The following research report contains market research, analysis, statistics and business intelligence relating to research on Men's Casual Fashion In Japan.

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ABSTRACT
The Japanese apparel market is the world's second largest after the U.S. with an estimated wholesale size of $27 billion in 2002. Because of the overall soft economy , the market has shrunk for the last several years, but has recently started to show good signs of recovery. After a boom of mass-produced, inexpensive basic casual wear, consumers are looking for value-added and unique products. This is a good sign for U.S.-made fashion because the "Made in the U.S.A." label maintains consumer value. Casual wear chains and department stores have seen increased sales. So-called "select shops" have also been doing well. These specialty shops have clear store concepts and sell products that match the images the stores are attempting to project. They often sell imported apparel from the U.S. and European countries.

The Japanese market is very competitive, sophisticated and oversupplied: consumers demand very high quality products. A continuous effort to improve the quality of products is very important for U.S. apparel suppliers.

This report focuses on young men's street/casual fashion. The 2002 fall/winter fashion trends in Japan include: retro athletic, military/work and western wear. Military-styled outerwear, premium or processed jeans are also expected to sell well. Corduroy is the most promising material for the season. Fashion trends are worldwide. We hope that U.S. companies use this report to examine the similarities and differences between the two markets.

To be competitive in the market, excellent design and quality manufacturing are essential. Price is an important factor too, but if manufacturers can successfully demonstrate their attention to details - KODAWARI to Japanese customers, cost becomes less of an issue.

Japan is basically open to imported apparel, with China a dominant apparel supplier to Japan. However, most imports are ordered by Japanese manufacturers/wholesalers/retailers or by American or European companies. Apparel imports from the U.S. have seen significant decreases over the past five years. This may be due to U.S. manufacturers' strategies to shift their production bases to China and other Asian countries.
Distribution channels within the apparel market are tending to converge, less layers mean lower costs and faster to market times. This report discusses three ways to enter the Japanese market, including the pros and cons of each method, as well as comments by both Japanese and U.S. companies. We believe that presenting actual products to Japanese buyers is the best way to enter the market. CS Japan provides U.S. street/casual clothing suppliers with an excellent opportunity to promote their products to thousands of buyers throughout Japan. The U.S. Apparel Show, organized by the Office of Textiles and Apparel of the U.S. Department of Commerce and the Commercial Service Osaka, has been held for the last 21 years. It is recognized by Japanese buyers as the only opportunity to see the latest American street/casual fashion before MAGIC. At the 2002 show, the U.S. Apparel Show exhibitors had floor sales of $2.5 million in three days. A.MARKET HIGHLIGHTS & BEST PROSPECTS:

1. Market Profile

The Japanese apparel market is the world's second largest market after the U.S. The wholesale market is estimated at Yen 3,567 billion in 2002. Influenced by the overall soft economy in Japan, the apparel market has shrunk for the last several years, however, sales at leading retailers, including department stores and specialty shops are picking up. For the last several years, Japan experienced its UNIQLO boom. UNIQLO is a casual wear chain store where they sell reasonably-priced, basic casual wear such as fleece pullovers, pants, jeans, shirts and T-shirts. Other retailers were severely damaged by the UNIQLO boom. However, the market became saturated with such basic casual wear, and sales at UNIQLO started decreasing from the summer of 2001. As UNIQLO sales continue to decline, other retailers that sell value-added apparel have started to increase their revenues. The September 4th edition of the Senken Shinbun, a leading apparel industry newspaper, reported that the five exchange listed casual fashion chain stores revised their expected sales and profits upward. They say that Japanese consumers are getting tired of basic items and looking for something new and different from different sources. This is a very good sign for the U.S. apparel suppliers. Authentic "Made-in-the U.S.A."itself has great value and appeal to Japanese consumers.

Not only leading chain stores, but also, "select shops" are doing well these days. Select shops are specialty shops focusing on a clear consumer concept. Their buyers choose products that fit the store's concept, offering higher-end products than UNIQLO, including many from the U.S. and European countries. Major select shops include Beams, Ships, United Arrows, Journal Standards, and 44. Even leading manufacturers establish select shops. These "select shops" can be good customers for U.S.A.-made fashion.

