TOMS, a Japanese company specializing in printable wear, shares insights on the current state of Japanese manufacturing. They discuss the opportunities and challenges in the face of global disruptions like supply chain issues and a depreciated yen. While some see Japan as a reliable source of high-quality products, TOMS offers a unique perspective, emphasizing the complexities of entering foreign markets and the importance of cost-effective production. They also shed light on their eco-friendly initiatives and long-term goals for brand development.
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?
I must express my disagreement with your premise, and there are several compelling reasons behind this perspective. When we examine the Japanese market, we observe that a majority of companies are primarily focused on serving the domestic market. These companies have a well-established track record of producing and marketing products locally. It is indeed challenging to identify Japanese companies that exclusively manufacture for foreign markets. This presents a significant issue within Japan.
While the depreciation of the Japanese yen may appear advantageous from an external viewpoint, it doesn't paint the complete picture. Companies in Japan, including our own, invest considerable effort in building strong brand recognition and establishing a solid foothold in the domestic market. This dedication to Japanese customers is how we have upheld our commitments. It's essential to note that average salaries have shown little growth over many years and remain relatively stable. Meanwhile, manufacturing costs are on the rise, making it challenging for us to derive substantial benefits from introducing our products to overseas markets. Expectations regarding the potential of overseas markets must be tempered in light of these complexities.
Additionally, most companies anticipate disruptions within supply chains. We are no exception and, as a proactive measure, have localized production in Vietnam to address this concern. However, it's worth noting that we often cannot extend our local production beyond the realm of OEM (Original Equipment Manufacturer) for markets outside Japan. OEM products typically do not align with the requirements of distant markets such as Europe or the United States. Consequently, Japanese companies are strategically localizing their production in Asia, particularly in the ASEAN region and China. Unfortunately, this scenario does not enable us to achieve high profit margins.
Historically apparel and textile companies have had one of the longest and most complex supply chains in the world. Raw materials are procured in one country, transformed in another, then sent somewhere else for assembly. Big brands fast-fashion brands for example often have very large, international supply chains. During the COVID-19 pandemic, we saw very big disruptions to these factories, and as such a lot of companies have since looked to shorten their supply chains by having strategic locations in order to create a backup plan. How did these disruptions during COVID-19 affect your company?
We distinctly differ from fast-fashion brands to the extent that we can be considered highly unconventional within the apparel industry. The key differentiator lies in our approach to product introduction. Unlike fast fashion brands, we do not regularly introduce a multitude of new items each year or season. Instead, we predominantly focus on maintaining a consistent range of core products, year after year.
Fast fashion retailers operate on a model characterized by the constant introduction of new items and products, often on a daily basis. Our company operates quite differently; we do not subscribe to this rapid turnover of product lines. This deliberate choice affords us stability, as it simplifies our supply chain considerably. Our longstanding commitment to maintaining a concise supply chain has been instrumental in shielding us from the challenges that many companies encountered during the COVID-19 pandemic.
Japan is in possession of some of the highest quality products and materials in the world, however, the amount of resources available are actually very scarce and therefore products are difficult to create entirely with Japanese resources. How do you procure your materials and how do you ensure that your foreign factories maintain the same level of quality as you have in Japan?
Addressing your initial question, it's undeniably challenging to attract skilled human resources in the manufacturing sector in Japan. In fact, this is a global trend where recruitment for production roles is increasingly difficult. Nowadays, there's a prevailing preference for office-based work. Despite these challenges, we diligently work year after year to secure the necessary workforce.
Moving on to your query regarding the maintenance of consistent quality, the key factor is technology. However, I hold a somewhat unconventional viewpoint on this matter. I believe that the notion of Japanese technology can sometimes be misconstrued, resembling more of a myth or a story than reality. New technologies typically emerge in response to market demands and client requirements. In many cases, Japanese technology tends to lean towards over-specification, offering features not necessarily demanded by the market. These top-tier technologies are often excessive, particularly in our market, where fabric production is relatively straightforward. This simplicity has allowed fast-fashion companies to thrive by streamlining supply chains, establishing cost-effective production processes, and sourcing competitively priced raw materials. Consequently, they can deliver affordable, swiftly produced products that cater to customer convenience.
We align with this approach to some extent, as we do not heavily invest in cutting-edge technologies that can often be excessively priced. There is limited consumer interest in purchasing overpriced T-shirts, regardless of their quality. Our T-shirts are typically priced at around JPY 400 for customers, with additional modifications potentially raising the retail price to approximately JPY 600.
