TT-652 -- Fitness Clubs in Japan, e-biz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, March 04, 2012, Issue No. 652


- What's New -- Fitness Clubs in Japan
- News -- Goldman Sachs Japan gets a union
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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On February 26th, serving as a reminder that spring is just
around the corner and we should all be thinking of staying
fit, Tokyo once again played host to the Tokyo Marathon.
The race attracted 35,500 runners and wended its way
through inner Tokyo. This year, 2012, the winner was
Kenya's Michael Kipyego, who broke away from the pack at
around 16km and surged ahead of Ethiopian legend Haile
Gebrselassie with 3.5km to go until the finish line. At 2 hours,
7 minutes, 37 seconds, Kipyego's time wasn't the fastest
Tokyo Marathon ever run, but it was enough to push
Gebrselassie into fourth place and put his Olympic chances
at risk.

We weren't there -- too embarrassing if we had been. For,
at the other end of the winning spectrum, the Tokyo
Marathon rules say that the last runners across the finish
line have to be there within 7 hours of the starting gun
firing, or they are disqualified. Similarly, the rules
allow race marshals to disqualify anyone they feel is
sufficiently slow that they're not going to make the cut
-- no statistics on how many people that was this year.

Of course the first step to considering the Tokyo
Marathon is getting fit, and after seeing thousands of
people training in the streets this winter, we got to
wondering about the fitness industry, particularly as it
is represented by Fitness Clubs. Accordingly to the Japan
Fitness Association, fitness is a big business, with
3.95m members of fitness clubs in 2009, spending about
JPY400bn in memberships and associated costs. At this
rate, just over 3% of Japan's population are members,
spending about JPY101,000 annually on their
memberships -- quite a cost contrast with those content
to use public facilities which are free or almost free.

Actually, like the English teaching business in Japan, or
for that matter, any prepaid business that sells on
aspirations of well-being, the real measure of success is
not in how many members there are, but how many really
use the facilities. Our guess is that the number is
somewhere around 20%-30% in any given month, which explains
why fitness club operators continue to build new facilities
even though the membership base is starting to fall away a
bit. The JFA for its part says that in 2009 club members
used the facilities on average 69.9 times. We find that
hard to believe, unless you consider a hardcore 20% who go
in every day and so bring the numbers up. More likely the
average person uses the facilities 1-2x a month after the
"honeymoon" period of the first 3 months passes.

So, looking at the business proposition, the average
club is charging about JPY6,000~JPY10,000 as a joining
fee -- which is nothing more than sheer profit for the
operator, and JPY12,000~JPY17,000 per month depending on
the club chain and whether there is a swimming pool or not
(this considerably increases operating and fit-out costs).
So you can imagine that those people who don't attend the
club more than 1-2x a month are significantly boosting
profits for the operators.

This spells to us an opportunity.

[Continued below...]

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[...Article continues]

In the USA and UK an booming emerging segment is low-cost
gyms, much the same as low-cost (air) carriers are hitting
Japan's shores, and their presence is starting to be felt in
the fitness club market, particularly hurting the
mid-market operators. If we look at the UK, where real
estate and costs are somewhat comparable to Japan, one such
operator there is Pure Gym, which was established as
recently as September 2008 and now already owns 31 gyms all
over the country. It plans to open another 14 new sites in
2012. Pure Gym charges just JPY2,300 as a monthly fee and
yet offers an average gym size of 620 tsubo (22,000 sq.
ft.) and all the basic machines that you'd expect in a
regular gym. Their facilities are open 24 hours and they
don't require a contract. We can't wait to see if they
decide to expand over this way.

If Pure Gym was to come to Japan, probably they'd have to
settle for facilities sized around 100-150 tsubo if they
were to start up at low-cost buildings and not build out their
own locations. At JPY12,000/tsubo for a decent low-cost
location, this means a rent cost of JPY1m-JPY1.8m per
month. We were once told by a friend of ours that the
membership of a major fitness gym chain's top Tokyo
facility is just under 10,000 people, and the lowest around
1,500. Taking this lower end, and charging say,
JPY4,980/month, we can easily see how there would still be
a good profit in operating low-cost gyms in Japan. Cut out
the instructors, studios, pools, and sauna, and give users
easy access, online reservations, and machines that they
actually ask for, and you could have a winning combination.
We hope that someone in the USA or UK is reading this...