U.S. fashion, especially casual fashion, is very popular among Japanese consumers. Unfortunately it is valid that Japanese consumers have a preconception that American products are rather low in quality. However, the American lifestyle has created a strong influence on Japanese youth. American sports, music, movies and other culture as well as some fashion trends are admired by Japanese.

The Japan Textiles Importer's Association (JTIA) covered the Japanese market in their report "The Japanese Apparel Market in Imports." Some interesting points are:

It is a highly sophisticated consumer's market, full of information and requires small-lot and short cycle supply delivery.
Consumption is very diversified.
The market is constantly oversupplied, and is flooded with more than enough merchandise.
It is a severely competitive market.
Consumers demand extremely high quality.
Consignment sales to retailers, which is a traditional business practice in Japan, is still carried on in some sectors.
The SPA (Specialty store retailer of Private label Apparel) type of companies are on the increase.

This is a good snapshot of the Japanese market. It may sound extremely difficult to enter the market for foreign apparel suppliers, but there are foreign companies recording great successes in Japan, including many from the U.S.
As said, Japanese consumers are very picky. They tend to think products are inferior goods if a single loose thread or a tiny scratch is discovered. So, providing high quality products are important. Also, Japanese people are, in general, smaller and shorter than American people. Adjusting sizes will be a big plus to show the strong commitment of American suppliers.

2. Statistical Data:

Table 1 (a & b) shows the estimated size of the Japanese wholesale market. Based on the estimate that retail prices of imported goods will be three times the C.I.F. prices, and that domestic products will be two times base wholesale prices, the Japanese apparel retail market is estimated at Yen 9,023.3 billion or $69.4 billion in 2002. It is said that approximately 55% of the market is made op of women's wear; approximately 32% is men's wear and approximately 12% is children's wear.
Table 1 (a): Total Japanese Apparel Market: (Unit: yen million)
2001 2002 2003 Projected Average Annual Growth Rate for Following 2 years Total market 3,920,575 3,567,243 3,272,767 -6.5%
Local Production 1,958,340 1,709,912 1,504,723 - 10%
Exports 26,272 31,526 37,831 15%
Import Market 1,988,271 1,888,857 1,794,414 -5%
Imports from U.S. 35,316 31,000 26,350 -15%

Source: "Japan Exports & Imports Commodity by Country" published by Japan Tariff Association
"Industrial Statistics 2000" by Ministry of Economy, Trade and Industry
Note: This is an unofficial estimate.

Table 1 (b): Total Japanese Apparel Market (Unit: $ million)
2001 2002 2003
Total market 32,135.9 27,440.3 25,175.1
Local Production 16,052.0 13,153.2 11,574.8
Exports 215.3 242.5 291.0
Import Market 16,297.3 14,529.7 13,803.2
Imports from U.S. 331.0 238.5 202.7
Exchange Rates 122 130 130

- Estimated Future Inflation Rate: -0.6%

- Import Market Share in 2001:
U.S.: 1.8%; China: 80.0%; Italy: 4.5%; Korea: 2.8% and Vietnam: 2.7%
3. Best Prospects:

Potential products for the market: Men's street/casual wear for young buyers:

Following are expected 2002 fall/winter fashion trends for the young men's market.
Items:
- Outerwear, including military jackets and coats, coverall
- T-shirts and sweat shirts
- Pants, including processed and premium jeans and work/military pants
- Shirts, including polo shirts and CPO

Theme:
- Retro athletic
- Military/work
- Western
- Entertainment, including music and sports
- Extreme sports and outdoor sports

Materials/patterns
- Corduroy
- Plaids
- Hickory
- Low gauged for knits
- Washed or damaged finish
- New materials for classic items

Although there were no prominent trends in the 2002 spring/summer seasons, retro athletic was probably the most popular theme among Japanese youth in their late teens to early 20's. For example, simple plain polo shirts with a small logo embroidered on the chest sold well. Designs from 1970's and 1980's but with a tighter fit. Brands from 1970's and 1980's came back to the market. Fred Perry apparel is a good example. Not only apparel, nostalgic sneakers sold very well; white athletic-brand sneakers were the biggest hit item in the 2002 spring/summer season. This trend is expected to continue in fall and winter.