Fast Fashion is very convenient for consumers as you mentioned, however, this business model raises many concerns in terms of clothes wastage. It is said that around 10,000 items of clothes are thrown away every 5 minutes. How are you transforming your company to meet new environmental expectations?
Indeed, the apparel industry grapples with a substantial issue surrounding clothing wastage, particularly in the context of unsold items. To gain a clearer understanding, it's crucial to examine the broader market dynamics. The apparel industry stands as one of the largest contributors to pollution globally, and effective waste management practices have regrettably not been fully implemented. This sobering reality is challenging to deny. Given this, many apparel companies are now striving to align with Sustainable Development Goals (SDGs), although this presents a formidable challenge, especially considering the prodigious output of fast fashion giants. These companies produce an astonishing volume of items daily, and a significant number inevitably remain unsold at the end of each season. Even when such retailers resort to steep discounts of up to 50% during off-season periods, a substantial inventory of unsold items often ends up in landfills.
In contrast, our company operates differently, boasting a remarkably low percentage of overproduction. This can be attributed to our steadfast commitment to a core set of year-round products, which allows unsold items to be retained in the warehouse until they find buyers. This, in essence, shields us from the typical challenges faced by the industry thanks to our disciplined approach to aligning production with market demand.
Although we are not a prolific waste producer like fast fashion giants, we remain deeply committed to environmental friendliness in our production processes. This encompasses concerns related to chemical substances, waste management, and water treatment. The dyeing process, for instance, consumes a significant amount of water, making water conservation activities paramount. Effective waste management, recycling initiatives, and responsible chemical management are equally vital aspects of our environmental commitment. We've recently embarked on a collaborative venture in Taiwan with a local company, aiming to eliminate water usage during the dyeing process. This partnership exemplifies our dedication to forging technological advancements through collaboration with local firms.
Overall, while we recognize the importance of environmental responsibility, we do not perceive our production processes as significantly harmful when compared to certain other industry players.
Fabric knitting site at our own manufacturing factory. We knit fabric and create products 
Available in a wide variety of colors 
The standard cotton T-shirt product 00085-CVT Heavy Weight T-shirt has sold over 200 million pieces 
The most popular activewear product is 300-ACT Dry T-shirt
Water consumption is a very important topic for consumers. Can you tell us more about this dying process that doesn’t use any water?
To simplify the explanation, the fabric we use isn't conventional; it's not of natural origin but rather a type of polyester, derived from oil. Typically, polyester undergoes coloring before it reaches its final form, eliminating the need for water in the process. However, our collaboration with a specific company has enabled us to employ a unique technology for this purpose. In contrast, the traditional dyeing process is notorious for its significant water consumption.
Our method involves heating pellets to a precise temperature, a step we refer to as "baking." This process necessitates meticulous heat and weight management to achieve the desired results.
The fashion industry has a well-established tradition of expanding operations overseas, often involving local production. It's crucial to note that each country has its own set of regulations and laws governing water management. This underscores the importance of obtaining certifications in various regions, a pursuit embraced by companies like ours.
Companies in Japan are very domestically oriented, but your firm expanded overseas to utilize local production and mitigate the shrinking population in Japan. How much do you rely on overseas opportunities to ensure your continued business success? What is the main advantage your firm holds that you feel would be attractive to prospective foreign clients?
The overarching narrative presented by experts concerning the Japanese market is rather concerning, particularly when considering population projections for the year 2050 and beyond. Some forecasts predict a population drop below 100 million by 2050, accompanied by a progressively aging demographic.
Given this backdrop, one might assume that many Japanese companies are actively seeking entry into foreign markets. However, our business model at TOMS is quite unique. We operate as an intermediary, supplying simple T-shirts to other companies. This model functions exceptionally well within the domestic market, owing to the connections we have established over time. Unfortunately, replicating this business model verbatim in other Asian countries won't yield the same results. While we acknowledge the opportunities presented by burgeoning populations in countries like Indonesia and Vietnam, we recognize that simply transplanting our existing Japanese model will not suffice to succeed in the ASEAN market.
Major competitors in our space primarily hail from prominent U.S. T-shirt manufacturers. Interestingly, these companies are not significantly present in Asia, possibly due to existing gaps in the U.S. market. If the timing aligns favorably in the future, we may have the chance to outpace these American apparel companies in accessing the Asian market. Presently, however, the timing isn't ideal, and we lack the necessary resources to establish a strong presence in that region.
