nonetheless, upon identifying substantial potential, our corporation is poised to capitalize on these opportunities. Should they align with our organizational values, we are inclined to invest.
You talked there about traceability, which is something that is highly demanded especially in Europe. You also mentioned in your answer the development of functional materials. These are two big trends in the supply chain, along with the diversification of suppliers, something your company has always pursued. Your company sits in a very interesting position because, on the one hand, you act as a trader for functional textiles and materials that you trade or develop. On the other hand, you have your manufacturing capabilities as an OEM and ODM company. With the three big trends of traceability, sustainability, and diversification, how do you think your business will evolve in the next five years? What will be the big differences between what your business is today, and what it will be like in 2028?
As you know, the supply chain model has collapsed, and we are now in the process of building it back up again. We are in a new era where we must combine different players and we believe that our company is in a very unique position because we oversee material production for fashion brands. Essentially, we have a bird’s eye view of the industry, and it means we can see what should be combined and what innovation is needed. We can analyze what combinations and collaborations might work out well and where new value can be created. The firm identifies with its role as a comprehensive engineering supply chain innovator. Owing to this distinction, it is imperative to recognize our unique positioning within the industry. Currently, we demonstrate adeptness in addressing diverse requirements across various sectors. However, I posit that we can elevate our role, orchestrating industry-wide transformations and transitioning towards a more consultative capacity.
I don’t think this kind of functionality is sought after by big mature companies and I don’t think there is too much benefit for them using our firm in a consultancy role. However, I think we could be very useful to more niche companies that have huge future potential but maybe don’t understand the supply chain very well or don’t have enough funds to grow their business. Here we could play an important role and accelerate our growth within Japan and overseas.
MN Inter-Fashion is a young company, only launching in 2022, however, you did integrate the textile divisions of NIPPON STEEL TRADING CORPORATION (hereinafter referred to as NST for abbreviation) and Mitsui Bussan I-Fashion. Why did you think it was necessary to merge these two business divisions and what are the advantages you can pull from having a background from both NST and Mitsui Bussan I-Fashion (hereinafter referred to as MIF for abbreviation)?
We first wanted to integrate because the business environment has shifted especially in Japan, but also overseas as well. There has been a huge change in the business environment for us culturally and digitally, and there is a power shift among consumers. In Japan the population is dwindling, meaning the market is shrinking. Our predecessors had been considering what to do with regards to growing sustainably and in particular MIF faced a challenge in terms of what scale. They faced a crisis of sorts in the face of the changing business environment. The key questions became, how to tackle these new challenges, and how to proceed with their current business best efficiently. The question then became whether to do it on their own or not, and they concluded a business alliance. It fits both MIF and NST because they both operate in very similar sectors and have very similar relationships. Before an integration was done with the textile divisions a merger happened with their steel divisions. Textiles then became a natural progression.
Of course, since then there have been lots of challenges. Both Mitsui and Nippon Steel were both looking overseas in terms of expansion. I think this was a key component behind the decision to integrate and merge the divisions.
Prior to the merger, Mitsui Bussan I-Fashion occupied a median position within the textile industry's industrial scale. Following the transition, MN Inter-Fashion has ascended to the premier position within Japan, particularly in the domains of OEM and ODM. Our significant scale underscores our unparalleled reliability, engendering confidence among prospective business partners. This expanded magnitude also affords us the latitude to assume greater risks, enabling enhanced investment capabilities and exploration of novel business models.
You mentioned one of the trends in the market was a shift in consumer spending. It is true that since COVID we’ve seen very big trends that marketers are increasingly trying to respond to. One is digitalization, and brands are adopting e-commerce channels or digital stores. One of the impacts this is having is the relationship that consumers have with a brand, therefore we see brands try and redefine the relationships that they can create with consumers. Part of your business is your branding business, where you develop your products. How do you think this changing landscape will affect the future relationships between brands and consumers? What steps is your company taking to accommodate this new landscape?
Our core business is B2B but with the consumer power shift, we have now been challenged to understand the consumers more and get a better reading of what exactly they want. We have recently initiated our B2C operations. In alignment with this strategy, we have cultivated our proprietary brand and commenced its online sales. Of course, this B2C business is not meant to replace our B2B business, instead, it is meant to fortify, strengthen, and support our B2B. It is a way for us to understand consumer demand and it has had a great impact on our B2B businesses. Now we can actually have a direct feel for what customers want and what their demand is for day-to-day. This can be the colors they like to the type of clothing they like. From our B2C businesses, we have been able to expand our conversations with customers and communicate better in terms of our B2B dealings.
With e-commerce, there are a lot of different issues such as fittings when you buy online. We established a company in 2019 to streamline the sample creation process from apparel planning to production, utilizing digital technology to create 3D samples. We are currently exploring a partnership with another company to address the challenge of not being able to try on clothes when shopping online, using our company's technology and services. A lot of companies are looking to 3D sampling to create catalogs in 3D, and this is something we are also looking to do in order to connect better with our consumers.