Premium Jeans:
Premium or processed jeans have been selling very well to both men and women. Jeans designed to look good (thinner, longer legs, smaller hips, etc.) are very popular, especially among young women. These jeans are often more than $100 per pair and are called premium jeans. Washed, damaged or painted finishes are almost "must-have" processes for jeans. In fact, used jeans sell well too.

Military/Work:
Military and work have been popular among Japanese young men. Regarding styles, MA-1 is expected to be popular again. L-2B, M-65 and CPO jackets are often seen in fashion magazines. Cargo pants are getting popular among girls. New to this trend is that a little bit of elegance have been added. Use of melton wool or tweed, used instead of traditional nylon, for N3B jackets is a one good example. Some manufacturers introduce N3B styled jackets in plaids or in bright colors.

Western:
Western is another expected trend for this coming fall/winter season. Western shirts and boots are expected to sell well to add some taste of Western.
Corduroy:
Corduroy is the most promising material for the upcoming season. Jackets and pants made of corduroy are expected to sell well. Men's fashion magazines feature pants made of hickory as a trendy item for the season.
Fashion trends change over time, and are very difficult to predict. However, mainstreams fashion trends are worldwide in scope. We hope the U.S. companies examine the Japanese trends and compare them to the U.S. trends, and that the examination will help U.S. companies to about the similarity and the differences between the two markets.

The products discussed in this report are categorized under the following HS (Harmonized System) codes:

61.01 61.03 61.05 61.09 61.10 62.01 62.03 62.05 61.07 62.10
B. COMPETITIVE SITUATION:

Design and quality of products are very important in the market, with price taking a backseat to these factors in a successful marketing strategy. That said, Japanese consumers still appreciate added value. They do not mind paying extra for the products they really like. That is one of the reason that the world's super brands, such as Louis Vuitton, Chanel, Gucci and others, are doing extremely well even in the weak economy.

Manufacturing retailers, so-called SPA (Specialty store retailer of Private label Apparel), are seeing good results. As in the U.S., these companies have computer systems that track retail trends in a timely manner. For those U.S. companies without direct retail shops, it is important to come and visit their customers in Japan and let them handle samples and gather feedback. This helps explain the market demands and builds good working relationships. Since Japanese buyers want to see and touch the actual products, presenting products directly to buyers remains important.

1. Domestic Production:
As overseas production becomes more popular, the number of apparel manufacturers has dramatically decreased. Since domestic small-to-medium sized manufacturers (or jobbers) cannot compete against China in terms of cost, they try to improve their technique and add value to products. Or, make every effort to shorten production time to meet the market demands.

Table 2 shows the differences between the years 1990 and 2000 in the number of domestic manufacturers and their employees, the amounts of salaries paid, shipments and value added. Even though there was an extremely large drop in domestic production, it does not indicate that Japanese companies have lost competitiveness. Larger manufacturers are trying to create better profits by shifting production bases. They know the market and are in a better position to assess consumer demand than U.S. companies. Japanese companies are the main competitors of U.S. suppliers.

Tables 4 and 5 list the leading trading houses in Japan. Especially, Table 5 is a list of leading trading houses that import apparel/textile products. These apparel imports include inexpensive products from Asian countries, but also include high-end products from the U.S. and European countries. In general, large trading houses do not want to handle small business, but they could be a very good partner for quality U.S. apparel manufacturers.
Table 2: Domestic Apparel Industries - more than four employees:
1990 2000 %
No. of enterprises 29,239 15,759 -46.1%
No. of employees 588,777 282,537 -52.0%
Salaries paid (unit: yen million) 1,170,691 605,203 -45.9%
Shipment (unit: yen million) 4,318,477 2,149,090 -50.2%
Value-added amount (unit: yen million) 2,089,122 1,078,096 -48.4%
Source: "Industrial Statistics" by Ministry of Economy, Trade and Industry