The year 2030 holds the potential as a pivotal moment for us, potentially marking a shift toward overseas sales surpassing domestic sales. Our current objective is to incrementally enhance our overseas sales volume in comparison to domestic sales over the coming years. By 2030, we may adopt a more decisive stance toward our overseas endeavors, particularly within the Asian market.
Your company specializes in the creation of printable wear, so you lend certain services and materials to other firms in order for them to make products. There are many similar types of companies such as niche printing companies. Why do companies choose to work with your firm?
Our foremost advantage, without a doubt, is our competitive pricing. We firmly believe that there are no companies quite like ours in Japan, particularly in the context of T-shirt manufacturing. It's quite surprising that there's a scarcity of companies dedicated to producing T-shirts in our market. Our unique ability to produce large volumes of T-shirts at an affordable price, in a market with limited competition, positions us as the default choice for numerous firms.
In the realm of printing work, there are certainly many companies offering similar services, and we are among them. However, what sets us apart is our foundational capability to manufacture T-shirts. The T-shirts we produce boast exceptional quality in terms of their body, build, and structure, all while maintaining an attractive price point for our customers.
Something we found interesting during our research was the types of customers you cater to. We saw that you work with companies, businesses, but also sports teams. Additionally, you also work with apparel brands, providing a kind of OEM service to them. For future expansion, what type of clients or markets will you be targeting going forward?
We haven't delineated specific objectives targeting particular markets or clients. Presently, we offer a comprehensive range of services catering to various customer segments. Our clientele spans uniforms, apparel companies, and even sports teams, making us a versatile, one-stop solution provider. Remarkably, we don't stratify our customers based on their size; in our view, every customer holds equal importance. Currently, our client portfolio comprises 15,000 customers purchasing shirts from our company, and this figure continues to expand.
Your company has a number of different brands including Printstar and glimmer. Which of your brands do you believe has the most growth potential?
Recently, we streamlined our brand portfolio, narrowing it down to the two you mentioned: Printstar and glimmer. We do not give preference to one over the other; our aim is to equally prioritize both. Each of these brands has its distinct role, with glimmer specializing in synthetic materials and Printstar focusing on our 100% cotton items. In fact, synthetic materials have gained prominence in comparison to cotton in recent times.
Interestingly, we find ourselves in a situation where we don't actively promote our brands directly. Instead, our customers value the simplicity and versatility of our Printstar and glimmer lines. These lines provide a foundational base of T-shirts that can be customized with their own branding, allowing our customers to market their own brands effectively. Our primary focus is on providing availability and maintaining high quality, enabling our customers to showcase and promote their unique brands.
It is often said during our interviews that partnerships and collaborations are key to expansion overseas as a way to better understand local markets and trends. What role do partnerships play in your particular business model, and are you looking for any partnerships right now to expand your presence in Asia?
Indeed, we recognize the inherent advantages of collaborating with a foreign company, primarily because expanding into diverse markets is a complex and time-consuming endeavor. Therefore, we are actively considering partnership as a viable path forward. Acknowledging that we cannot achieve our objectives in isolation, partnerships become a logical choice.
In contemplating the nature of these partnerships, various possibilities come to mind. This could entail forging alliances with entities that serve as sales channels or companies possessing valuable human resources that we can leverage. We foresee future collaborations in the realms of marketing and sales, coupled with the utilization of additional human resources to facilitate our growth strategy.
You established your own factory in China in 2008, opened production management bases in Vietnam and Bangladesh in 2013, and shifted your factory from China to Vietnam in 2016. Do you see yourself either opening new factories in the future or conducting M&A activities to acquire new factories in other locations?
In Vietnam, as we embark on the expansion of our production lines, this growth necessitates the development of additional sales channels. It's evident that increased production aligns with an increased need for sales opportunities. Consequently, there exists the potential for a joint venture with local companies to explore and expand in this direction.
Imagine that we come back in five years and have this interview all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?
My aspirations predominantly center around the creation of our own brands. Currently, a significant portion of our business revolves around fulfilling the needs of giant brands of the industry, essentially constituting our core business. However, we are eager to gradually shift our focus away from this dependency and begin developing our own unique designs and products. This strategic shift is something we are actively planning to undertake in the near future.
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