TT-577 -- Fitness Business Under Pressure, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, August 08, 2010 Issue No. 577

+++ INDEX

- What's New
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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+++ WHAT'S NEW

According to 2008 Ministry of Health statistics,
approximately 50% of men and 20% of women between 40 and 74
years old are at risk of obesity, or "metabolic syndrome"
as it's known here. That's about 20m people. Now that the
government and companies have declared war on "metabo", one
industry that we would say has a bright future in Japan is
that of fitness clubs, along with those providing apparel and
accessories to that industry.

Despite the metabo focus, the percentage of the population
that actually belongs to a fitness club is still a meager 3%,
well below the 15% level in the USA. Perhaps with all that
cycling to the supermarket on mama-chari (mom-style
bicycles), and salary men climbing copious numbers of
train station stairs to go see customers, people feel less
in need of the extra work outs... But more likely it's the
extra cost and time that's putting them off.

One of the fastest growing fitness chains in the USA,
Anytime Fitness, is due in September to open the first of a
planned 300 clubs here, starting with Chofu. The company
has started a joint venture with a management team led
by a number of industry veterans, the star of whom is the
new CEO will be Toru Yamazaki, the former CEO of
Megalos, Japan's 5th largest health club chain. Megalos
is owned by Nomura. Yamazaki and his colleagues will
hold the master franchise for Anytime Fitness, and after
opening 3 of their own stores to show how it's done, they
will start sub-franchising the system to other operators.

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[...Article continues]

We have an acquaintance in the fitness industry who just
recently resigned from his job to do other things, and who
thus felt he could share some tips with us on why fitness
can be a great business. He says that the industry attracts
workers at very low salaries, even the instructors can expect
just JPY350,000/month or so -- even though the good ones
may attract a fan base of hundreds of customers who come
just to work out with that one instructor (this happens a lot).

Coupled with the low operating costs, he also pointed out
that fitness is like dieting. People start off with the
best intentions and so sign up for year-long contracts and
automatic membership renewals. But after a couple of
months, the will power starts to weaken and many people
stop showing up. But since they "fully intend to resume
their training" of course the club keeps getting the dues and
makes sure that it extends enough incentives to encourage
inactive members to at least stay another year.

Less attendees means less demand on the facilities and more
capacity to bring in new members without extra cost -- and
we are told that some of the best performing branches in the
Megalos chain have upwards of 10,000 members -- which at
an average JPY6,000 per month can produce JPY60MM a
month in revenue. Not a bad business indeed and no wonder
Anytime Fitness wants in and is bringing a Megalos ex-CEO
along for the ride.

However, having said that, it's clear that the industry as
a whole is suffering. Adult memberships are down, as young
people can't afford the fees, and middle aged workers are
still smarting from the fall-out of the Lehman Shock. The
biggest operator of fitness clubs in Japan is Konami Sports
and Life, a subsidiary of the games machine giant, Konami.
The company in 2009 had a nationwide network of 228 fitness
clubs, as well as providing operations management for an
additional 117 independently owned sports clubs. The
directly owned clubs had a membership of 916,438 covering
all ages, with childrens' dance classes a growing segment
as the company tries to diversify its income streams.

Yet with all those members and fitness sector sales of
JPY85.8bn in FY2010 (ending March 2010), the company
could only manage a loss of JPY1.9bn. Actually, last year
the loss was even worse, at -JPY8.3bn -- indicating that the
severe financial climate rather than declining population is
the main reason for the industry's malaise at the moment.

Anytime Fitness operates small locations with modest
facilities in the USA and it appears that they will do the
same here in Japan, following a typical coffee shop style
franchise model. Franchisees will buy a brand, marketing,
and presumably the machines, and hope that the market will
do the rest. With all the experience on board, we believe
that they will be focusing on creating a strong brand image
for the new company. 80% of industry revenues comes from
middle-aged customers, so they have to come up with a
marketing mix which projects a fresh new image, but to an
age group that is looked at as dowdy and unappealing.

What will they come up with? Our guess is either a
community concept, which Anytime Fitness pushes in the USA,
where kids and moms can hang out, or a variety of new
classes appealing to young women, such as yoga and pilates
studios -- which will probably attract young men as well.
It's going to be a tough challenge, but if they can manage to
bring in 5,000+ members for their first few establishments,
then they will have bragging rights when selling to future
sub-franchisees, all of whom will be dreaming of riches while
bearing most of the financial risk.