Table 3: Leading Men's wear manufacturers/wholesalers in fiscal year 2000: (Unit: yen million)
Company Sales (Men's) % of Total Sales Brands
Onward Kashiyama 62,395 38.7% ICB Men, Gotairiku, Jean Paul Gaultier, Gaultier Homme Object, J. Press, Minoya 40,320 100% U.P renoma
Sanyo Shokai 37,000 30.7% Sanyo, EZ by Zegna, Burberry, Paul Stuart, Durban 36,055 100% A.A.R, Ixi:z, Intermezzo, Kent & Curwen
Five Fox 33,386 23.1% Comme Ca Du Mode, Comme ca Comme ca Commeca, World 28,749 14.9% adabat, Takeo Kikuchi, Boycott
* Source: "Senken Shinbun" July 30, 2001
"Fashion Brand Guide 2001" Senken Shinbun
*Note: Sales figures are for fiscal year 2000. Beginning of a fiscal year varies, but often starts in April in Japan.
Table 4: Leading Apparel Trading Houses: (Unit: yen billion)
Company Bane Sales
(Textile/apparel) Brands
C. Ito 723.9 J. Crew, Nautica, Airwalk, Converse
Marubeni Corp. 465.1 OshKosh, NFL
Sumitomo Corp. 408.8 MLB
Mitsubishi Corp. 356.7 Mark Jacobs
Mitsui & Co. 346.9 Paul Stewart
Tomen 334.4 O'neil, Unionbay
Chori 209.9 Kenzo Paris, Miss Sixty, Zanolini
N.I. Teijin Shoji 199.4 Diesel, LA City, marie clair
Sumikin Bussan 169.6 Top Flite, Popeye, Bugle Boy, Pacific Trail, Soul Train, Fox
*Source: "Senken Shinbun" July 24, 2002
"Fashion Brand Guide 2002" Senken Shinbun
* Note: Sales figures are for the fiscalyear 2001. Table 5: Leading trading houses based on sales of imported apparel/textile products in 2001:
(Unit: Yen million)
Company Name Sales of Imported Goods vs. 2000 Component Ratio in total textile/apparel sales
1. C. Ito 2,058 1.1% 28.4%
2. Mitsubishi Corp. 1,742 21.9% 49.0%
3. Marubeni Corp. 1,094 2.2% 49.0%
4. Nichimen Corp. 946 25.3% 79.0%
5. Sumikin Bussan 898 - 3.2% 53.0%
6. Sumitomo Corp. 891 - 4.2% 21.8%
7. Mitsui & Co. 891 13.6% 26.0%
8. Toyoshima 880 6.7% 54.0%
9. Tomen Corp. 682 - 3.9% 20.4%
10. N.I. Teijin 553 284% 28.0%

2. 3rd-Country Imports:
Japan is open to apparel imports. The ratio of imported apparel is approximately 53.0% wholesale and approximately 62.8% retail. Apparel imports from China are dominate with an 80% share. However these imports are products ordered by Japanese companies, as well as American and European companies. China has been the dominant source of apparel production - - but the trend is changing. As labor costs in China get higher, Japanese apparel manufacturers are shifting their production to other ASEAN countries, such as Vietnam, Thailand and Indonesia. Imports from these countries are still small, but are increasing.

Although the categories for targeted customers are different from the subject of this report, increase in apparel imports from Italy is noteworthy. Apparel imports from Italy have decreased since 1997, but in 2001 import numbers increased by 13%. Italy is now the second largest apparel exporter to Japan with a import market share of 4.9%. This shows that Japanese people are buying value-added products. As further evidence, apparel imports from France also increased in 2001 by 12.7%, compared to the amount in 2000.
As discussed above, Japanese consumers are weary of mass-produced basic goods and are looking for unique items. This trend is expected to improve with new imports of value-added apparel from the U.S. and European countries. Table 6: Japanese Apparel Imports by country (Unit: Quantity: ton, Amount: Yen million)
1994 1996 1998 2000 2001
Quantity 410,303 509,375 494,846 819,440 861,847
China Amount 816,624 1,241,815 1,226,764 1,542,901 1,226,764
Quantity 7,795 10,271 5,990 5,054 5,248
Italy Amount 117,252 182,898 145,046 95,730 108,219
Quantity 74,893 53,489 43,776 40,912 35,499
Korea Amount 180,831 140,179 113,988 90,856 73,855
Quantity 12,531 21,276 18,029 24,653 23,000
Vietnam Amount 26,342 53,073 56,118 63,550 64,870
Quantity 25,300 24,212 11,713 10,494 7,208
United States Amount 88,037 109,983 63,297 47,985 40,386
Quantity 13,490 15,421 12,804 13,388 13,110
Thailand Amount 40,716 51,867 39,944 30,091 30,561
Quantity 1,478 2,097 1,837 1,533 1,395
France Amount 26,853 41,912 40,539 24,623 27,741
Quantity 599,941 698,511 634,024 961,685 991,132
Worldwide Amount 1,471,454 2,055,146 1,863,748 2,034,563 2,218,852
* Source: "Japan Exports & Imports Commodity by Country" published by Japan Tariff Association
"The Japanese Apparel Market and Imports 2002" by Japan Textile Importers Association

