Entrepreneurism -- Business From the Ground up

By Michael Condon

For young foreigners in Japan, Sakura House may seem ubiquitous, but it remains a small business at heart

The first Sakura House apartment building in Harajuku was converted to create the Design Festa Gallery.The first Sakura House apartment building in Harajuku was converted to create the Design Festa Gallery.

During the numbing hangover of the post-bubble days of the early 1990s, a real estate man found himself wandering the streets of Tokyo looking for direction. In the mid-1980s, land in Ginza was said to be priceless while real estate in the remainder of Tokyo, wasn’t far off. But when the party was over at the end of the bubble era, the prices of overvalued properties came crashing down.

The man’s town car, complete with driver, meant he rarely found reason to travel on the city’s crowded train and subway system. But after the downturn, he decided it was time to once again take the train and walk the streets and talk to those he would have driven past before. The businessman had built his business buying up houses but now was searching for a new way to do business.

Back to the present. It’s 2009 and the rental market in Tokyo is starting to open up. There is an easing of the generations-old practice of mandatory reikin “key money” or literally “gratitude money” where new tenants must pay landlords the equivalent of two, three and sometimes up to six months’ rent on signing a lease. Meanwhile several companies have set up rental agencies with English services while guest-houses with short-term leases are cropping up across the urban landscape.

Back to 1992. The man is looking to do something with a three-story apartment block in the heart of the labyrinthine back streets of Harajuku. After consulting with some Australian tenants, the businessman decides to try something new, to create low-rent apartment building, free of key-money targeted, at least partly, at foreigners. The man’s foreign friends convinced him that pristine living conditions and constant renovation was unnecessary when renting to foreigners, particularly those only staying for short periods of time. Simple, clean, safe and functional accommodation was all that was needed. And so, Sakura House was born.

The group owner of Sakura House prefers to remain anonymous, allowing his business managers to do the talking for him, but while he himself remains in the background, his businesses are becoming increasingly prominent. Today, Sakura House is part of the landscape if you are a foreigner living on the Kanto plain. Increasingly, it’s part of the landscape if you’re Japanese, for that matter. The cheap rent, lack of key money and sociable living arrangements have proved popular for a generation of urban dwellers. What is less known however, is the broad reach of the company, which has branched into businesses from soba shops to SOHO (small office home office) business centers, to hotels, to hostels, to restaurants to even an international design trade show and Harajuku art gallery.

... the underlying philosophy of the Sakura House (is that of a) small community based business that has grown to become something much bigger.

Masayo Namiki, who manages the company’s sales department, describes the underlying philosophy of the Sakura House business as that of a do-it-yourself business, a small, community-based business that has grown to become something much bigger. Every venture was something that genuinely interested those running the business.

“Everything that is taken on has to be something that the owner is interested in,” says Namiki. “Of course profit is important, but everything that is taken on by the group owner is something that he likes.”

The first house, Sakura House “A,” was a three story-building in Harajuku. Being in such a prime location, and yet being affordable, made the apartment block popular among its young clientele. Years later, Design Festa, a tradeshow for artists, was brought into the fold. The trade show’s organizers were looking to open up a permanent exhibition space that provided cheap space for artists from the amateur to the professional.

“We worked out that it would be more profitable to divide all the apartments up and use them as exhibition space,” says Namiki.

Sales department manager Masayo NamikiSales department manager Masayo Namiki

The Design Festa gallery is now a fixture in Harajuku, where visitors from all over the world come to see what Tokyo is dishing up in terms of the latest fashion and art. The gallery has since expanded to incorporate more of the surrounding buildings, one of which now houses an attached okonomiyaki restaurant which fuses the traditional Japanese food with flavors from around the world.

For over a decade, Sakura House continued expanding at a steady pace, opening more houses and apartments. But it was 2004 and 2005 that was the real turning point for the company. The company managed to double its size in just two years. While its first hotel opened in Kanda Jimbocho, Chiyoda ward, in 1992, it was following the company’s expansion in 2004 and 2005 that the hotel section of the company expanded again. In 2006 the company opened the Sakura Hotel in Asakusa and in 2007, hotels in Ikebukuro and Hatagaya were also opened.

The company’s expansion coincided with the expansion of the market as more and more young foreigners started visiting Japan or living in Tokyo and its surrounding areas. At the same time, the government launched its “Yokoso Japan” tourist campaign and pushed the “Cool Japan” moniker.

“We went from having 400 rooms when I started in 2000 to 1300 rooms in 2007,” says Namiki.

The company has been able to take advantage of the fact that its foreign residents want an authentic Japanese experience and so prefer to live in local suburban neighborhoods rather than the more Westernized ex-pat neighborhoods. This means that the cost of the apartments and hotels have been generally cheaper. If a bar or restaurant is needed to service the residents’ needs, Sakura House will often set up its own rather than renting out space to a separate operator. An added bonus is that if locals from the neighborhood see a place which is popular among the foreign residents, it gains an air of coolness, thus attracting the locals as well, Namiki says.

Another fixture of the modern Tokyo experience, particularly among young foreigners, are the 300 coin bars—standing bars where patrons can get a cheap beer and a chance to mingle with others. Namiki says that the introduction of these bars is due largely to Sakura House. The concept was re-introduced to Tokyoites back in the ‘90s, Namiki says.

“Fifteen years ago, the standing bar was not popular. The idea was to create a European- style bar or a bar like the old-style Japanese liquor shops where you could come in sit down and taste some the drinks and talk to the shop owner,” she explains.

“The group owner wanted to create a place where people could meet others—like Sakura House, the idea was to provide a space where people can meet others easily—it doesn’t have to be a big space,” Namiki says.

The company set up its first cheap standing bar in Ginza. At first, the upmarket shopping district may seem like a strange place to set up such a bar, but of course, right next to Ginza are the salaryman districts of Shinbashi and Yurakucho, where cheap beer and yakitori go hand in hand.

“Salarymen can stop, have a couple of drinks before heading home,” Namiki says.

Another example of the company’s somewhat different approach to business is its “business garden” concept. Set up for entrepreneurs with new businesses, the one-desk SOHOs (small office, home offices) can be rented along with post office boxes and secretarial services. By dividing up the office space into smaller units, the company was able to drop the rent allowing entrepreneurs to keep their overheads down. At the same time, being able to cater for more single operators has allowed the company to maximize the potential income.

It’s a common thread—being able to help those starting out in one way or another to live and work in comfort while keeping costs down, whether they are young residents, aspiring artists or small business owners. Each time the company is able to do it in a way that ensures it makes a decent profit and hopefully builds long relationships with their customers. The community feel of the business brings the added value in the form of “alumni,” introducing new customers from overseas and even bringing new business ideas to the company. With 1700 rooms currently across the Kanto plain and further expansion in sight Sakura House is looking to blossom even further the coming years. JI