Ain't life grand?

**************

Next, we'd like to remind readers that at the end of most
"Takes" there is reader feedback to earlier articles. For
example, this week's feedback is a very lucid summation of
the media craze over Chinese tourists coming to Japan and
how the whole plan to boost tourism may actually backfire
for the government if they are not careful. Look under the
CORRECTIONS/FEEDBACK section below. Enjoy.

**************

Lastly, next week we will be taking a break, one of four
weeks a year that we do so, to enjoy a little bit of summer.
We'll be back on deck on August 22nd.

...The information janitors/

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+++ NEWS

Singapore fund buys Tokyo hotels

Evidence is gathering that Japan's property market is
hitting another low, as Singapore's IPC Corporation
announced that it has bought and refurbished two Tokyo
business hotels. The company says that it plans to buy up
to 98 more such hotels, as well as condominiums, as it
builds up its Japan portfolio. IPC says it will market the
properties to tourists (and we suspect, investors) from
China and elsewhere in Asia, to ensure sufficient
occupancy. ***Ed: We are hearing more and more anecdotal
evidence of Asian plans to make Japan a tourist
destination, specifically by bypassing the existing
over-priced and under-serviced Japanese-operated
infrastructure. Shades of Niseko perhaps?** (Source: TT
commentary from e.nikkei.com, Aug 4, 2010)

http://e.nikkei.com/e/ac/TNKS/Nni20100803D03JFA17.htm

Missing centenarians also include 10 foreigners

As the embarrassment continues that there are possibly more
than 100 residents of Japan listed as centenarians who may
in fact be deceased, the Japan Times reports that around 10
of the missing are in fact non-Japanese. The reason being
given for such a high missing body count of foreigners is
the fact that the Justice Ministry is in charge of foreigner
registrations, not local ward offices, and is not releasing the
information. ***Ed: This is also an indictment on the family
registration system in general, such that: a) dogs and seals
can get family registers but foreigners cannot, and b) that the
family registry system doesn't seem to have a proper
checking system -- as highlighted by the case of an oldster
who had died 30 years earlier and was found nicely
dessicated inside his house.** (Source: TT commentary
from japantimes.co.jp, Aug 7, 2010)

http://search.japantimes.co.jp/mail/nn20100807b2.html

Zynga turns around and buys Unoh

Feeling more like a pass-the-parcel game than M&A,
US-based Zynga Game Networks announced just a week after
it's huge investment influx from Softbank that it would be
buying mobile content operator Unoh Company, here in
Japan. Zynga is reputedly paying JPY2bn-JPY3bn for the
9-year old Japanese company. ***Ed: Clearly the two deals
were conceived hand-in-hand -- but we are surprised that
Softbank didn't just take over Unoh first then sell it to
Zynga for an additional stake in the business. Therefore,
one can be forgiven for wondering if there wasn't a reason
for not doing this? Any ideas anyone?** (Source: TT
commentary from businessweek.com, Aug 6, 2010)

http://tinyurl.com/35lex4r

DoCoMo ties up with DaiNippon on e-books

Will e-books on smart phones such as the iPad be as big as
everyone thinks? It's hard to say, although clearly in
cultures that like doing lots of reading, the distribution
of e-books is both cheaper and more efficient than paper.
Amazon's Kindle is testimony to this fact. Whatever, the
big boys here in Tokyo are betting that e-books are the
wave of the future and they're jumping in to the sector
quicker than you can turn a page. Thus NTT DoCoMo has
announced a joint venture with Dai Nippon to produce
e-books by the end of this year. The new service will carry
Dai Nippon's 100,000 library of titles. Apparently paper
book sales in Japan are worth around JPY200bn annually,
while e-books are less than 1% of this. However, estimates
are that the e-book market will be worth JPY10bn by 2014.
(Source: TT commentary from reuters.com, Aug 4, 2010)

http://www.reuters.com/article/idUSTOE67308820100804

Proof that all sugars are not the same

For those who scoff at the idea that honey and stevia
consumption serve as a better replacement for regular sugar
-- saying that all sugars are the same -- well, we beg to
differ. Cancer researchers at UCLA have found that
pancreatic cancer tumors proliferate on a diet high in
fructose, but do not when fed glucose. The researchers are
trying to find if there is a link between high consumption
of fructose syrups (such as corn syrup used in most U.S.
sweetened foods and soft drinks) and cancer. Right now, at
least, it appears that there is such a link. ***Ed: What's
really interesting to us is that the research proves that
different sugars are consumed by the body in different
ways, and thus opens the question as to whether there are
"good" sugars and "bad" sugars, much the same as there are
different types of cholesterol (i.e., lipoproteins).
(Source: TT commentary from reuters.com, Aug 4, 2010)

http://tinyurl.com/22uqoxm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
bilinguals.