* Note: These numbers include the imports of woven and knitted clothing as well as other accessories, such as socks, stockings, gloves, foundations, handkerchiefs, scarves, neckties and etc.

3. U.S. Market Position
Apparel imports from the U.S. have been decreasing since 1997, and 2001 imports was Yen 35,317 million or approximately $294.3 million, almost one third of the amount in 1996.
One notable reason for the decrease is offshore production by U.S. apparel suppliers. Such products are shipped directly to Japan from their production bases in Asia to save transportation cost. So the decrease does not necessarily mean that American brands do not sell in Japan. Although it is an excellent business strategy for U.S. manufacturers to shift to overseas production, we would like to note that the "Made-in-the U.S.A." label itself has great value to many Japanese consumers. It is said that the Japanese market has two extremes: inexpensive and high-end. People don't want to spend money on basic products, but are willing to pay extra for value-added products and services. Even under the current recession, Japanese consumers spend money on products that they think are worth the price. Offshore apparel is usually inexpensive but basic and simple products, and domestic products and imported products from Europe and the U.S. are rather high-end or value-added products. To compete among the lower priced offshore and high-end products U.S. suppliers need to emphasize their value-added product features, such as materials, techniques, designs in details, etc.
Another reason for a decrease may be that Japanese unique characteristic: when a boom starts, everybody rushes in to buy the product. Even if other products have similar design or better quality, people want the particular product that started the fad. Although there were no prominent booms this past spring/summer season, we've seen UNIQLO, Roxy, and leopard-pattern booms during the last several years.
Japanese apparel imports from China and other Asian countries will increase or maintain their current levels. Domestic production is expected to continue decreasing. Imports of apparel from the U.S. may also decrease slightly or stay at the current level for the next several years.
Popular U.S. street/casual/athletic wear brands in Japan:
- Polo Ralph Lauren
- Stussy
- X-Girl
- GAP
- Nike
- Levis
C. END USER ANALYSIS:

The targeted end users of referred to in this report are young men in their late teens to 20's, especially those who are keen to fashion trends and who like sports, music, and lifestyles from the U.S.

"KODAWARI": "Kodawari" means pride (or attention) to detail, such as material, design, stitching, buttons, zippers, pocket shapes, etc. "Kodawari" is one of the key words for attracting customers when they decide to buy a product. They don't care about details when they buy inexpensive goods, but they appreciate a good story behind the product when they buy something value-added. As discussed, Japan experienced the "UNIQLO" boom since 1998, which was a fad of inexpensive and basic casual wear. Now, consumers are looking for unique products. According to an industry expert, there were no prominent fashion trends this spring/summer season among the young generation. It may mean that they wanted to be a little different from others. In general, Japanese people don't like to stand out - when a boom happens, people want to have the same thing. It is probably too early to say that this characteristic has changed. However, after the UNIQLO boom, people are tired of basic and looking for something new. "Kodawari" can make the difference. For products with "kodawari" appeal, sales clerks can explain the stories and the manufacturer's attention to detail when they deal with customers. This is why "select shops" are doing well, as they select products which meet their store's concept and "kodawari."

Celebrities have influence:
While not as much influence on the young women's market, fashion of celebrities can really influence consumers' fashion trends. Musicians, actors and professional athletes also have an impact on consumer buying preferences. Since the Japan hosted FIFA World Cup, many boys imitated the hair style of a famous English soccer player this past summer.