To a certain extent, some of the lower-cost operators are
already here, such as Anytime Fitness. They charge
JPY8,500/month for a 24-hour upscale location in the Ark
Mori building in Tamaike here in Tokyo. However, while they
have the no-frills part right, our feeling is that they
missed the opportunity to really revolutionize the market,
by choosing a high-cost location that has prevented them
going under the all-important JPY5,000/month psychological
barrier. In other words, they are acting like a Gap instead
of a Uniqlo. So this lower-end segment of the market is
still wide open as far as we can see. Whomever decides to
take it on will have a membership of 4m increasingly frugal
customers to choose from, and should enjoy the same
phenomenal growth rates that Pure Gym has had in the UK.

As a closing note, the cost of rent could be dealt with all
together by operating fitness groups in public facilities
and parks. This is already being done by a fitness training
company called Circuit25 in Hong Kong. The guy who started
this company in July 2010 just received some venture
investment to expand to Singapore and Los Angeles. Why not
Tokyo, we wonder...?

...The information janitors/


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+++ NEWS

- Feed-in tariff to spark new wind power investments
- Hard to keep a bad auditor down
- New Daiichi-Glaxo vaccines venture
- Goldman Sachs Japan gets a union
- Sky Tree tower is finished

-> Feed-in tariff to spark new wind power investments

After government subsidies came off the installation of
alternative power sources in Japan in 2010, many predicted
that the alternative energy boom would be stalled
indefinitely. Sure enough, it has been, with a 70% drop in
installations. However, that may all change in July when
new feed-in tariffs will pay out substantially higher rates
for generators of alternative energy than are available
today. Now Eurus Energy Holdings, the largest wind farm
operator, says that it will start actively investing again,
boosting domestic capacity 70% by 2016. (Source: TT
commentary from, Mar 3, 2012)

-> Hard to keep a bad auditor down

Interesting commentary on Bloomberg about a bad egg
auditor that keeps coming back to life again like a
whack-a-mole game. The auditor in question is Kyoto Audit,
an affiliate of PwC, which recently got slammed by the US
Public Company Accounting Oversight Board for "not
obtaining sufficient competent evidential matter to support
its opinion on the issuer’s financial statements," before
issuing audit reports for two major listed Japanese client
firms. What the Bloomberg report points out is that some of
this company's senior auditors were originally from Chuo
Aoyama, which was shut down by the FSA, then re-started
business as Misuzu, which was also shut down in 2007. The
two client companies likely to have been subject to the US
review are said to be Kyocera and Nidec. (Source: TT
commentary from, Mar 2, 2012)

-> New Daiichi-Glaxo vaccines venture

Sensing a major opportunity in changed government attitudes
about vaccination (presumably because it will lead to lower
incidents of disease), pharma firms Daiichi Sankyo and
GlaxoSmithKline have announced that they will form a joint
venture to bring new vaccines to Japan. Currently the
Japanese vaccine market is worth just 2% of the overall
JPY7trn drugs market, or around JPY140bn. The two
companies combined will account for about half of it.
(Source: TT commentary from, Mar 2, 2012)

-> Goldman Sachs Japan gets a union

In what appears to be a first for Goldman Sachs worldwide,
the Japan branch of the firm now has a union,whose members
are fighting dismissal orders from the bank. An undetermined
number of Goldman employees now belong to the union, which
was formed under the National Union of General Workers
Tokyo Nambu (NUGW). ***Ed: This topic has been hot on local
social media, and is being viewed by some as a turning
point for foreign banks in Japan and how they deal with
employee layoffs. Given that Goldman has set aside US$10bn
for employee bonuses in 2011, the company may have bitten
off more than it can chew with Japanese authorities --
providing of course that the newly unionized employees can
maintain their nerve.** (Source: TT commentary from, Feb 28, 2012)

-> Sky Tree tower is finished

Tokyo's new massive landmark, the 634m tall Sky Tree was
officially completed last week, February 29th. Work on what
is now the world's tallest free-standing tower finished
with a simple handing-over ceremony between the general
contractors Obayashi Corp and the owner Tobu, a major
railroad operator. Apparently Obayashi invented several new
technologies to speed up construction, which in any case
took under 3 1/2 years. One of these was a special crane
that uses gyroscope-like spinning of steel and other loads,
to stably raise them from the ground to the upper levels of
the tower. (Source: TT commentary from, Mar 1,

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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