TT-542 -- Cash in kids clothes?, Ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, November 15, 2009 Issue No. 542


- What's new
- News
- Candidate roundup/Vacancies
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- Corrections/Feedback
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With all the attention going to fast fashion, especially
with the zooming sales and profits of Uniqlo and H&M, it is
easy to forget that there are other huge segments of the
clothing industry that are also still doing OK, if not
perhaps as spectacularly. These include the mature female
mail order market, which is still large and active -- and
which is likely to continue growing given the graying of
our society and people's lessening interest in having to
hit the streets to shop.

There is also the children's market, babies and toddlers in
particular, and it is in this sector that several
interesting pieces of news came out in the press this week.

First up was Softbank Investment Holdings' buyout of
Narumiya, a leading childrens wear manufacturer and
retailer. Narumiya, like other children's clothiers has
been under severe pressure over the last few years to adapt
to changing demographics and shopping habits of young
mothers and grandmothers.

SBI picked up a remaining tranche of shares last week, to
give it 90 percent of the company. SBI paid around 1.37 billion yen for
this tranche -- we don't know what was paid previously.
However, if their 90 percent was at the 4.765 billion yen market cap
valuation, then they paid quite a high price for a company
with 20.2 billion yen in revenues but also with a whopping
1.371 billion yen loss last fiscal year.

It will be interesting to see what SBI wants to do with
this investment. The current CEO of Narumiya seems
reasonably switched on and has decided to push the Internet
side of the business. This is smart, because young mothers
these days are definitely Internet shoppers. Who wants to
drag screaming kids around stores looking for clothing for
them when you can stick them in front of the TV while
you're on the PC? If the Internet strategy is successful,
what Narumiya will do with those 1,343 employees (as of
January 31, 2008) and 983 stores throughout Japan is
anyone's guess -- although one can imagine that a big
hatchet may be part of their future.

The other news item was that Hennes & Mauritz AB, better
known as H&M, is thinking about opening stores focusing on
children's and youth clothing. They are obviously already
experimenting with this segment with their new Shinjuku
store which opened on Saturday. Shades of Gap Kids...

[Continued below...]

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[...Article continues]

So what is going on in the kid's sector? Do these companies
(H&M and SBI) know something that we don't about Japanese
demographics? We thought the kids sector was destined to
get a lot worse. The small recovery blip in births during
the period 2006-2008 was due to the mini recovery in the
economy between 2004 and 2007, and given that there was a
negative population gain last year of just over 51,000
people, greater decreases in the number of kids still seems

Just in case you're wondering, that recovery blip in births
really was likely tied to the mini financial recovery of
2004 through 2007. A researcher with Dai-ichi Life Research
Institute said as much a couple of months ago in the Nikkei
when he commented that, "Since the 1950s, the birthrate and
the gross domestic product have been moving almost in
sync." As far as we are concerned, this is proof positive
that Japanese young couples could make more babies if they
wanted to, but being conservative, they worry about their
financial futures.

Of course all of our financial futures are less sure than
they were a year ago, and with the news this week that even
the bonuses of employees at major listed and private firms
will drop by more than 14 percent over last year, pretty much puts
the kabosh on a baby boom happening anytime soon.

Still, Japan does manage to produce 1m babies a year and
what with plenty of rich grandparents around, and now the
ability to shop on the internet, both SBI and H&M are
probably betting that fewer babies will translate into those
that do arrive being spoiled and dressed up more. So there
could be some longer term future in kid's clothes, we guess.

More than being strategic, though, we suspect that SBI's
acquisition is more likely to be an opportunistic one, where
they are able to buy at the bottom of the market. We know
of other children's clothing companies in financial trouble
and who are looking for investors or buyers. One such
company started making approaches to foreign investors
earlier this year, offering up their 3.5 billion yen in sales for
a very reasonable price. Given the current financial
environment, to buy in to such an opportunity, you
either have to be independently very deep pocketed or
to be well entrenched in the domestic children's
clothing business already, so as to quickly "bolt on"
the newly acquired company and suck the costs out of
it. We're waiting to see if any major foreign private equity
players will take notice of these opportunities and buy in.

One of the challenges of buying a Japanese brand, versus
building one from scratch such as H&M is doing, is that the
clothing market here is extremely segmented and consumers
are very demanding. No thanks to Uniqlo, customers are now
being educated that they can get a lot more for a lot less
money, and that they're less willing to pay higher prices
unless they are getting clearly unique styles and designs.
This of course is hard for a big foreign player to do, and
so the best fit for a successful foreign-money M&A would be
the opportunity to take the Japanese brand overseas,
creating some early returns on the investment, while
gradually rebuilding the design and sales network here in

As mentioned, it will be very interesting to see what SBI
does with Narumiya. Our guess is that they will operate the
business, goose it up a bit with online alliances with
Yahoo, suck out as many costs as possible, then wait the
2-3 years needed til the economy picks up sufficiently to
get a good price selling the asset to a major foreign firm.
By then the birth rate will enjoy another financial recovery
blip and this will be all the encouragement an expanding
foreign business would need to make an offer.