Difference in physique: Japanese people are in generally smaller and shorter than Americans. Below are average sizes of height, chest, waist, hip and weight of Japanese males by age group. American size "medium" is probably Japanese size "large." So, Japanese buyers tend to place more small or medium sizes than size large.
Table 7: Average height of Japanese males by age group
18-19 20's 30's
cm feet/inch/lb cm feet/inch/lb cm feet/inch/lb
Height 169.9 5'7" 170.6 5'7" 169.3 5'7"
Chest 91.4 36.0 93.1 36.7 94.4 37.1
Waist 73.1 28.8 76.0 29.2 801 31.5
Hips 93.9 37.0 95.2 37.5 92.3 37.5
Weight 63.6 140.2 65.4 144.2 66.7 147.0
*Source: Research Institute of Human Engineering for Quality Life

D. MARKET ACCESS:

1. Import Climate:
Japan is open to imported apparel from the U.S., unless products contain leather or fur that are restricted by the Foreign Exchange and Foreign Trade Law under terms of Washington Convention. Also, products which infringe trademarks, design rights and other intellectual property, cannot be imported to Japan. However, apparel is one of a few sectors where the U.S. enjoys a large trade surplus with Japan. In this section, we will mainly discuss labeling requirement and the Japanese sizing systems.

a) Regulations: Labeling: Importers in Japan must show certain information on a label, under the Labeling of Household Articles' Quality Law. Details vary from product to product and includes:

- Types of fabric and textile yarn content, with percentages for linings, thread, materials, etc.
- Care and washing instructions
- Metric measurements
- Name of manufacturer/supplier or officially registered number with the Ministry of Economy, Trade and Industry (METI)

Importers (who sell in Japan) are responsible for labeling. In general, Japanese importers send foreign suppliers care labels in the Japanese language, and the suppliers attach them to products. Or, Japanese importers will do so in Japan.

For exact labeling requirements, please contact the METI office below.

Textile and Apparel Products Div., Manufacturing Industries Bureau, Ministry of Economy, Trade and Industry
1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100
Tel: 011-81-3-3501-1511 Fax: 011-81-3-3501-0316
b) Size Standards: JIS Sizing Systems:
JIS (Japanese Industrial Standards) for ready-made men's garments serve as a guideline to the standardized sizing system for ready-made men's apparel. In most cases, Japanese apparel manufacturers follow the JIS. There are three kinds of sizes: the physique classification sizes used mainly for business suits, the singular number sizes used mainly for loose-fit jackets and pants, and the range sizes used mainly for rather loose-fitted shirts and sweaters.
The range sizes changed from "S, M, L, LL, etc." to "SA, SB, MA, MB, LA, etc." to meet various body types. Although the revised sizes became effective in 1996, the old marks, such as sizes "S, M, L" are still common in the market. Table 8: For A-Type Range Size: (Unit: centimeters)
SA (S) MA (M) LA (L)
Height 155-165 165-175 175-185
Chest 80-88 88-96 96-104
* Note: A-Type body means the difference between the size of chest and the size of waist is 12 centimeters, and is considered as a standard body type.

Complete information about the Japanese sizing system is available from the Japanese Standards Association (JAS). They also publish the men's clothing sizing information in English. Interested U.S. companies can purchase a copy from their website. CS Osaka suggests that apparel suppliers who want to enter the Japanese market refer to this sizing information as one of their sales strategies to readily meet the requirements of Japanese buyers. Usually, sleeves in American sizes are too long for Japanese.
Japanese Standards Association 4-1-24 Akasaka, Minato-ku, Tokyo
Fax: 011-81-3-3583-0462
Web site: http://www.jsa.or.jp c) Custom Duties and Consumption Tax:
A duty of approximately 9-16.8% will be applied to CIF costs. A 5% consumption tax will be added to the price after customs duties. For exact custom duties applied to specific products, please contact the Japanese Customs office.
Japanese Customs Agency website: www.mof.go.jp/english/tariff/tariff.htm
2. Distribution/Business Practices:

a) Distribution Channels:
It has been said that Japanese distribution channels are complicated. Importers used to sell goods to wholesalers, but these days they often sell directly to retailers, as do some manufacturers.Sometimes, importers and manufacturers establish retail shops. Consignment sales still exist at department stores and other mass merchandise stores. However to reduce costs, such large-scale retailers are changing some of their buying habits. Chain stores and large-sized retailers often purchase from manufacturers and importers, sometimes directly from foreign suppliers through a trading company. Small mom-and-pop stores usually do not buy directly from manufacturers, but from wholesalers. There are cash & carry wholesalers for these small shops, where mainly inexpensive products are sold.

