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Japan|Apparel Recession Treading in Danger Zone, Profit Interim Results Of August

Oct 15, 2018.Ichiro KumegawaTokyo, JP
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In February 2019, apparel companies readied their financial reports for mid-August have been announced. The main figures are summarized; however upon inspection is disastrous. Along with fast-fashion enterprises, Japanese company Shimamura has especially taken its toll in the lineup with foreign-owned companies H&M and ZARA. Japan’s fast fashion industry has been driven to a corner it seems. Even multi-branded SPA company Adastria Co. (former name: Point) who’d became a consolidated 200 billion yen (approx. US$ 1.7 billion*) company in the fiscal year end in February 2016 has continued a sluggish performance. LOWRYS FARM who was known for its non-woven tote bag, took the nation by storm is now but a shadow of its past and lies waiting for effective leverage measures that would bring back its former glory.

Excluding the recovering TSE listed, Baroque Japan Limited (in its July interim financial results were positive), multi-branded SPAs such as unlisted Mark Styler and Japan Imagination are lacking luster. In this field, Pal Group Holdings is the only one with positive finance settlements. For the first half of March and August, the company had the highest sales record compared to past years. The EC conversion rate was 14.7% (actual value: 6.8 billion yen, approx. US$ 60 million*), 3.1 points higher than the previous term. It’s said that the point sharing of the company EC site, physical shop, and the centralization of the data were outstanding. It’s a challenge to proceed with omni-channelization as it starts batting with brick-and-mortars around 15% of the EC rate. But it seems that Pal Group Holdings has cleared up this challenge. Furthermore, the results of flexible management in the conversion of business style and rapid withdrawal of unprofitable stores are appearing. There isn’t any further more to add for the SPA system as stated above, however the biggest hurdle to overcome are for the major apparel makers. In this field, the largest of them all is Onward Holdings who despite a slight increase in sales has a substantial decline in profits. The favorable result were sales at EC of 11.4 billion yen (approx. US$ 101 million*), which is a 31.4% increase over the previous year. The total proceeds are over 10%. It’s uncertain whether or not has affected the physical store, but the the 23 districts in Tokyo fell by 7% remaining sluggish, resulted in repercussions. A full-year report have also been revised downwards and from here on would be interesting to see how much can be recovered in the second half.

Meanwhile, TSI Holdings recorded an operating loss and final deficit (362 million yen, approx. US$ 3.2 million* in net loss) in the first half of August. Results were foreshadowed, but regardless is now in an emergency state. About 300 million yen (approx. US$ 2.7 million*) for withdrawal from 2 business (Web International, Ann Global Shop) and about 130 million yen (US$ 1.2 million*)  for amortization in goodwill of US skater brand "HUF" acquired last year are the main cause of operating loss. Nonetheless, there is no doubt that overall sales slump is the cause of these operating losses. In any case, HUF and Ueno Shokai which was acquired in October, has contributed to the performance in the second half. Most of the representative companies mentioned above have shown severe results and it is supposed to realize again that the current apparel recession has reached a dangerous level.

*1 CNY = 0.144547 USD (as of Oct. 15, 2018)