Amidst these advancements, we have fostered collaborations across diverse sectors, specifically with the telecommunication industry, notably SoftBank, in addition to engagements with a gaming entity and an NFT initiative. While e-commerce may not have rendered substantial direct advantages, the peripheral evolution of our B2C ventures has enhanced our responsiveness and cultivated a more comprehensive comprehension of both our clientele and the industry at large. Armed with this new information we have been able to provide better proposals and been able to shift the role we fill. As a trader, our most important role is to resolve our client’s problems from a business perspective, and this is quite challenging to do. Things like the export of raw materials are part of what we call our One-Dimensional operation, but that is not enough to solve all of our client’s problems. In order to tackle those problems we have to operate more Second-Dimensionally, which might be transferring that raw material to spinning yarns. Finally, we can move on to our Third-Dimension operation which is actually manufacturing clothing.
The subsequent consideration is fashion, which, within our sector, is often equated to time, thereby serving as a metaphorical fourth dimension. Our operations have consistently adapted to the exigencies of the prevailing era. I postulate that digitalization could emerge as the quintessential fifth dimension. This naturally prompts one to ponder, "What might the sixth dimension encompass?" It is imperative to discern the requirements of the current epoch and address the ensuing challenges.
Your company at your core is a B2B business and you recently expanded into B2C as you explained. One of the big differences you see between these two is the sales channels you employ, whether that is business-to-business or directly to consumers. Historically the main sales channel for fashion brands has been brick-and-mortar stores. With the rise of e-commerce, we don’t really know what is going to happen to stores as these technologies become better. What do you think retail stores will look like in twenty years' time?
A long time ago there was only brick-and-mortar but now we have a choice between those kinds of stores and many other options such as e-commerce. None of these options are a complete replacement for brick-and-mortar locations, however, when you think about the positives there are obviously fewer stores now that are overstocked with products. This used to be a common issue with retail locations; they would carry too much stock which cuts into their business. Now, with more streamlined channels, they possess an additional distribution avenue, facilitating simpler adjustments. A business that understands that well will do well and will succeed.
Our observation during COVID revealed that relying solely on e-commerce is not sustainable. Consumers tend to purchase familiar products online but are hesitant to buy items they are unfamiliar with. Right now because the COVID restrictions are lifted everyone is shopping in real life again and brick-and-mortar sales are increasing, but at the same time, e-commerce sales are decreasing. For e-commerce to strive, what is important is to have an actual brick-and-mortar store where customers can actually experience the brand. This creates brand awareness and then customers are likely to look for those products online when shopping through e-commerce channels. What happened during COVID-19, especially in the US, is that companies opened their own B2C businesses and now they are seeking to buy retail locations because they understand with the way the world is changing they need to shift back to selling in person more.
Our company doesn’t necessarily feel that brick-and-mortar stores and e-commerce are in direct competition, rather they complement each other, giving customers better ease of accessing brand experiences. In my opinion, within the next ten years, 60% of sales will be done through brick-and-mortar operations.
Your company has 11 overseas subsidiaries with a lot of them located around Asia where you have a series of factories in places like Vietnam or Myanmar. You even have a subsidiary in Italy called Alcantara. Could you run us through your international strategy and what are some of the key markets that you wish to expand and grow into?
Before NST & MIF's goals were to stretch the entire market. By that I mean the product range but also the market as a whole. They didn’t have huge exposure to overseas markets as individual companies but they understood that sales to overseas markets and overseas expansion were a key aspect of overall growth. One of the main purposes of the merger was to expand overseas.
Right now our overseas operations are focused on supplying to Japan so that is how we lay out our branches, however, from now on we also have to look at how we can sell overseas. A primary market under our consideration is Asia, encompassing China. Reflecting on historical data, in 1994, Japan's economic contribution to the global market stood at 18%. It has since reduced to 4%. However, evaluating Asia in its entirety, the contribution is a significant 20%, and this figure doesn't even account for China, a substantial market on its own. Given these metrics, it's evident why we perceive Asia as pivotal to our global market strategy. With many asserting that the 21st century belongs to Asia, it is imperative for us to further our expansion efforts in this region. In the industry of apparel and clothing, having new ideas is very important, so in terms of having more exposure to those ideas we are looking at Europe, which we consider an extremely important market to strengthen our business. Of course, the US is a huge market as well, but we feel that in that market we can’t be reckless as that will lead to stumbling and hurting ourselves. There we are looking to find a reliable partner to build a strong alliance with, so the priority in the US is to find that kind of partner.
When you look at what we are doing business-wise in the global market, we are trying to put a focus on functional materials and uniforms. By that I mean clothing such as workwear, medical uniforms, and other uniforms that are quite common in the global market.
Imagine that we come back in five years’ time and have this interview all over again. What goals or dreams would you like to achieve by the time we come back for that new interview?
My goal is to have all of our employees be proud of the work they do to support each branch and the company as a whole. I want to establish a proper HR system to provide them with enough opportunities to have integrity in their work. I hope that by the time you come back to interview us again, this will be fully operational.
Additionally, and this is just my personal view, in five years I wish to have completed an initial public offering (IPO). Also, I’m hoping that our business portfolio will change. When you look at our focus right now, we are very strong in certain areas, but in terms of the overall textile industry, I think there are some parts missing that we could contribute to. Maybe five years is not enough but the sooner the better.