b) Pricing Structure:
The pricing structure in Japan varies according to the type of distribution channel and service that an importer or wholesalers may provide (e.g. inventory, marketing, packaging, financing, acceptance of unsold/returned goods, etc) It is important for U.S. companies to pay attention when quoting prices to potential agents or distributors - to confirm where the Japanese company fits in the distribution channel. Some discounters directly import goods from foreign suppliers. However, if goods are sold at too much of a discount, it might hurt the image of the brand. One example of pricing structure follows:
Table 9: Example of pricing structures
FOB Price: 100
Shipping/Insurance 20% 120
Duty 15% 138
Consumption Tax 5% 145
Importer's Commission & Cost 30% 188
Retailer's profit - Consumer 60% 300

c) How to Enter the market:
Here are three common methods of entering the Japanese market.

1) Direct Export:
Direct export is the easiest and most common strategy for new-to-market companies. Many U.S. companies want to have an agent or a distributor for their products in Japan from the beginning. However, this will not be easy because the market is still soft and Japanese companies want to avoid the hefty minimum requirements set by foreign manufacturers. CS Osaka would like to note that Japanese companies usually do not want to represent a foreign apparel manufacturer unless company has a full line of products, from tops to bottom and probably some accessories. Typically they want many kinds of products to fill a corner or a shelf at their retail shops.
U.S. suppliers that do not have a full line,may want to start with small orders. Retailers are often more active in finding new sources than wholesalers - - by visiting trade shows overseas and exploring the internet. You may set a very small minimum requirement and prepare several FOB prices based on the volume of an order, looking at future opportunities of having a wholesaler/importer as an agent. Usually, wholesalers do not like the items that have already been sold directly to retailers.
2) Establishing presence in Japan:
If the U.S. company has a strong financial history, it may consider establishing a subsidiary or a joint-venture company in Japan. While this is a costly option, the subsidiary can monitor and control inventory, management, pricing, marketing, distribution, brand image, intellectual property and fashion trends.

3) Licensing Program:
A U.S. company might wish to consider licensing its brands. Licensing is the least costly market entry alternative and offers the ability to adjust design, prices, and production quickly to suit the market and consumer tastes, including manufacturing the products in the correct sizes for the Japanese market. The number of licensing agreements between U.S. and Japanese companies has been increasing. However, without control of the brand, licensing may result in damage to the brand image, (IE., if licensees sell to discounters or go bankrupt). By licensing out, a U.S. company also loses one of the strongest appeals of American fashion --its "Made-in-the-USA" authenticity. Also, because many of the world's top brands changed their marketing strategies and canceled licensing agreements with Japanese companies, Japanese licensees suffered significant sales. So, Japanese companies are nervous about this program. Recent examples include trading houses that buy the ownership of a brand, or they seek a long term (20-30 years) agreement.

Japanese companies sometimes want both imported goods and a licensing agreement. Industry experts say that it's not easy for Japanese importers to make enough profit by selling only imported goods. Importers always have to take risks in case goods don't sell. In addition, if the goods sell very well, the importer has to deal with parallel imports. So, to protect and improve their profit, Japanese importers import some products from the States to offer real American taste to customers, and produce most items under a licensing agreement to meet further market demands and to make more profit.
For successful licensing agreement, concepts, design, products and reputation in the U.S. market are important.

d) Things to keep in mind:
Based on interviews with industry experts, the following are some suggestions to serious U.S. apparel suppliers. Japanese companies are looking for new suppliers, domestic or overseas, who respect long-lasting and beneficial business relationships.
1) Complaints/comments from Japanese companies:
- Wrong colors, wrong sizes, incorrect quantities:
Japanese companies complain most often that foreign suppliers ship the wrong products without notice. They find products in wrong colors, differing sizes, and shorted quantities. Importers place orders to foreign manufacturers based on orders received from retailers. If the importer cannot deliver the goods as ordered by their customers, customers will lose trust in the importer.

