Japan in the spotlight: the coronavirus threatens fashion’s third-largest consumer market

Japan, in the public eye prior to the coronavirus epidemic. The Diamond Princess cruise ship, docked in the Japanese port of Yokohama, which holds around a hundred infected individuals is the second-largest focal point of the coronavirus beyond China. As the threat of the coronavirus grows in the Japanese country, alerts are also raised about the impact that the epidemic can have on the Japanese economy, which is the third-largest consumer market for fashion, additionally, the impasse arises at the doors of the celebration of the Olympic Games.

Analysts have already advised that the country is heading towards a technical recession after it closed the fourth quarter of 2019 with a decrease in its Gross Domestic Product (GDP) of 6.3% compared to the same period of a year ago. This fall has been much more pronounced than what analysts had predicted, the prediction estimated that the Japanese economy only fell by 3.7% during the period.

For the first quarter of 2020, most experts also forecast a decline in the Japanese economy, weighed down by the outbreak of the coronavirus, which would lead the country to a technical recession (which occurs following two consecutive quarters in decline).

Japan closed the fourth quarter of 2019 with a GDP decline of 6.3%

In 2018, fashion consumption in Japan reached 66 billion dollars and the figure is expected to rise slightly to 66.03 billion dollars by 2024, according to Euromonitor data. However, these forecasts do not consider the impact of the coronavirus, on which the main operators in the country have already alerted.

At the end of January, Isetan department stores reduced their forecasts for the fiscal year, which ends on March 31, before the outbreak. The company cut its profit forecast in half, from 14 billion yen  to 7 billion yen. In addition, the group has canceled the commercial trips of agents to Europe.

Department stores and commercial areas are two that have been majorly affected by the development of the virus, especially the fall in traffic from foreign customers. “The number of customers who refrain from going to commercial places is increasing, which leads to less traffic in our stores,” an Isetan spokesperson told WWD.

Fast Retailing, Isetan or Shiseido are some of the Japanese companies that have already warned about the impact of the coronavirus on their businesses

Fast Retailing, the owner of Uniqlo, has also advised about the condition. The giant, the third-largest fashion distribution group by revenue, has closed 350 Uniqlo stores in China temporarily, in addition to 27 other stores in the Theory chain. Most of these establishments are in areas that have been restricted by the Chinese authorities before the coronavirus alert.

Shiseido, on the other hand, has also suffered the impact of the crisis. The company’s Chinese employees have returned to work after the New Year holidays, but from their homes. In parallel, the company’s factories in China are planning to restart their activity from February 24.

International trade shows in the sector that were scheduled to take place during these weeks in Japan have also been canceled. This is the case of Denimsandjeans, which should take place between March 4 and 5.

Tokyo is the third hottest city for fashion companies

Beyond being the third-largest market for fashion, Japan is one of the most attractive cities for retail. Tokyo is the third hottest city for fashion companies, according to the Hot Retail Cities 2019 ranking.

The Japanese capital has climbed five positions in the ranking, placing third in the last edition of the report. The rise of Tokyo has been driven by the development of its giant metropolitan area and the strength of its economy.

For fashion giants, Tokyo is one of the main spots in its expansion plans. Ginza is the preferred route for retailers, which is also one of the most expensive locations to open a commercial store, with 11,838 euros (107.743 dollars) per square meter per year. In addition, the city has large shopping centers such as Futakotamagawa, Rise, DiverCity or Kitte, as well as department stores such as Isetan or Parco.

Japan received 39 million tourists in 2019, the majority of them came from China

In addition to fashion, tourism is another sector that is most threatened by this situation, since it is one of the main engines of the country’s economy. Japan received around 39 million tourists in 2019, 9.6 million came from China.

In fact, Chinese tourists in Japan account for a third of tourism spending in the country. However, in the face of the new scenario, more than 60% of Chinese tourist travel reservations to Japan have been canceled. According to data from the Japan Association of Travel Agents, at least 400,000 Chinese travelers are expected to cancel their trip in March. This situation drifts away from Japan’s goal to reach forty million arrivals in 2020.

Another of the celebrations that could be affected by the coronavirus crisis is the Olympic Games, which will take place in Tokyo between the second half of July and the second half of August. As of now, the World Health Organization (WHO) has advised the International Olympic Committee (IOC) not to cancel the celebration or change its location due to the threat of the epidemic.

In fact, John Coates, president of the coordinating committee of the IOC’s sporting event, does not contemplate the transfer of the Games to another city or the implementation of a contingency plan. “There is no reason to have contingency plans or to contemplate the transfer of the Games,” Coates said in a press conference in Tokyo last Friday.