Lastly, a little bit of fun... Our sister company,
Metropolis is launching Japan's first international
Konkatsu party on November 29th (last Sunday in November).
It's appropriately nick-named the Metropolis Cupid Party.

If you've been reading Terrie's Take (Number TT533), you'll
know that Kekkon Katsudo (Konkatsu: modern match-making)
has been all the craze with Japanese singles for about 18
months now, and the trend is showing no signs of slowing
down. Metropolis has teamed up with a mid-ranked Konkatsu
company White Key, to bring up to 100 Japanese and 100
non-Japanese together for a Japanese-style konkatsu party.

Now, this isn't your standard rock music and beer party.
Attendees are going specifically because they want to meet
a partner, and the program will be run Japanese style,
which may seem a little strange at first -- especially (so
we're told) the speed dating part of the program. However,
for a unique experience and the chance to meet a life
partner, this should be a really interesting event.
Metropolis has already had 50 people sign up, so there are
still seats for any adventurous souls out there.

For more details, go to


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+++ NEWS

- FamilyMart to buy am/pm
- Tokyo to San Francisco by row boat
- Japan increases foreign earnings in September
- Smaller bonuses spell trouble for retailers
- Major Japanese ad firms to focus on Internet

-> FamilyMart to buy am/pm

The shakeout in retailing continues, with the announcement
that Itochu-invested FamilyMart will buy out Rex Holding's
am/pm Japan convenience store chain in a deal worth around
12 billion yen ($133 million dollars). FamilyMart is Japan's third largest
chain and with the deal will have 8,700 stores, not far
behind second-ranked Lawson, which has 9,665 stores. The
largest player in Japan is 7-Eleven, which has 12,471
stores. ***Ed: Rex Holdings is owned by Advantage Partners,
meaning yet another deal done for them. This time around,
however, the price seems rather low to us.** (Source: TT
commentary from, Nov 13, 2009)

-> Tokyo to San Francisco by row boat

For some reason their feat has not been covered in the
local media, but it is an amazing achievement nonetheless.
Two British men have become the first people to row across
the Pacific Ocean. They took 189 days to cover the 8,000km
from Choshi port (near Tokyo) to San Francisco. They
arrived on Friday the 13th in good spirits, and were
greeted by a flotilla of small boats. ***Ed: This is a
great story, involving 20m waves and even bigger whales.
Read the story at the link below.**(Source: TT commentary
from, Nov 13, 2009)

-> Japan increases foreign earnings in September

The Current Account Surplus, a measure of national income
earned overseas versus payments made to foreign investors
in Japan unexpectedly grew in September, as the Asian
economies started to recover on the back of global
government stimulus programs. The surplus rose to
1.57 trillion yen ($17.5 billion dollars) from the same month the year before.
Bloomberg comments that most of the increase was probably
due to a pick up in exports to China, particularly for
Nissan autos. Exports overall for September were down 32.1 percent
from the year before and imports were down 37.7 percent. (Source:
TT commentary from, Nov 9, 2009)

-> Smaller bonuses spell trouble for retailers

A Nikkei survey has found that the average winter bonus for
workers in major companies will fall by a record 14.04 percent
this year, to JPY736,453. This is the first double-digit
fall since the survey began in 1978. Of the 141 companies
in the survey, 80 percent said they are lowering bonuses from last
year's amounts. Exporters in particular are planning to
slice a full 30 percent off bonuses this year. ***Ed: Of course
this is terrible news for retailers, so look for very poor
financial results from most of the retailing sector in Q1
2010. Further, remember that these bonuses are of people in
major companies -- Japan's elite. For the other 80 percent of
workers, bonuses are much, much lower -- or in many cases
have been cut all together.**(Source: TT commentary from, Nov 15, 2009)

-> Major Japanese ad firms to focus on Internet

Better late than never, the Nikkei is reporting that two of
Japan's largest ad companies, Dentsu and Hakuhodo, are
going to place increased emphasis on their Internet
businesses. Dentsu has said it wants 250 billion yen of web sales
by 2013, up from 150 billion yen last year. Hakuhodo meantime has
said it will double its Internet revenue to 120 billion yen from
60 billion yen this year. ***Ed: Of course what is galling both
companies is that as they see their profits drop by 30 percent or
more, Internet companies such as Rakuten and Gree are
reporting stunning increases in revenues and profits.
What both Dentsu and Hakuhodo probably fail to realize
however, is that all of the fast-growing Internet companies
have moved AWAY from advertising revenue and instead make
money directly off their users. To replicate this, both
Dentsu and Hakuhodo will have to stop being ad companies,
not likely, or start doing some M&A's... next year could
get interesting.** (Source: TT commentary from, Nov 14, 2009)

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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