- Quality:
Japanese end-users are probably the strictest customers in the world. They may find tiny rips, sewing mistakes, etc, that other customers may not care about. Japanese customers will not buy such low-quality products if they find any mistakes at a store. If they discover them after their purchase, they typically ask for exchange or a refund and will never buy the brand again.

- Late Delivery:
In Japan, retailers start selling spring items in early February and start bargain sales in early July for the summer season. They sell fall/winter items from late July to early August and start bargain sales in early January. Therefore, late delivery means that importers lose sales opportunity and cannot sell the products.

- Built based on shrinkage:
Because dryers are commonplace in the U.S., clothing items are usually produced slightly bigger to allow for shrinkage. This does not apply to the Japanese market where most families air dry on an outside clothes line.

2) Complaints from U.S. suppliers:
- Huge orders on one specific style in a year, but no order the next year:
Some U.S. suppliers complain that many Japanese importers purchase the same specific styles one year when the styles are very popular in Japan. However, the next year, if the trend dies, nobody wants to buy the styles. For example, an American surfing brand was extremely popular among Japanese girls in 1998. So, everybody imported T-shirts and other items of the brand in 1998. In 1999, the boom was gone. No one wanted them. U.S. suppliers complain that such buying practices make it difficult for them to plan proper production.
e) Comments by CS Osaka: Exporting itself is not difficult. Japan is open to apparel imports as U.S. suppliers do not need a license to export. U.S. export prices are usually FOB at their warehouse/factory. So, in general, importers take care of transportation to a port in the U.S. and to Japan and clearing Japanese customs. If you are sending a small order to a Japanese retailer, you can use regular U.S. Mail or a courier service like FedEx, UPS or DHL. Your local U.S. Export Assistance Center or freight forwarder should be able to help you with filling out the forms. Also keep in mind that to build good business relationships, a U.S. company may need to come to Japan regularlyand must ship orders as promised.
3. Financing:

Japanese commercial banks provide financing to importers based on the financial situation and credit standing of each company. Payment to the U.S. supplier is, in general, made by irrevocable L/C (Letter of Credit) or wire transfer. The U.S. exporter receives payment from the transacting bank after the shipment is completed. For small quantity sample orders, payment by cash remittance through a bank transfer is usually preferred.

For domestic transactions, importers normally issue bills to the wholesaler at the end of each month, and a couple of weeks later receive a kind of promissory note called a "tegata" with a 30-90 day term. Wholesalers pay with a 90-120 day "tegata." Wholesalers, in some cases if necessary, provide retailers with further financial support. However, due to the current economy, more companies prefer cash payments rather than a promissory note. Factoring is not common in Japan.
4. Trade Promotion Opportunities:

CS Osaka believes that displaying actual products to buyers is the best way to enter the market. There is only one international apparel trade show in Japan, the International Fashion Fair. The show features everything from children's wear to women's and men's wear, and is held twice a year in January and in July. The U.S. Department of Commerce and the Commercial Service Japan organize the U.S. Apparel Show at the International Fashion Fair in January, featuring American casual fashion. This show has been held for the last 21 years, and is recognized by Japanese buyers as the only opportunity to see the latest American street/casual fashion before MAGIC. At the 2002 show, the U.S. Apparel Show exhibitors sold $2.5 million in three days.
U.S. Apparel Show 2003 at International Fashion Fair
January 15-17, 2003
at Pacifico Yokohama, Yokohama, Japan
Contact: Ms. Monica Montavon
Office of Textiles and Apparel U.S. Department of Commerce
Phone: 202-482-2257 Fax: 202-482-2331
email: monica_montavon@ita.doc.gov

International Fashion Fair (IFF)
Organizer: Senken Shimbun
31-4 Hakozaki-cho, Nihonbashi, Chuo-ku, Tokyo 103-0015
Phone: 81-3-3664-2341 Fax: 81-3-3639-8031
http://www.senken.co.jp

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

$3500 USD
For the 2008 Edition

Published: 2006 August
Market: Mens Womens Childrens
Region: Japan
Industry: Apparel
Pages: 45
Delivery: 7-12 Business Days
SKU: infre0000274