Insights from Shimamura's president on Japan's retail landscape, growth strategies, and sustainable initiatives.
Over the last 25-30 years, Japan has seen the rise of regional competitors who have replicated the Japanese model of success but done so at a much cheaper labor cost, pushing Japan out of certain mass markets. However, certain Japanese brands like Uniqlo and Muji have been successful overseas despite the competition. What are the advantages of Japanese retail brands and what are some of the added value that they bring to consumers?
Firstly, it is important to distinguish ourselves from the domestic market in order to gain a different perspective. When considering the domestic market, we cannot necessarily view it as highly competitive. While fast fashion brands like Uniqlo exist, we do not categorize them purely as competitors. In the past, when Shimamura was established, there were General Merchandise Stores (GMS) that featured a competitive aspect due to the sale of sensible clothes. However, we are currently striving to adopt different strategies to promote ourselves and move away from a purely competitive approach.
You may find it puzzling as to why we segregate ourselves, but the reason is that we do not perceive other companies as direct rivals. This is because we target different customer segments. Companies like Uniqlo have Muji have expanded overseas and found success in different markets. Customers who shop at those establishments appreciate their brands, and similarly, we have our own customer base. There are customers who specifically choose Shimamura for their own reasons, so we believe that we share the market with these competitors.
Japan is the oldest society in the world and it has a rapidly shrinking population. The obvious results of this situation are a shrinking labor pool as well as a shrinking domestic market. What have been some of the challenges this demographic shift has presented to Shimamura and how have you been reacting to it?
We acknowledge the significant challenge posed by the shrinking domestic market, which paints a discouraging picture for the apparel industry as a whole. Most of our Shimamura stores are situated in local areas and suburbs outside of major cities, and it is crucial for us to develop strategies that attract customers residing in these regions.
How do we approach this? Firstly, we recognize the importance of diversifying our product lineup and offering a variety of options tailored to different customer segments. While apparel remains the core of our business, we aim to address the gaps in customers' expectations by introducing additional products. This may include sports goods, and cosmetics to cater to a broader range of needs. Our focus is on consistently satisfying customer demands and meeting their sophisticated requirements. We adapt swiftly to evolving consumer preferences, and although the market size may not be expansive, people's needs continue to grow.
One particular area of growth is the senior fashion market, as you rightly pointed out that Japan now boasts the world's oldest society. This demographic presents distinct needs and preferences, and we strive to develop solutions specifically tailored to this segment. By recognizing and addressing the unique requirements of different customer groups, we aim to enhance our appeal and expand our customer base in local areas and suburban communities.
Due to the COVID pandemic, there has been a big increase in e-commerce, and retail outlets have become less popular. Stay-at-home and social distancing orders have contributed to this shift, but online sales have jumped 13%, which has made Japan the fourth-largest e-commerce market in the world. How has your business adapted to take advantage of this growth in e-commerce?
During the pandemic, we did experience a slight decline in customers visiting our physical stores, with many opting for online shopping instead. However, this shift in spending habits was not a drastic change, and the overall impact was not as severe as initially anticipated. It is worth noting that many apparel companies are now adopting an omnichannel approach, aiming to bolster sales both online and in brick-and-mortar stores. While our strategy may differ slightly from conventional approaches, every company has its unique approach.
Shimamura's approach is anchored in reliability, where we strive to understand and meet the needs of our customers by offering a wide range of products in our retail locations nationwide. Given that Japan is susceptible to natural disasters, we make every effort to keep our Shimamura stores operational even during such challenging times. Our stores not only offer apparel but also daily necessities, allowing us to serve as a dependable supplier of essential goods, even in the midst of a disaster. We want our customers to feel supported and reassured in any situation they may face.
Shimamura has six different businesses; you have your namesake, Shimamura, but you also have Avail, Birthday, Chambre, Divalo, and Shimamura Taiwan. Which business are you currently putting the most focus into and which do you believe has the most potential for future growth?
With a portfolio of six brands, we have successfully diversified our business and are able to cater to the diverse needs of our customers. Among our brands, Shimamura holds a special place as our flagship brand, enjoying strong recognition and stability. It represents the conventional side of our business and maintains a balanced performance. While our other brands may have initially had a slower start, they are gradually catching up with Shimamura, each catering to its own specific preferences and target audience. For instance, Avail and Birthday currently have around 300 stores across Japan, and we see great growth potential for these brands to bridge the gap with Shimamura.
Chambre and Divalo have their distinct roles and also show promising prospects for future expansion. Additionally, Shimamura Taiwan, our overseas brand, is an area where we are optimistic about its success. Each of our brands, apart from conventional Shimamura, demonstrates significant potential for future growth, while Shimamura itself maintains a steady and balanced business. Our focus is not on any particular brand, as we believe that all our businesses have a bright future ahead.
One product lineup you sell in your Shimamura stores is the Closshi brand, your own private brand (PB) centred on basic design, comfortable materials, and usability. Can you tell us the advantages of the Closshi brand and what makes it superior to other apparel brands in the market?
Closshi emerged as a brand through a joint venture with our suppliers, allowing us to develop our unique approach to reaching our ultimate goal. Annually, we collaborate with around 400 companies, including wholesalers and apparel companies. This collaborative effort creates a supply chain that prioritizes reliability for our customers.
The key advantage of Closshi lies in its affordable pricing, making it a standout in the market. The brand offers a wide range of trendy and fashionable designs catering to various sizes. To further expand our offerings, we recently introduced CLOSSHI PREMIUM, targeting a more affluent customer segment with slightly higher pricing.