** HIGHLIGHTED POSITION(S)

BiOS is now looking for experienced HR director candidates
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The successful candidate in this role will have more than
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changing environment, and in particular a deep
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HR issues in the overall APAC zone. In addition to this
you will demonstrate leadership in key HR issues with
versatility and enthusiasm, and be able to use all of this
to influence key decision makers.

Remuneration is up to JPY20m depending on your experience
and level

** POSITIONS VACANT

- Server Admin, Japanese IT Firm, JPY4.2m – JPY6m
- eSourcing Account Manager, JPY4.5m – JPY5.5m
- Web Apps Support, LCD Manf JPY3.5m – JPY4m
- Unix Engineer, iBank in Okinawa, JPY4m – JPY5m
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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

*** In TT576 we wrote about the rapid influx of Chinese
tourists to Japan and whether expectations would match
actual realties in terms of what the visitors would be
doing and spending in Japan. The following is an excellent
reader comment on the issue.

=> Reader comment:
Everyone has picked up on the recent surge in tourists from
China, with the media —- from the chatty “wide shows” to
the Sunday pundit parades —- going breathless trying to
figure out what this new wave means for the country. It is
clearly a love-hate prospect.

On the one hand, the head of the Tourism Agency is playing
the rousing cheerleader, traveling frequently to China to
meet with relevant government agencies and even presenting
a gift of a large Hello Kitty doll to the woman identified
as the first to apply for an individual tourist visa (for
which, the program noted, she was later turned down;
apparently only about 20% of applications are being
approved at this point: the initial screening is being done
by the travel agencies, which are erring on the side of
caution due to potential liabilities).

On the other, you have ex-NPA and prosecutors office
bigwigs subtly undermining these efforts with hand-wringing
over the prospects of an explosion in crime by foreigners
(never mind that crime in nearly all categories continues
to drop steadily), in particular the risk of individual
travelers “disappearing” from their tours to stay on
illegally. One frequent guest, a former prosecutor who
often provides commentary on crime and other social issues,
went so far as to urge the government to ease off of
pursuing such business from China, insisting that a
criminal element is already trying to take advantage of the
new, less stringent requirements.

Meanwhile, evening news special reports are chasing down
tourist groups to see where they go, what they do, and more
important, what and how much they buy (one report threw out
a statistic that the average amount spent by these tourists
during their stay in Japan was over 160,000 yen per
individual), focusing on luxury goods and mass purchases of
electronics and small appliances.

Reports have covered growing Chinese acquisitions of small
businesses, real estate agencies setting up to sell homes
with views of Mt. Fuji specifically to Chinese nationals,
and the growing business of Chinese-only hotels catering to
group business in this emerging market. All of this is
being reported in a tone that suggests great ambivalence.
On one hand the hope for the potential economic boost, but
on the other, an only slightly veiled sense of dread, as
if to suggest this is the first wave of an economic and
cultural invasion that at some point will swallow the
country whole.

This push-pull dynamic is certainly nothing new in Japan,
but it hints of the extent to which a government policy
aimed at building tourism as an economic pillar has been
pushed through by the powers that be —- and a select group
of commercial interests -- with little support or
understanding from the public, and with few attempts to
educate people on the implications of such a policy. Once
again, it falls to the media to tell the story, and
inevitably, a note of sensationalism and fear-mongering
is creeping in that is directly at odds with the message
the authorities are trying to convey.

At the same time, the government, by focusing almost
exclusively, and very publicly, on its efforts to build
tourism from among neighboring Asian countries —- with an
approach that emphasizes shopping opportunities over
cultural enrichment -- is failing to address the
still-significant language, service, cultural and
environmental issues that have caused tourism from Western
countries to consistently lag far behind what other, often
much smaller nations enjoy.

By going all-in with the Chinese market, and its purely
economic prospects, the government is setting itself up
for an inevitable backlash that could eventually harm the
prospects for tourist growth across the board.

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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