Leveraging our strong brand reputation and extensive retail networks, we constantly strive to achieve our ultimate goal. We are open to exploring partnerships with more companies, be it suppliers, YouTube channels, or influencers, to help us reach a wider audience. Our aim is to collaborate with anyone who can contribute to expanding our reach and fulfilling our customers' needs.
You mentioned working with a number of companies. Is this limited to just the domestic market or are you open to working with foreign companies as well?
At Shimamura, we often use the term JB, which stands for Joint Development Brand. Our JB division has been instrumental in various collaborations and partnerships with domestic companies. As we explore opportunities abroad, Shimamura Taiwan emerged as a result of our strategic thinking. Through our JB initiatives, we are able to collaborate with Japanese brands and introduce them overseas through our Shimamura Taiwan locations. Looking ahead, we are committed to expanding the JB concept further, both domestically and internationally.
If you were to be a personal shopper for a customer for the day and you went into a Shimamura store, what is the one product that you would recommend that the customer must buy? What is your favourite product that your company offers?
One product lineup that holds a special place for me is our undergarments, including socks and underpants. These products are meticulously crafted with the Japanese market in mind, as we deeply understand the specific needs and preferences of our Japanese customers.
One company that you have worked with closely is Nippon Copack for the recycling of hangers in Japan. We also understand that your company is now working on a project to recycle transparent vinyl covers. Can you tell us a little bit more about this vinyl cover recycling partnership that you have?
Our long-standing partnership with Nippon Copack in transparent vinyl cover recycling is a testament to our commitment to sustainability. Discussions about this collaboration started when I assumed the role of General Manager of the Logistics Department in 2007. Initially utilizing their Chinese factory, we have since expanded our operations to other locations. As someone who was personally involved in recycling projects during that time, this partnership holds special significance for me. I am delighted to share that our recycling efforts, predominantly conducted through Nippon Copack, have proven to be highly successful, contributing to a more sustainable business model.
Another aspect that is very important for Shimamura is your Reborn Mid-Term plan. You have aimed for 2024 and have highlighted many different goals, from the expansion of all businesses to the development of product lineups and services, as well as the strengthening of brand apparel. Additionally, you have outlined the need for increasing domestic net sales and the promotion of DX. With one year left, are you on track to achieve your mid-term plan?
We have a strong belief in our ability to achieve the goals outlined in our mid-term strategy plan established three years ago. In retrospect, prior to the inception of the Reborn project in 2021, our financial performance from 2017 to 2020 was subpar. The Reborn initiative emerged as a response to address the challenges we faced during that period. It can be said that Reborn was born out of the necessity to rectify our financial situation. We engaged in extensive deliberations to redefine our ultimate targets and establish a more realistic approach to achieving them. Some of our previous goals were deemed overly ambitious, leading to less-than-desirable fiscal results from 2017 to 2020.
As for the Reborn strategy itself, we are pleased to report that it has proven to be a successful approach thus far. With only one year remaining, we are confident in our ability to reach all the goals we have set for ourselves. As the deadline approaches, we are already looking ahead to our next mid-term strategy, which will build upon the achievements and goals of the Reborn project.
Earlier in the interview you said that most of your stores are located in suburbs or rural locations. What was the reasoning behind this choice to have your stores located in rural and suburban areas?
We consider the expansion of our stores across Japan as a natural progression that followed our initial establishment in Saitama, a rural area compared to bustling city centres like Tokyo or Osaka. Our primary focus was to meet the needs of customers in Saitama prefecture, and as our business began to thrive, we expanded our presence by opening more stores within the prefecture. Building on this success, we then extended our reach to the entire Kanto region, encompassing Tokyo, Kanagawa, and Chiba. From there, we continued to expand into the outer regions of Kanto. This localized approach has proven effective for us, allowing us to establish a strong presence in various local communities throughout Japan.
You have been in Taiwan since 1997, and recently have been conducting market research in Southeast Asia. Moving forward, what countries or regions have you identified for further expansion and how will you achieve said expansion?
Back in 2010, we attempted to penetrate the Chinese market by opening 17 stores in Shanghai mostly, but in other locations as well. Unfortunately, the business did not go well, so in 2021, we closed all of our stores in China. We believe that the reason it did not work is because of poor brand recognition. To answer your question, we probably need to do something about brand recognition before attempting to penetrate another country again.
Closshi is actually the same deal, and although it has great brand recognition in Japan as well as Taiwan, it does not have a wider audience just yet. Something has to be done from a marketing point of view to help consumers understand our brand and to spread the word out there. This is where e-commerce can play a crucial role and it allows us to be more adaptive towards foreign markets and clients that shop online. This is acting as a trial, and if we see data to suggest that our brand has good recognition in an area then we may think about opening a physical location in the future. In terms of where that might be, we think right now that it might be Southeast Asia, as that region really respects and desires Japanese-branded products. Additionally, countries like Indonesia are seeing massive jumps in population so these markets have great potential for future growth.
Imagine that we come back in four years and conduct this interview all over again: what goals will you hope to have achieved by then?
We aspire to ensure the long-term success and prosperity of our company. Currently, we are commemorating 70 years since our establishment, and our ultimate goal is to surpass the centennial mark and thrive well into the future. We position ourselves as a customer-centric company, dedicated to fulfilling their needs with our products. When responding to your questions today, I always had in mind the sanpo-yoshis, which are Japanese managerial principles emphasizing the importance of considering the company, customers, and society. These three aspects are critical for any business worldwide, particularly in the context of retail. At Shimamura, virtually every employee shares this philosophy, striving to align with the best interests of the company, customers, and society.
Interview conducted by Karune Walker & Ana Ruiz